Keen competition to weigh on MNO profitability

PETALING JAYA: Profitability across Malaysia’s mobile network operators (MNOs) could come under pressure as competition intensifies following the rollout of a second 5G network, CGS International Bhd Research (CGSI Research) cautions.

The research house said U Mobile Sdn Bhd’s lower-cost 5G network could make it a more credible competitor over time, potentially weighing on industry profitability. CGSI Research said U Mobile claimed to have the widest 5G network coverage, at 85% of populated areas as at July 1.

It also noted that Telekom Malaysia Bhd’s 5G wholesale agreement had shifted from Digital Nasional Bhd (DNB) to U Mobile effective August 2026, suggesting U Mobile has a lower cost base.

“Anecdotal evidence, coupled with a search of social media content to gauge mobile users’ perception towards the various operators, suggests improved network perception towards U Mobile, at least in areas where its 5G network is available,” it said.

“All these point to a more credible competitor with a cost advantage which could over time weigh on industry profitability.”

The research house also said competition was growing as MNOs offered more data and benefits without raising prices for mobile plans.

It said headline prices for postpaid mobile plans had remained broadly stable throughout 2026, but data inclusions had increased materially, reducing the need for users to upgrade their plans, while prepaid users had also benefited from faster speeds and higher data inclusions,.

Despite the intensifying competition, CGSI Research upgraded CelcomDigi to “add” from “hold”, following a 9.1% month-on-month decline in its share price.

“However, under the current industry structure, we think competition will erode profitability over time, especially with the lower cost second 5G network,” it said.

Its revised target price factors in a higher risk premium, with its cost of equity estimate raised to 9.1% from 8.5%.

“For now, we assume industry status quo around pricing, and factor in the higher risks via a higher beta assumption in our cost of equity estimates for Celcomdigi, but acknowledge the shorter-term upside catalyst from improved earnings due to the stable pricing environment over the last two quarters.”