Malaysia's telecom regulator greenlights Celcom-Digi merger with MVNO remedies, spectrum and sub-brand divestment

The Malaysian Communications and Multimedia Commission (MCMC) issued a notice of “no objection” to the planned merger between Celcom Axiata Bhd. And Telenor’s Digi Com Bhd (Digi)..

MCMC conducted an assessment of the merger and issued a Statement of Issues (SOI) on 1 April 2022, to both Celcom and Digi in accordance with the Guidelines on Mergers and Acquisitions (CMA) and to address concerns that the merger will or is likely to significantly reduce competition.

MCMC's preliminary assessment indicated that the Proposed Merger is likely to raise competition concerns in the four following communications markets:

• The national retail market for mobile and low-speed fixed broadband and data services, including the related local distribution channel market(s);
• The national retail market for mobile voice and Person-to-Person (P2P) messaging services, including the related local distribution channel market(s);
• The national wholesale market for mobile voice and P2P messaging services (including network sharing arrangements); and
• The national wholesale market for mobile broadband services (including network sharing arrangements).

To address these concerns, both Celcom and Digi replied with and have agreed to remedies to alleviate MCMC's competition concerns namely in five areas i.e. spectrum, mobile virtual network operators (MVNO) arrangement, prepaid divestment, resellers and branding.

Spectrum Divestment

Celcom and Digi shall divest a total of 70MHz of spectrum in the following three bands to address the issue of spectrum concentration post-merger.

• Divest 10MHz in the 1800MHz spectrum band
• Divest 20MHz in the 2100MHz spectrum band
• Divest 40MHz in the 2600MHz spectrum band

Celcom and Digi shall complete technical handover of the Divestment Spectrum by the earlier of the date of Network Integration Completion and the expiry of the Integration Period, which is at most three years from Closing. The spectrum divestment will occur in the form of the spectrum being returned to MCMC in phases during the 3-year period.

The two shall return to MCMC the first Band of Divestment Spectrum within two years from Closing and the second and third Bands of the Divestment Spectrum within three years from Closing.

MVNO Wholesale Remedy

Celcom and Digi will ensure MVNOs are no worse off (compared to the position immediately prior to the Effective Date) and there is continuity of access for existing and new MVNOs to wholesale services provided by MergeCo for a duration of three years from Closing.

In fulfilling its obligations, the Celcom/Digi must:

Ensure the continuity of access to wholesale services for existing and new MVNOs for the duration of three years from Closing by (subject to acceptance by MVNO’s):

• Ensuring fair pricing, fair and non-discriminatory access and to maintain and promote healthy competition in the retail and wholesale mobile market;
• Introducing price capping (no increase from current rate as at the Effective Date);
• Removal/waiver of any contractual lock-in agreements in place as at the Effective Date; and
• Implementing fair usage policy to ensure any excessive usage by MVNOs and their subscribers is charged fairly.

Celcom/Digi will establish a separate independent MVNO wholesale business (MVNO Business Unit) and transfer the MergeCo Wholesale Business to the MVNO Business unit, thereby ensuring separation from MergeCo's retail mobile business, within six months from Closing.

Celcom/Digi shall maintain the separation for a period of three years after implementing transfer to MVNO Business Unit.

• The Head of MVNO business unit will report directly to the Chief Executive Office and administratively to a CXO in MergeCo's fixed line business unit. The structure of the MVNO Business Unit will be as contained in Schedule 1 of the Undertaking.

• The MVNO Business Unit shall maintain a Reference Access Offer (RAO) and make its services available to all new and existing MVNOS through commercially negotiated access agreements, unless otherwise agreed by an MVNO.
• The Head of MVNO is empowered to make all decisions pertaining to the commercial terms of MVNO access agreements (including, but not limited to, wholesale pricing), independent of the Fixed CXO. Matters pertaining to the commercial terms of MVNO access agreements and pricing shall not be discussed with or otherwise disclosed to the Fixed CXO or the Management Committee. Similarly, matters pertaining to retail mobile pricing of MergeCo shall not be discussed with or otherwise disclosed to the Head of the MVNO Business Unit.
• The relationship and reporting lines between the Head of the MVNO Business Unit and the Fixed Cx0 will be limited to administrative and human resource matters only.

The relationship and reporting lines between the Head of the MVNO Business Unit and CEO will cover all strategic and operational areas related to the MergeCo's wholesale business, which includes:

• Setting of the MVNO's Business Unit's targets and investment, including KPI for the Head of the MVNO Business Unit;
• Evaluation of the Head of the MVNO Business Unit KPIs and performance;
• Performance management and monitoring of the MVNO Business Unit; and
• Decisions relating to wholesale pricing, access, and other contractual terms of new and existing MVNOs.

Divestment of the sub-brand Yoodo

Celcom/Digi undertakes to divest the business of Celcom's Yoodo brand (that is, the Divestment Business) within 18 months from Closing via a sales auction process at a minimum floor price no less than the cost incurred by the Celcom/Digi in providing the products and services.

If Celcom/Digi fails to divest the Divestment Business within 18 months from Closing, Celcom/Digi commits to cease Yoodo's operation within three months of the expiry of Divestiture Period.

This divestment of the Divestment Business includes:

• All tangible and intangible assets (including intellectual property rights) used exclusively by Yoodo or which are necessary for the operation of the Yoodo business;
• The employment or engagement of personnel who exclusively and predominantly work for Yoodo to the purchaser (which personnel, if consent to transfer with Yoodo is required by law, has given such consent);
• All contracts, leases, and commitments related to Yoodo; and
• All subscribers, credit and other business records of Yoodo.

The Divestment Business shall not include assets not used exclusively by Yoodo or are not otherwise necessary for the operation of Yoodo.

Celcom/Digi shall make available to the purchaser the details of all suppliers currently supporting the operation of Yoodo.

The purchaser of Yoodo shall be independent of Celcom/Digi and its stakeholders.

Celcom/Digi shall, for a period of three years after the completion of the sale of the Divestment Business, not acquire, whether directly or indirectly, the possibility of exercising influence over the whole or part of the Divestment Business, unless otherwise approved by MCMC.

Upon cessation of Yoodo's operations Celcom/Dig shall not restore or otherwise revive the Yoodo brand.

Celcom/Digi shall not absorb directly or indirectly Yoodo's subscribers from the Effective Date until the three year period has expired.

Retail Distribution Dealership Remedy

Celcom/Digi undertakes the following:

Before the expiry of the Integration Period i.e. three years from closing, to remove exclusive arrangements with its exclusive distributors in Sabah, Labuan, Sarawak, Terengganu, Pahang and Kelantan; and For a period of three years after Closing, Celcom/Digi will not enter into any new exclusivity arrangements with exclusive distributors or other distributors in these regions, unless otherwise approved by MCMC.

Reference: MCMC - Undertaking to the Malaysian Communications and Multimedia Commission 28 June 2022 (PDF).

The completion of merger is still subject to the approval of the Securities Commission, Bursa Malaysia, as well as the shareholders of Axiata and Digi.