Under the blueprint, the Ministry of Communications and Information and Infocomm Media Development Authority (IMDA) is asking the telco industry to upgrade the nationwide broadband network (NBN) to support up to 10Gbps speeds next year.

Thus far, there are no details on whether 2024 is a deadline as well as the entailed potential costs, aside from whether the government will provide any direct or indirect support, Hilado and Pineda point out. They further add that 10Gpbs plans are already available in the market at a monthly premium pricing — as such, the initiative anticipates mass market adoption closer to the 1Gpbs plans.

During its recent earnings call, Netlink indicated that its existing passive network could already support such speeds, the analysts note. However, an upgrade of equipment by the operating companies may lead to increased space and power demand for Netlink’s central offices.

“In FY2023 ended March, central office revenues accounted for 4% of Netlink’s total revenues. It is worthy to note that the rates for the business are not regulated whether under the regulated asset base regime or otherwise,” Citi analysts add.

Given that expanding central office capacity would be needed to support the 10Gbps initiative, the analysts do not discount the possibility that IMDA will factor for related capital expenditure in determining the asset base that will be used to the oncoming five year interconnected rate regime. Citi’s current base case assumption of an 8% reduction in residential and non-residential rates could be tempered, they add.

<span class='see_also_inread'><b>See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/dbs-upgrades-grab-buy-higher-tp-us429?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>DBS upgrades Grab to ‘buy’ with higher TP of US$4.29</a></b></span>

Although the Digital Connectivity Blueprint is a positive development for Netlink, the degree of the impact remains to be seen. That said, the stock is currently offering a healthy expected total return. Hence, the analysts maintain their “buy” rating on Netlink with a target price of 99 cents.

As at 1.39pm, shares in Netlink are trading at an unchanged 86.5 cents.

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