Malaysian MNOs execute share subscription agreements with DNB as part of transition to Dual Network model for 5G

By Karamjit Singh December 5, 2023

Each of the 5 telcos will take a 14% and inject US$50m into DNB
Key questions still remain in the air especially with regard to 2nd 5G network

Minister of Communications and Digital, Fahmi Fadzil (5th from left) with various executives including the telco CEOs Idham Nawawi of CelcomDigi (left), Goh Seow Eng of Maxis (3rd from right), Amar Huzaimi Md Deris, of TM (2nd from right) and Wing K Lee (right) of YES (the 5G operator under YTL Power International). Wong Heang Tuck of U Mobile was traveling and did not attend the signing.

Five Malaysian Mobile Network Operators (MNOs) – CelcomDigi Bad (CelcomDigi) through Infranation Sdn Bhd, Maxis Broadband Sdn Bhd (Maxis), U Mobile Sdn Bhd (U Mobile), Telekom Malaysia Bhd (TM) and YTL Power International Bhd (YTL) have, on Dec 1, executed share subscription agreements (SSAs) to take up equity stakes in Digital Nasional Bhd (DNB) which is tasked by the Malaysian government to expeditiously roll out a supply-driven 5G network nationwide. An event commemorating the SSAs signing was held at TRX Exchange 106 in Kuala Lumpur on 1 Dec with the Minister of Communications & Digital, Fahmi Fadzil, in attendance.

The SSAs give effect to the MNOs’ collective subscription of 70% equity or 14% each in DNB with the Government, through the Minister of Finance (Incorporated) (MOF Inc), retaining the remaining 30% and holding a Special Golden Share.

The SSA is subject to satisfactory due diligence by the telcos that is expected to be completed between Feb to April 2024. No details were provided on the rights provided by the government’s Golden Share, nor on the composition of DNB’s Board.

The signing of the SSAs will see each MNO injecting approximately US$50.08 million (RM233 million), which will be utilised to meet DNB’s funding requirements. In 2021 the MOF had injected US$107.13 million (RM500 million) into DNB as startup capital for it to hit the ground running.

According to DNB, the execution of the SSAs by the MNOs marked a significant achievement by the Task Force for the Implementation of 5G Dual Network in Malaysia, whose members comprise representatives from the Ministry of Finance, the Ministry of Communications and Digital, the Malaysian Communications and Multimedia Commission (MCMC), DNB as well as the MNOs. The 5G Task Force was established by the Government on 9 May 2023 with the objective to ensure the smooth transition from the Single Wholesale Network (SWN) model to the Dual Network (DN) model.

The CEOs of the five MNOs issued supportive statements on signing the SSA.

Idham Nawawi, CEO of CelcomDigi said, “The shift to an industry-led model will be instrumental in achieving a successful roll-out in Malaysia by leveraging the collective assets and resources from the telco industry, and in building a solid platform for future technology evolution and service innovation. CelcomDigi is pleased to partner with the Government and the industry in building 5G for the future and for all Malaysians.”

Meanwhile Goh Seow Eng, CEO of Maxis said that it supports the Government’s digital ambitions “to bring more economic benefits to Malaysians, including a seamless transition to a dual 5G network.”

Amar Huzaimi Md Deris, Group CEO of TM said, “The signing of Share Subscription Agreement marks another key milestone in our commitment to support the Government’s digital agenda, advancing the nation's digital economy and fostering growth leveraging on 5G.''

Wong Heang Tuck, CEO, U Mobile said that it shared the Government’s vision of leveraging 5G to narrow the digital divide and spur a more robust digital economy nation. “The signing of the Share Subscription Agreement with DNB is another step forward to those ambitions and towards the country’s transition to a resilient dual 5G network.”

Taking note that the signing of the SSA is a first step in the proposals to transition to a dual wholesale network environment, Yeoh Seok Hong, Managing Director of YTL Power International said, “We look forward to guidance from MCMC and the Ministry as parties work on the detailed business plan for the second network to ensure that this model will deliver equitable and inclusive 5G services.”

Despite the signing, industry observers say that a key question still hangs in the air. Asked during the press conference on what will happen to the SSA when some of the MNOs take up stakes in the second 5G network to be built, Fahmi said the question should be directed to the MNOs and the MCMC.

Meanwhile in an analysis of the SSA agreement on 4^th Dec, KL-based brokerage research house Kenanga Research maintained its Overweight rating on the telco sector based on its optimism that the strong cashflow and dividends capacity of the telcos would not be affected.

The research house explained that it was neutral on the SSA development given that the final outcome on the mechanics of the 5G DN is not revealed yet. “Furthermore, the impact on gearing is marginal for the telco players given their large EBITDA base. Hence, this implies that their cashflow prowess and capacity to pay dividends remain intact at this juncture,” it said, adding that it was cautiously optimistic, pending further details and clarity.

Kenanga Research also highlighted that, subject to fulfillment of conditions precedent, including satisfactory due diligence findings on DNB and the achievement of 80% 5G rollout to populated areas, the telcos are required to acquire MoF’s remaining 30% stake in DNB for at least RM190 million each. This exercise is targeted for completion by the first quarter of 2024.

As of end-October 2023, DNB had built out its 5G network to cover 73% of populated areas in the country, with 3.6 million 5G service subscriptions, representing an adoption rate of 10.8%.