The uproar from various quarters over the passing on of the six percent sales tax to consumers by telecommunication companies, effective Sept 15, is not surprising, says OSK Research.

"It was anticipated to create a social backlash, especially under the prevailing economic environment," it added.

OSK Research said as prepaid users are typically price sensitive, bearing the additional cost could deter them from using mobile services or cut down on usage, thus putting pressure on the revenue of the telcos over the longer term.

"While media reports indicate that no prior approval was secured from the Ministry of Finance for the pass-through, we note that the decision is a collective one, which does not require government approval or green light from the Malaysian Communications and Multimedia Commission.

"This development contrasts with the deferment of the passenger service charge by Malaysia Airports , which comes directly under the purview of the Transport Ministry," the research firm said in a statement today.

OSK Research said it had initially expected the pass-through to proceed, although the latest turn of events, including the call by the Prime Minister Najib Abdul Razak, changes this view.

NONE "The deferment of the pass-through will be negative for the sector and the telcos.

"To ease the burden of users from the pass through, we had expected the mobile operators to introduce various incentives, aimed at providing value to customers," the research house added.

It said this potentially includes, the offer of free talk-time, SMS or the adoption of new customer retention strategies to dilute the impact of the higher cost to users.

OSK Research said given that its forecast on the telcos had incorporated the positive upside from the six percent sales tax pass-through, the research firm is now removing the impact from its projections.

"As Digi stood to gain most from the move with 75 percent of its mobile revenue coming from prepaid subscribers, versus the 55 per cent to 60 percent of Maxis and Celcom, the deferment would have the biggest impact on its earnings.

umno general assembly bazaar 161106 hadhari mobile phone "This is followed by Maxis and Axiata. We have lowered Digi's financial year 2011/2012 earnings by two per cent to eight per cent while that of Maxis and Axiata are nudged down by one per cent to five per cent," the research house said.

On the other hand, the fair value on Digi is adjusted downward by eight percent to RM28.60 from RM30.95 while that for Maxis and Axiata are tempered by some two per cent to three percent to RM5.20 and RM5.50 from RM5.30 and RM5.65, respectively.

The research firm has also maintained its "neutral" call on Digi and Maxis while maintaining a "buy" on Axiata, which owns 100 per cent of Celcom.

- Bernama