M’sia, S’pore regulators ordering telcos to cut roaming rates between countries, says CIMB

This is good news for the consumers.

WRITTEN BY THE EDGE
TUESDAY, 01 JUNE 2010 11:58

The regulators of Malaysia and Singapore are ordering cellcos to reduce the roaming rates between the two countries by 20% for retail and 30% for wholesale rates by Aug 2010, according to CIMB’s industry contacts.

The research house says this is not entirely surprising as the issue was first brought up two years ago but subsequently died down.

“We think that the Singapore telcos will be more affected than the local ones as roaming is a bigger contributor to total revenue because of Singapore’s more open economy. We expect M1 and StarHub to be most affected by such a move which could crimp both their core net profit by 4-5%. Our top pick continues to be XL Axiata which remains an Outperform with a target price of Rp4,750.”

According to CIMB sources, a letter was sent by the regulators to all the telcos directing them to lower their roaming rates by 30% for wholesale and 20% for retail by August 2010.

“We gather that the telcos are protesting against this move and it remains to be seen if the regulators will get their way. A wholesale rate is how much a hosting telco charges the foreign operator while the retail rate is how much the roaming telco charges its customers.”

CIMB believes lower roaming charges would be net negative for the Singaporean and Malaysian cellcos due to the inelastic nature of roaming revenues, at least in the short term.

“As most of the roamers are business users, we do not think that lower roaming rates will change their call patterns much in the short term. But over the longer haul, lower roaming tariffs could stimulate usage,” the research house adds.

It says Singapore telcos will generally be more affected than the Malaysian telcos given Singapore’s more open economy, higher percentage of travellers and smaller domestic base.

“We estimate that M1’s core net profit could be affected by 5%, followed by StarHub at 4% and SingTel at 1%.”

Among the Malaysian operators, CIMB estimates that Maxis will be the most affected at 2% of core net profit, followed by DiGi at about 1% and Axiata at 0.8%.