KUALA LUMPUR (Nikkei Markets) - Maxis, Malaysia's second-largest mobile telecom firm by revenue, Wednesday said rival U Mobile has asked to end a network sharing deal that was billed as a "landmark multi-billion ringgit agreement" when it was signed six years ago.
Unwinding of the so-called network sharing and alliance agreement for Maxis' 3G radio access network will be staggered over 18 months, and is expected to be completed on Dec. 27 in 2018, the company said in an exchange filing.
"The termination is not expected to have a material effect on the consolidated financial results for the financial year ending 2017," Maxis added without elaborating further.
However, Wednesday's statement was a departure from the company's view in October 2011 when it signed the deal with U Mobile. Maxis, had then said, it would "receive a significant new source of revenue" by sharing its network with U Mobile, and the arrangement would also result in "greater cost savings, which in turn translates to increased direct revenue for both companies."
Analysts also said loss of the deal will likely impact Maxis significantly as the company is unlikely to find a replacement for the network capacity currently leased to U Mobile.
"I view this development as a negative for Maxis going forward," said Hong Leong Investment Bank's analyst Tan J Young, noting that U Mobile paid Maxis 335 million ringgit last year and about 250 million ringgit in 2015 under the agreement.
The end of the 10-year agreement between Maxis and U Mobile, a company controlled by lottery-to-retail tycoon Vincent Tan, follows Malaysia's last year's move to redistribute telecom bandwidth. Apart from the country's top three telecom companies, U Mobile also received a share of the spectrum.
"With our growing subscriber base, it will be more appropriate to focus on expanding our own network, especially with the additional spectrum awarded by the government," U Mobile said in a statement.
Malaysia had announced the distribution of the highly-prized 900MHz and 1800MHz spectrums by charging hefty fees in a bid to boost government revenue. Each operator received spectrum in two bands for 15 years under the move also known as spectrum re-farming.
"We are currently upgrading our owned networks progressively to support these new spectrum bands," U Mobile said, adding that the shared sites are expected to be replaced "within the stipulated timeline as we continue with our planned network investment program."
Malaysia's telecom sector is dominated by Axiata's Celcom unit, Maxis, and DiGi.Com with each operator commanding about a third of the total mobile subscription in Malaysia. The unlisted U Mobile jostles with other smaller players for the remainder market share.
Shares of Maxis fell 0.5% at 5.61 ringgit on Wednesday, in line with the benchmark FTSE Bursa Malaysia KLCI's decline.
-- Gho Chee Yuan and Alexander Winifred