Higher internet speed mandate likely to hit Telekom Malaysia

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KUALA LUMPUR: The government’s order to fixed-line broadband service providers to offer higher internet speed without additional charges could adversely affect Telekom Malaysia in the near term.

In unveiling Budget 2017, Prime Minister Najib Razak announced that broadband speed would be doubled and prices halved within two years.

Telekom Malaysia has about 90 per cent of the fixed broadband market share in Malaysia. Khazanah Nasional, the state investment holding arm, is the single largest shareholder with a 29 per cent stake.

A report in the Nikkei Asian Review (NAR) said shares of Telekom Malaysia had shed about 3.0 per cent since Friday when Najib announced the move that will come into force from January.

NAR quoted Kenanga Investment Bank’s analyst Cheow Ming Liang as saying Telekom Malaysia’s supplies and materials costs would increase in 2016 and 2017 due to equipment upgrades.

“It would be taxing to double broadband speed and slash prices by 50 per cent two years later, based on the current packages offered.”

AllianceDBS Research’s analyst Woo Kim Toh agreed, although he added that the higher cost could be “mitigated by better retention rate and reduction in customer acquisition costs”.

Brokerage firm UOB Kay Hian said the measures could cap Telekom Malaysia’s growth in average revenue per user in the near term. “We also do not discount the possibility of down trending from existing users,” NAR quoted it as saying.

Telekom Malaysia shares fell 0.9 per cent to RM6.52 on Tuesday.

In 2014, the company had acquired wireless broadband provider Packet One Networks to expand its offerings and partnered South Korea’s SK Telecom to sell fourth-generation mobile Internet services in Malaysia.

The NAR report said the latest government move is part of a decade-long initiative to improve broadband infrastructure. More than two-thirds of Malaysia’s nearly 30 million people have access to the internet.