Price war amongst telco players?

Price war may arise amongst telco players

KUCHING: Telecommunication (telco) operators may face the possibility of a price war from the recent announcement of the lower interconnection rate that translates to lower direct costs for the operators.

To recap, the Malaysian Communications and Multimedia Commission (MCMC) announced the new interconnection rates, which applies to all voice calls that originate and terminate on fixed networks as well as mobile networks would be reduced to five sen per minute from existing rates of 8.36 sen per minute (for mobile termination rates) and 6.07 sen per minute (for fixed termination rates) respectively, effective from July 15, 2010.

Among the players, RHB Research Institute Sdn Bhd (RHB Research) believed the smaller operators such as mobile virtual network operators would be more inclined to cut rates while the larger players would likely adopt a wait-and-see approach as cutting voice tariffs might not necessarily result in higher usage.

Larger telcos had also, thus far, appeared keen to avoid a price war.

From a detailed standpoint, the research firm believed Telekom Malaysia Bhd would be the biggest beneficiary, given that it was a net sender of the interconnection charges. Based on the estimates, the reduction in interconnection rates would boost the group’s financial year 2010 earnings before interest, tax, depreciation and amortisation (EBITDA) and net profit by one per cent and 4.7 per cent respectively.

The main cause of this was a 30 per cent savings on the net interconnection outflow as well as the traffic patterns that remain unchanged.

While DiGi.com Bhd indicated that the impact of the revision in interconnection rates would be insignificant to its bottomline, the group believed it would benefit from the downward revision in interconnect rates, given its smaller subscriber base relative to Celcom (Malaysia) Bhd (Celcom) and Maxis Communications Bhd (Maxis), added the research firm.

Meanwhile, for Celcom and Axiata Group Bhd, its management indicated that the downward revision in the interconnection rates would dampen the group’s revenue and earnings, given that Celcom was a small net receiver of minutes.

Based on the research report, it believed Maxis would be the biggest loser arising from the interconnection rates reduction given that it commands the largest subscriber base.

However, RHB Research foresaw that the direction of tariffs would still depend heavily on the pricing behaviour of the incumbent mobile operators and did not expect irrational pricing to set in.


- by Borneo Post