The case of Maxis – U Mobile merger

The rumour mill is back spinning with the story of a merger between Maxis Bhd and U Mobile Sdn Bhd.

While the recent report by a foreign wire service on the possibility of a merger between Maxis and U Mobile is not the first time such a story had come up, it still attracts market attention due to the impact it could have on the country's telecom sector.

A merged Maxis-U Mobile entity would overtake CelcomDigi Bhd as the country's largest mobile operator by subscribers. As of Oct 30, Maxis is valued at RM27.9 billion, while CelcomDigi is about RM1 billion bigger in market value.

After the story broke last Wednesday (Oct 28), Maxis' shareholders reacted negatively to the story, with its share price falling 3.8 per cent to close at RM3.51. The stock fell 5.2 per cent during trading hours that day, the biggest intraday decline since June.

The negative reaction to the story could be due to the dilutive impact that such a merger would have on Maxis' shares, depending on the valuation of U Mobile agreed by both companies. The higher the valuation, the more dilution to Maxis' share value.

What is the value of U Mobile for Maxis, if indeed the companies are courting each other?

In a statement to Business Times' queries, Maxis said it is always evaluating strategic opportunities and partnerships that are value accretive. A merger with U Mobile can be value accretive to Maxis, in the long run, due to the second 5G network.

U Mobile operates Malaysia's second 5G network alongside Digital Nasional Bhd (DNB). The asset that U Mobile has – 100MHz block within the 3.5Ghz and 3.6GHz band – is what makes it valuable.

Malaysia's 5G network operates on a dual network model. DNB, which was supposed to be the country's sole operator until the change in policy in 2024, operates the network on two 100MHz blocks between the 3.3GHz and 3.4GHz, and 3.4GHz and 3.5GHz bands.

Currently, Maxis, CelcomDigi and YTL Communications Sdn Bhd are on DNB's network. The three are also equal shareholders of DNB, after the Minister of Finance Inc (MoF Inc) exercised its put option requiring them to acquire its shares on Dec 1, 2025.

U Mobile had exited DNB on June 30, following its appointment as the second 5G network operator.

However, developing the 5G network is not cheap. According to a telco executive, one 5G site costs around RM200,000 to be developed, excluding equipment. DNB had set up 7,489 sites in developing the network.

"The cost of investment in the 5G network might not be justified, if not shared across operators, as average revenue per users (ARPU) has been declining over the past few years," says the telco executive Business Times spoke to.

In the second quarter ended June 30, 2026, Maxis' postpaid ARPU declined 1.1 per cent quarter-on-quarter (QoQ) to RM70.50 per month, while CelcomDigi's fell 4.5 per cent QoQ to RM60.

"Customers are not willing to pay more for data. If a mobile network operator (MNO) wants to invest in a network, it will need to grow its customer base tremendously, which is perhaps the reason for the Maxis-U Mobile merger to come up again," the executive says.

When DNB was rolled out as the country's sole 5G network operator, the cost was touted at RM16.5 billion over 10 years. Recently, DNB raised a RM5.2 billion Islamic syndicated financing to refinance its government guarantee revolving credit, as well as for further investments.

A look at U Mobile's financials with the Companies Commission of Malaysia reveals that the company has an accumulated loss of RM6.3 billion as of Dec 31, 2025, with a net loss of RM1.6 billion during the year.

This shows that while U Mobile has been growing its subscribers, it has yet to translate into profitability.

MERGER MUST GET CELCOMDIGI, YTL POWER'S AGREEMENTS

A merger between Maxis and U Mobile also depends on whether Maxis could get out of DNB. This is because a telco is not allowed to have ownerships in both 5G networks.

Currently, Maxis, CelcomDigi and YTL Power International Bhd each own 33.33 per cent of DNB. If Maxis were to merge with U Mobile, it would have to sell its stake to either CelcomDigi or YTL Power, or both.

Considering that each company already holding 33.33 per cent stake, a sale of Maxis' stake would mean DNB will be a subsidiary of both CelcomDigi and YTL Power. Whether this is something palatable for either is a question.

As of the financial year ended Dec 31, 2024, DNB recorded a net loss of RM1.2 billion, and accumulated loss of RM3.16 billion. The network operator is expected to remain loss-making until 2030.

Throughout the years, the shareholding structure of DNB has been changed twice. The first happened in June 2024, when CelcomDigi, Maxis, U Mobile and YTL Power collectively acquired 65.1 per cent stake, giving each an interest of approximately 16.3 per cent.

When U Mobile became the second network operator, it disposed of its 100,000 DNB shares to CelcomDigi, Maxis and YTL, giving the remaining shareholders 19.44 per cent each. Then their shareholdings increased to 33.33 per cent following the put option exercised by MoF Inc.

The put option requires each of the remaining shareholders to fork out RM327.87 million to MoF Inc.

While the exercise is not yet completed, the exit of the government-owned company also means that the private investors now have to hold the risks of developing the 5G network themselves.

The transfer of ownership is expected to be completed by the end of this year. This means that DNB associate contributions will begin appearing in Maxis, CelcomDigi, and YTL Power's financial statements from the fourth quarter of 2026.

The full impact of DNB's contributions to profit and loss will be felt in 2027.

Hong Leong Investment Bank (HLIB) in a research note on Oct 29 stated that it had flagged a Maxis – U Mobile merger as a live risk weighing on both Maxis and CelcomDigi.

"If the merger materialises, we believe the near-term implications would be negative given higher capex for 5G, weaker earnings, and dividend pressures for both Maxis and CelcomDigi.

"But, beyond that, the prospect of a market repair in a two-player market is strong because the aggressive price competitor (i.e. U Mobile) is being absorbed, which should reinforce pricing discipline in the market," said HLIB.

A merger between Maxis and U Mobile would create a more meaningful two-player market, as the combined entity would have a subscriber base that is broadly on par with CelcomDigi. On top of that, Telekom Malaysia Bhd is also on the second network.

But it will also put pressure on CelcomDigi and YTL Power to shoulder the cost of developing DNB's network. Will they then, if the merger were to happen, acquire Maxis' shares in DNB?