Telco sector thrives in pandemic, although future revenue growth may taper

Published on 28 Oct 2021.

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Technology has become indispensable amid the pandemic. As an essential service, telco operators were largely spared the fallout from the pandemic over the last 18 months.  The performance of RAM-rated telco players largely held up across all financial metrics, whether measured against leverage or profitability. Nevertheless, pockets of revenue pressure were felt, stemming from softness in the migrant segment, weaker roaming revenue and challenging customer acquisition. 

“The sector’s decelerating top line growth is due to a few factors: (1) steep declines in data pricing on a per-unit basis, (2) a structural shift from voice and short messaging service (SMS) to internet revenues, and (3) product bundling which has lowered the average revenue per user (ARPU),” said Davinder Kaur Gill, RAM’s co-head of infrastructure and utilities ratings during her presentation on the industry’s outlook at the virtual RAM Credit Summit 2021 held last week.  Pitted against the unabated rise in data consumption, these challenges will create some strain on network and overall data costs for telco operators.


            Source: RAM, public announcements and RAM-rated telco companies


Meanwhile, the prospects for fixed broadband, in particular Telekom Malaysia (TM) is more promising. The Jalinan Digital Negara (JENDELA) initiative by Malaysian Communications and Multimedia Commission (MCMC) will see Malaysia’s nationwide fibre footprint expand significantly to 7.5 million premises passed by end of next year, which augurs well from a retail and subscriber uptake perspective, in addition to laying a strong 5G network foundation for the country.

               Source: RAM, public announcements and RAM-rated telco companies


Given the slowing service revenue growth over the past few years, telco players are reinventing themselves. Many have expanded their product offerings to include fixed broadband services, device subsidies and more recently ICT offerings either via partnerships or inorganic growth through acquisitions (as announced by both Maxis and TIME).

“While venturing into ICT would have its own fair share of challenges, we believe it is a step in the right direction. Digital adoption is no longer negotiable, but an essential for most businesses,” said Davinder. RAM believes collaborations amongst players and mergers and acquisitions will bring about economies of scale and cost synergies to combat market saturation and recurring intensive capex for networks. 

Looking ahead, the policy and regulatory decisions, particularly on 5G and spectrum acquisition cost, will continue to drive the industry’s return on investments as well as profitability and capex going forward.  RAM will continue to monitor cost pressures as well as spectrum renewal cost, which can crimp balance sheets and potentially impact future discretionary dividends. 

The RAM Credit Summit is an annual flagship event for investors, clients and associates of RAM. This year’s Summit, themed “Looking into 2022 and Beyond” saw a total of 17 presenters and panellists from various industries discuss pertinent issues and their outlook during the event held from October 20 to 22. 


Analytical contact
Davinder Kaur Gill
(603) 3385 2525

Media contact
Sakinah Arifin
(603) 3385 2505


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