A look at Redtone - what is a 4G spectrum worth?

The Bright Packaging deal makes me relook at Redtone - why? - because it is now controlled by the same party - one that is trying to be a corporate player - and just remain that. I used to look at Redtone from its VOIP days. And when it ventured unsuccessfuly into providing all kinds of data and voice solutions via its WIMAX and other spectrum (remember EBTech) etc., the company was basically looking for multiple revenue model to boost its income. My, was it tough...Anyway, the latest that any research house has provided for the company is a "outperform" call. The below portion has been taken from Bernama news. It is said that Kenanga expects big boost from its spectrum sharing and universal service provider project starting from 2013 to the extent that Net profit of RM23.6 million is expected for 2013. For 2014, it is RM25 million.

Now, at current price of RM0.405, the market value that the company is getting is in the region of RM194 million. For a company that has a 4G LTE together with a WIMAX spectrum, is it worth that much? Kenanga is valuing the shares in excess of RM0.52, hence the valuation it is providing to Redtone is actually more than RM250 million.

The report continues to say that the resource sharing is beneficial to Redtone, no doubt about it. The thing is that - now we can almost sure to perhaps say - this resource sharing is more of a one way rather than two way sharing i.e. it would be more of a resource for Maxis to use rather than Redtone to use and it seems that companies are willing to pay a lot in bidding for 4G LTE spectrum overseas (up to billions), how much do we think Maxis will pay for. Spectrum is something that is valuable if big telcos are able to maximize from the ownership while companies like Redtone, Puncak Semangat are using it to their advantage, i.e. selling them to the bigger telcos. Of course, there are speculation that Puncak Semangat's 4G spectrum may be shared with Celcom.

Discounting the universal service provider project and other remaining businesses that it has which to me is not worth anything more than RM50 million the most, for Redtone, if its dependence on the spectrum is worth as much as the analysts are calling, then I am thinking - would the ones owned by YTL, Packet One, UMobile be worth as much as well? - in excess of RM200 million, for spectrum alone.

Do we really expect Redtone to be a full-fledged 4G LTE mobile provider like Maxis, Celcom, Digi or even UMobile, YES or Packet One? I have yet to see them get started and to kick start that, does it have the funds and be willing to spend in excess of RM500 million as what all these players have done before? I don't think so, as it only has around net cash of RM20 million currently and I do not see it raising more funds for that costly affair. Of course, it can say it will use the spectrum for other purposes, but I really doubt it can even utilize a small portion of the spectrum.

Anyway, for Kenanga to boldly come out with a projection of some RM25 million net profit without much data, there must be something which we are not privy of coming from the shareholders. Or is it just taking another shot at the numbers? - without anything to proof...

Maxis-Redtone 4G deal: Is this how the telco players are moving forward?

MAXIS Bhd has signed an infrastructure sharing agreement with REDtone International Bhd, for both parties to offer better high speed wireless broadband services.

This will be done by combining their soon-to-be-awarded 4G spectrum.
 
Earlier, there are news that the Malaysian government is providing 9 licenses to telcos - in my opinion my order of companies strength - Maxis, Celcom, Digi, YTL Communications, UMobile, Green Packet, Redtone, Syed Mokhtar's linked telco, Asiaspace.

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There is no doubt that this deal will be beneficial for both parties as it is mentioned it allows the companies to save costs while at the same time fast tracking their rollout. No other terms are revealed, for example the pricing terms for usage of each others network etc. Hence, we do not know.

My question is that since there are 3 mobile players which are head and shoulders above the rest, would this method be used by Celcom and Digi as well. They would definitely be needing much bigger network than the smaller players. The smaller players on the other hand needs money to even kick start their rollout.

I am sure MCMC's intention in awarding the 4G LTE's license is for the players to end up being operator rather than selling network. They can be operator allright but to make it big from being operator, I am not able to see it beyond Maxis, Celcom and Digi still.

This deal is still beneficial to Redtone though, although at the moment its share price is already quite full. The RM150 million value that the market provides to Redtone is largely on the license which it holds - absolutely bizarre. For a company like Redtone, to be a full fledged operator, I see them raising funds just like what Green Packet and UMobile did. Remember to be an operator, network is just one part of the solution. Devices, billing systems, distribution, customer service, marketing, advertising etc. - you will still need those especially in a retail network.

Let's see where it leads to.