Investment for last-mile connectivity seen necessary for TNB

TheEdge Thu, Jan 10, 2019 10:51am - 5 years View Original


Telecommunications sector
Maintain underweight:
Several Internet service providers have launched new high-speed broadband (HSBB) packages, leveraging on Tenaga Nasional Bhd’s (TNB) fibre optic infrastructure in Jasin.

 
TNB’s three-month pilot project in Jasin was implemented through the RM1 billion National Fiberisation and Connectivity Plan (NFCP) initiative announced in Budget 2019, and this has resulted in a successful rollout of new HSBB packages by Astro, Maxis, Digi, Celcom and City Broadband.

Although this is negative to Telekom Malaysia (TM) as it introduces new competition into the fixed line broadband segment, connectivity is only restricted to limited areas covering 1,100 homes in Jasin. Impact on the respective players is expected to be immaterial but it remains to be seen whether TNB could also rollout similar arrangement with service providers in other locations throughout the country.

Astro’s participation is within our expectations as we believe convergence is the key to remaining relevant in the fast-changing telecommunication and Internet industry. We believe this deal would be value accretive to Astro as we reckon that Astro’s 92% household penetration in Jasin is predominantly Astro NJOI, which does not generate any TV subscription revenue currently.

However, any earnings contribution is not expected to be significant in the near term as this is only a trial project and it will depend on the take-up rate by the eligible households.

Connectivity to underserved areas remains unanswered. At this juncture, we are still uncertain whether TNB is capable of rolling out HSBB in untapped areas that have yet to be connected with existing fibre network.

If TNB can only provide services to areas that are already currently served by existing networks, then TNB has little differentiation from incumbent telco players apart from offering products at lower price points. Overall, we believe this could bring potential revenue growth to TNB through rental of the fibre infrastructure but earnings impact is expected to be insignificant to the group.

City Broadband, which is TNB’s wholly-owned subsidiary, is among the broadband players participating in the pilot project. For TNB to compete directly against existing broadband players in a meaningful manner, we believe significant investment is required for last-mile connectivity. — PublicInvest Research, Jan 9

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