1BestariNet and my flawed rationale

I am no telco expert. But I have enough of experience to know what makes sense, what don't. 1Bestarinet is a project awarded to YTL Communications for delivering fast enough internet experience to all 10,000 schools nationwide. It is claimed to have been an open tender and YTL came out top out of a total 19 companies which tendered.

Frankly, I have originally almost written off the YTL's telecommunication initiative until there are quite a number of postings which makes me wanting to rethink (thanks for the comment) - no disrespect to YTL, but I have discounted all the other telco players like Green Packet, Redtone, and even UMobile anyway. Hence, I am not putting YTL as the only one as a punching bag for my telco thoughts. Let me put it this way, among the tycoons, Ananda Krishnan has already won this war among the telcos - while the other two, Celcom and Digi are corporate owned today. Anyone wants to take a share out from Ananda, do something else. It was the same as when Vincent Tan attempted with Digi (did not go far) and now UMobile which will not go far as well - in my thoughts. In telecommunication, its either you have it or you don't. It is not like a power generation business where it is dependent on the areas served, grid etc.

Now 1BestariNet is a way for YTL to reduce its costs of deploying wireless data communication nationwide while using the government's money to help it to achieve its dreams. It is actually not wrong as schools will need to be digitally covered anyway. Anyone who can do it most cost efficiently should get the project. Now my thoughts are this - the one which probably can do it most costs efficient should be a combination of a strong wireless provider and a fiber provider. From there, where does YES stands?

A fiber provider should no doubt be Telekom Malaysia while for a wireless provider they should be any of the three telcos - Maxis, Celcom, Digi. For YTL to get this project, it must have very strong connections or may have priced them very low to beat the competition or even both. If YTL has the committed ambition to cover the entire country with YES network, then maybe it would have used this project to achieve its ambition. For Maxis, Celcom and Digi it is a given that they must cover the entire nation or at least the bigger cities and towns with 4G.

Now, why do I think it should be a combination of a strong fiber provider and wireless player. The cities - Klang Valley, Penang, Johor Bahru and ultimately to other cities as well. Ain't TM is currently laying the fiber already? If it is charging less than RM1,000 for a 20Mbps fiber internet or more ultimately, what else can beat that from among the wireless providers? Are we saying that every student will be provided a dongle for their notebooks? What the schools need to do is to cover the entire school with wifi. Isn't that a cheaper and longer term solution? Imagine every new student will be provided with a YES dongle...that does not make economic sense.

Say 50% of the schools are located in the cities or suburban areas, providing internet to these schools are hence not expensive. A one off costs of covering with wifi (should not be much) and just monthly internet bill of not more than RM1,000 to TM. Another 40% of schools in the smaller towns? (The real problem as usual is tackling the real rural areas which probably makes up the 10%) Well, they need wireless providers which is why the 4G LTE and WIMAX providers are for. Please tell me if I am wrong deploying WIMAX solution is initially supposed to be cheaper but with the need to pay for the CPE (Customer Premises Equipment) I would think 4G LTE will be ultimately used hence that's why all the telcos are getting some spectrum for the deployment of LTE.

Going back to 1BestariNet. If YTL is to deploy fully, it would be getting RM1.5 billion in 5 years - that's what the press statement says. What the press statement does not say is whether it includes costs of accessing internet. I would think so as it does not make sense to just cover and do not provide access for it. Again, I would think the government would not ask the students to pay for access, am I right? The project is RM1.5 billion in 5 years. That comes to

RM1.5 billion / 5 years / 10,000 schools / 12 months = RM2,500 per school per month

and we are still not getting the fiber speed which can be deployed to many of the urban schools as at now.

Every student is supposed to be provided with a dongle from YES or could it be a CPE in every classroom or something like that?

Now, comes YTL's grand plan...Its objectives of doing the 1BestariNet is to grab hold of the student's market - 5 million of them altogether. It is trying to get a market share out of it to achieve its initial target of 1 million subscribers that pay so that it can breakeven. To do that it has to achieve something like 15% from the student market assuming YES already has about 300,000 subscribers currently. Hence, the students will have to be provided with a dongle so that they can access the network from anywhere, anytime - either in school, home or any public area. In school, it is free but anywhere out of school it will not be free anymore.

HOWEVER, for those students whose houses are in the more urban areas, most of them would have access at home anyway - in fact many homes today and most in future will be wirelessly connected - either from 4G LTE, Unifi (fiber to the home) or Streamyx (old ADSL technology). They do not want to pay the extra.

As for the more rural students, chances are they do not want (or could not afford) to pay anyway and if they are, their homes may also be connected with Telekom's Streamyx. And if there are no Streamyx, chances are there's no YES access as well. Hence, how is the 1BestariNet going to turn YTL into a serious enough contender in Malaysian telecommunication sector?

Anyone care to comment as I think this speculation may not run too far although may sound simplistic...as I still could not get the rationale.


Note that these are my thoughts and it may be flawed.

Where will 4G carry the Malaysian telcos looking forward?

This article is a guest analysis on the current 4G state by a telco expert

The recent foray of 4G LTE launches in the country is much talked about. MAXIS started screaming 2 hours before the country counted down towards the new year of 2013, while CELCOM scrambled to meet the challenge a few days later albeit with much subdued fanfare. There is no sound from Digi yet, or from the other 4 winners of the 2.6GHz spectrum awards.

In my personal opinion, this hype could be nothing more than a marketing gimmick. See, MAXIS claimed they already have LTE services in “some” parts of Klang Valley like TTDI, Damansara Utama and Puchong, while CELCOM came up with a much lesser scale with “LTE Experience Zones” setup in Menara Celcom and BlueCube centre in Sunway Pyramid. For all we know, the latter could only be a couple of LTE base stations serving the areas mentioned. One would wonder if there is seamless connectivity or is the service meant to be stationary only? And here is the bigger catch – how many devices are actually being offered for the LTE service? A quick check on MAXIS website reveals one, i.e. the 75Mbps LTE USB Modem; and No Sir! No smartphones or tablets either. CELCOM has yet to announce any device offer on their website at the time of writing but it was purported that they will be launching their service in the coming month or 2.  Although MAXIS should be applauded for being the leader of the pack and having to come up with at least one device, RM400 mind you, this is at best just a soft launch.

That said, MAXIS remains a formidable force with the biggest chunk of bandwidth in Malaysia. After the 2.6GHz spectrum award, MAXIS has under its belt approximately 160MHz in total bandwidth, not accounting for the spectrum sharing deal inked with REDTONE. CELCOM follows closely behind with about 130MHz and DIGI, being a foreign entity, naturally owns the least bandwidth among the big 3 with 100MHz only. In the business of mobile communications, bandwidth is everything. The company that owns the most bandwidths would be able to biggest beneficiary as it would be able to rollout more services, and easily undercut its competitors.

Although 2.6GHz is the official spectrum to rollout LTE services in Malaysia, it is no secret that Malaysian operators are also eyeing to re-farm the 1.8GHz bands from GSM and 3G services to deploy LTE.  Bulk of the world is also looking at the 1.8GHz band to deploy the new technology - M1 Singapore, GLOBE Philippines and SMARTONE Hong Kong are among those that rollout LTE1800 and even Optus and Telstra Australia has announced their intention for the band.  However, this may not happen any time soon unless MCMC gears up to release the spectrum to new services which according to industry sources, is far from reality at the moment. When it does happen eventually, it would bear well for MAXIS because having the largest chunk of 60MHz worth of bandwidth in 2.1GHz, MAXIS can easily offload the 3G services from 1.8GHz to make way for the second LTE carrier. CELCOM, DIGI and UMOBILE each have only 30MHz of bandwidth in 2.1GHz. DIGI would fare the worst because unlike its competitors from the Top 3, it does not own much spectrum in the sub-1GHz region, which means that the yellow-man may find it very challenging to extend its LTE services into 1.8GHz band as currently, its 1.8GHz and 2.1GHz bands are already quite congested with 2G and 3G services, respectively.

Despite this development, I would still put my dollar on DIGI’s business, at least for the next 2, 3 years. Until the time MAXIS can finally pull its socks up with their newly announced CEO, a former DIGI CEO with no pun intended, who will take the reign in the second half of 2013, DIGI’s growth should still be robust enough to outpace its competitors. I have my reasons based on my own fundamental analysis but that will be a story for another day.

Why DIGI has not responded to the competition sparked by MAXIS and followed closely by CELCOM, is yet unknown. In this author’s opinion, the bigger and more impacting question is which of the telcos will be the first to launch the new Iphone5 that supports LTE. Now that, I say, would be the real BANG.

P78

The writer can be reached at phantom78@gmail.com

Can Green Packet do a Sprint ... or at least a Clearwire?

Everyone know that Green Packet has tried very hard - almost everyone that is. But a Telco business is a non apologetic business - either you are there or you are not. Green Packet has raised a lot of funds to do what it has done in this business. But in a telco business, you can't just raise your funds, have a shopping complex type of business - after the completion, sit tight, do the right promotional activities and if you are good with the right tenant, people will frequent, if you are not good, it is almost impossible to turnaround. In the telco space, it is difficult to be a Low Yat Plaza vs KLCC and still do well with a strong niche.

Telco business especially wireless, you will need to continue to reinvest. It does not stop at 2G. 3G is already here, HSDPA, 4G LTE being deployed, Wimax etc. If Green Packet intends to invest half a billion ringgit, Maxis will (and has capacity to) invests RM2 - 3 billion. Digi will do the same, and so will Celcom. So, where is Green Packet's advantage? They can do it, you can't. Even at RM100 million it is a big choke to Packet One's cashflow.

This same predicament has been felt by a company called Clearwire in United States. In fact, Green Packet in Malaysia is what Clearwire is in US. Both originally run on the WIMAX. Now, Green Packet, if you notice is selling fibre broadband as well, taking the pipe from TM. Hence, it has now become a service provider rather than a network owner. Clearwire in US is choking as well, and recently, Softbank via Sprint has taken a controlling position.

Recently, Green Packet's share price had a run, with rumours that it may be selling its Packet One's business. So, the price shot up almost 50% from RM0.42 to RM0.62 within a few days. Traders have (still) a few field days, or could it be the owners? We don't know.

Green packet's one month chart ending 18 Oct 2012

At the same time in US - a real M&A was announced few days ago where Sprint was to be taken over by Softbank in a USD20 billion deal. Sprint, if I may put it is facing what Digi was facing more than 10 years ago. It is losing out in the mobile race where currently US is having a "duopoly" - AT&T and Verizon. Sprint and T-Mobile are distant third and fourth - and these are choking both companies balance sheets and cashflow to the extent that Sprint was in the brink of financial distress. But, the deal from Softbank may probably change the landscape a bit, I hope. The deal is good enough for Sprint to had a good run. And so is Clearwire's, which shares was acquired by Sprint for its control of the former's prized spectrum.

Sprint's last 2 months share price

Back to Malaysia, the old Digi was facing difficulties to expand even with Vincent Tan's billions - Until, the mobile company was taken over by Telenor. Celcom and Maxis, from there lost some market share to Digi, and there voila!, Digi is just right behind these 2 players currently. You see, the difference between Vincent Tan and Telenor are scale, ability, people and focus - not just the money.

Green Packet is probably hoping for the same in Packet One, and it needs a large telco from overseas, in the mould of NTT, SK Telekom etc. Even then, it will be a tough task for any of the acquirers. Additionally, the problem as I see it in Packet One is that it is not Digi or Sprint. Firstly, Packet One is not a mobile company. It was a mobile broadband company. Now, as I said, that line has blurred and it is going for fixed line broadband as well riding on other people's line. Packet One is going to get a LTE spectrum, but as in this business, if your road is quiet, it is going to be eerily quiet. The game is in promotion, deployment and marketing. This is the game where Packet One is going to lose without being deep pockets. In this, Green Packet desperately needs to sell.

Will anyone serious be interested? And to fill that puzzle, that acquirer needs billions of ringgit to start off with and one of the three or four (TM included) dominant telcos to make some mistakes along the way. Probably, a tough one to hope for...

Maxis, Celcom, Digi: Who is grabbing whose market share?

At the stage where revenue from mobile business is growing at a snail pace, it is important for each of the big three telcos continue to chip away market share from its competitors. As such, a simple statistics - "revenue" is much important to have a view of what each mobile represents and has managed to build on.

Why as simple as "revenue" number is important
Much of mobile players investments are fixed investments i.e. the equipment investments and staffs costs (except for the subscriber's acquisition costs). As a result, it is very important for these guys to build on revenue. This is the stage where we are able to view on who is able to build on its brand better, and who potentially has lost market share via higher churn rate.

These mobile players (except for Axiata) have become largely a dividend stock with dividend per share just as high as earnings per share. Why Axiata is not a full dividend stock is due to its regional presence than just Malaysia.

As a result, it is important for investors to still have a view on who is growing faster.

"Click the picture for larger view" - basically it tells of Digi has better revenue growth compared to Celcom and Maxis which came in last.

As you can see above, the one that is able to produce bigger revenue growth is Digi with a 3-year Compounded Quarterly Growth Rate ("CQGR") of 2.05% against Celcom's 1.44% and Maxis' 0.23%. Among the three mobile players, CQGR over the last 3 years was a mere 1.10%.

Produce the market share on a pie chart, it looks like below.

"Click the picture for larger view"

Now, as you can see, Digi's market share among the 3 was about 24.79% 12 quarters ago and it has now grown to 27.73% in its latest quarter numbers. The increase in market share for Digi is at the expense of Maxis with Celcom registering growth from 32.06% to 33.37% revenue market share among the 3 mobile players.

In fact, the numbers that I took includes some revenue (although minimal) from fixed broadband for Maxis, as now Maxis is more actively into fiber broadband than Digi and Celcom. I have not heard of the two players dwelling into fixed broadband actually. Over the last 12 quarters, I can in fact go on to say that for the mobile business alone, Maxis may not achieve any revenue growth perhaps. If that is that case, things does not look good for Maxis in terms of its competitiveness as it is losing market share to its other 2 competitors.

Telecommunications in Malaysia - a sector not to be missed

When I thought of how much monthly expenses are spent on communication, I thought I should not miss out this sector.

I spend around RM430 a month paying these companies. Some may pay much lower, some may even pay much higher, nevertheless it is already a necessity. We use their services from voice to data (3G or High Speed Broadband), whereas for video content, we use Astro's services.




Few thoughts about this sector:

1. voice has matured, with more spending on mobile rather than fixed. Fixed line usage will continue to deteriorate;
2. data is growing, but who will be the winner ultimately. Current seems to be TM. Will they continue to grow their market share?;
3. mobile has the Big 3 i.e. Maxis, Celcom (under Axiata) and Digi. The others such as UMobile, YTL, Redtone are just passers-by;
4. this is a high capex game. Remember telcos are technology adopters not so much of a technology innovative companies. AT&T used to have Bell Labs which churned out tonnes of new technologies during the earlier days. Now this is not so - I remember Bell Labs became Lucent and now it is Alcatel-Lucent. Look at where Alcatel-Lucent is right now - almost animosity. Telcos are more of adopters today. Look at how AT&T, Verizon, even Maxis and the Singapore telcos are so reliant on Apple, Blackberry and recently Google to help them to push their 3G packages;
5. since it is a high capex game, why the smaller players bother mind-boggles me;
6. anyway I believe they are looking at the post investment effect which is the amount of free cashflow received is very rewarding;
7. all the big boys (Axiata, Maxis, Digi and TM) are fighting over the data market share. Smaller players are also putting their effort in not allowing this to be just the big boys game;
8. Will any player be able to break Astro's dominance? Is yes, when and who can possibly be the player?

The industry is gamed for exciting times (has always been since mobile became something big).
Here are some of the market cap size of companies in this space:

As you can see, the telco sector consists of around 9% of the total market cap - very significant. Now who will be the winner? - as my blog is trying to identify the better play. I will have more of the industry and individual company analysis of this sector.
See ya!