Minimal financial impact from 2100MHz spectrum reassignment

• Spectrum costs look fair, analysts said
• All three telcos’ gearing levels remain comfortable

ON JAN 30, DiGi.Com Bhd, Axiata Bhd and Maxis Bhd separately announced their acceptance of telco regulator the Malaysian Communications and Multimedia Commission’s (MCMC) offer for the reissuance of 2100 megahertz (MHz) spectrum for 16 years effective April 2018.

Under the agreement with MCMC, the Big Three are maintaining their allocation of 2x15MHz spectrum at the cost of a RM118.4 million lump sum payment and an annual fixed fee payment of RM50 million.

Analysts seemed to think that the spectrum costs were reasonable. “The spectrum cost looks fair given that it is being priced below 700MHz, 900MHz and 1800MHz spectrum (lower spectrum bands are more valuable),” PublicInvest Research said in a report on Feb 2.

No funding issue for operators

PublicInvest research does not foresee any funding issue for all the operators “as the upfront cost is manageable”. “No change to our FY18-19 forecast earnings forecasts as all the operators have already been paying annual fees for this spectrum while the upfront cost would only impact FY17 forecast earnings by less than 1%,” the research house added.

It noted also that the three operators have already paid for the lump sum cost of RM118.4 million to MCMC on Jan 30.

“This could be easily funded via internally generated cash or external borrowing and the estimated impact on gearing is less than 0.05 times.

“Additionally, a fixed fee of RM50 million will be paid annually by the respective operators. Earnings impact is expected to be minimal as these operators were already paying the annual fees in the past. Hence, our earnings forecasts remain unchanged.”

HLIB Research noted meanwhile that the only impact to earnings is only in the form of airwave amortisation which amounts to RM7.4 million per annum.

“Axiata, DiGi and Maxis are estimated to see an impact of RM5.6 million (April – December 2018) or -0.4%, -0.4% and -0.3%, respectively to their FY18F profits after taxes.”

The research house cited no funding concern, as all three incumbents’ gearing levels remain comfortable.

“Based on their latest financial positions, Axiata, DiGi and Maxis’ net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratios post-payment are 1.37 times (from 1.35 times), 0.78 times (from 0.74 times) and 1.58 times (from 1.56 times), respectively.

AmInvestment Bank pointed out that along with the 2100MHz annual spectrum fee, higher depreciation and interest charges from the lump sum payment, they estimated that the additional annual costs of RM63 million translate to 2% of Maxis’ FY19F earnings, 3% for Axiata and 3.5% for Digi.

This will have an even lower impact on the Big Three’s gearing. “Given the lower base impact of the 2100MHz price component, we estimate that the lump sum payment will not have any significance to Maxis’ net debt/EBITDA of 1.2 times, Axiata’s 1.4 times and Digi’s 0.7 times.”

HLIB Research called the spectrum reassignment “a positive development for the sector as the government’s stance remains very accommodative in airwave awards,” adding that it is in line with their expectations, although the pricing was much lower than they expected.

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