Celcom-Digi merger may be on cards again

TALKS between Norway’s Telenor ASA and Malaysia’s Axiata Group (pic) Bhd for a merger of their mobile telecom units have resumed, sources say.

Or as one industry player in the know puts it, “the talks never really ended” since the merger plan was aborted two years ago.

The renewed interest in a merger deal between Digi.com Bhd and Celcom Axiata Bhd comes after the announcement that a government special purpose unit will be building out and owning the country’s 5G infrastructure that will be leased out to telecom operators to use and deliver their services.

The rationale for the move is to ensure that the country receives high-quality 5G connectivity, which in turn will have major economic spinoffs.

However, for telecom operators now, this means that they will all have access to the same infrastructure, forcing them to compete on their services to the end-user.

This in turn could be nudging a consolidation in the industry to put firms in a better competitive position.

Digi.Com and Celcom Axiata are no strangers to each other.

Both (their parents) are in many Asian markets and have been collaborating on many fronts for many years.

Experts believe it now makes more sense for them to be of a certain size to be a service provider to compete effectively on domestic turf.

Hence, “conversations are happening on multiple fronts among telco operators and this includes those that could lead to a merger between Digi and Celcom.

“But it is not clear how advanced these conversations are, ’’ says the source.

Both parties could gain from a merger. As it is, Telenor has a 49% stake in Digi while Celcom is Axiata’s wholly owned unit.

From Celcom’s perspective, it needs to be strong and aggressive to survive in a cutthroat competitive landscape.

For Digi, a merged entity would bring economies of scale. It could then bring in the solutions and applications for 5G that its parent company has.

“Both have something to offer. It is about agreeing to meet halfway to see how they can match each other’s needs, ’’ he adds.

With the government now to build, operate and maintain the 5G network, operators will lease capacity to offer services.

Still, their respective 4G networks are still relevant. Mass adoption of 5G services could take up to three or more years.

Malaysia already has a high mobile penetration rate of above 130% with 43 million mobile subscribers.

Getting users to use 5G will depend on new applications, solutions and service levels that bring about new user experience.

Maxis Bhd continues to retain pole position with a 37% market share of mobile subscribers, followed by Digi’s 34% and Celcom at 29%.

In the prepaid segment, Digi remains in the lead position with a 37% market share, just ahead of Maxis (35.5%), JF Apex Research says.

Digi is known for its innovative solutions and its parent, Telenor, is working with several industry players to understand the needs and to create 5G services for users.

Telenor operates in nine markets, namely, Norway, Denmark, Finland, Sweden, Bangladesh, Pakistan, Myanmar, Thailand and Malaysia.

For Telenor to want to merge Digi with Celcom, there must be a sweetener in the deal. The Indonesia market could be key.

In 2019, as part of the Digi-Celcom proposed deal then, it involved Telenor taking a stake in PT XL Axiata Tbk.

It is understood that the Indonesian regulator was not in support of such a change in shareholding.

However, there may be a change of heart now since two of Indonesia’s telecoms competitors are already proposing a merger.

They are PT Indosat Tbk and PT Hutchison 3 Indonesia. This will have a major impact on the competition in Indonesia’s mobile marketplace.

There are three major mobile players in the country – Telkomsel (a unit of Telekomunikasi Indonesia), XL Axiata and Indosat. The smaller players include PT Hutchison 3, and PT Smartfren Telecom Tbk.

Qatar’s Ooredoo and Hong Kong’s CK Hutchison are the major shareholders of Indosat and Hutchinson 3 respectively.

Telkomsel leads the market, followed by XL Axiata and the third-largest player in Indonesia is Indosat. This is in terms of the number of mobile subscribers and revenues.

If the deal between Hutchinson 3 and Indosat goes through it will create an entity larger than XL Axiata.

Experts believe that Axiata may want to protect its turf in the fastest growing market place where Telenor is eager to enter.

Source: The Star

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