Telekom-Green Packet: The weird world of Malaysian telcos

Remember years ago when Telekom Malaysia (TM) had TM Touch? They were going nowhere and for TM to have a significant mobile business and successful one, the forced (sort of) purchase was planned. After the purchase of Celcom from Tajuddin Ramli, years later it was split again, presumably for Celcom and its mobile business to have a solid Asian strategy, hence Axiata.

TM on the other hand, was given a lot of handouts in the form of financial assistance for its fiber broadband rollout - to the tune of multi billions. With that handout, few would think that TM can fail. In fact when Celcom and other mobile businesses were split from TM, these mobile group was structured to owe TM something like RM4 billion, another assistance to TM.

TM should not and cannot fail, just like MAS. The difference between MAS and TM is that MAS is fighting globally competitive players. TM is given a headstart in any of the competition it goes into, something like standing on the 50 meters mark in a 100m race while the rest will have to start from the beginning.

Who will think TM will succeed in the mobile data business acquiring Green Packet? I don't.

In a standing start against players like Maxis, Celcom, Digi - it will pretty much lose, what more coming from behind although it has the backbone of fiber optics - something that the others lose out to TM.

In a business of telco, it is not just the infra. Tell that to Digi, which does lose out in infra - even for the LTE spectrum and it did not even have the 3G spectrum earlier - forced to a deal with Time Dotcom.

This deal does not help anybody but to postpone the demise of Green Packet while another player whom are not able turnaround anybody is thinking that it can. SK Telekom's name is just a convenient partner to bring the story line sounds better. After all, it has been with Green Packet for many years and nothing really happened.

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...

Astro-Maxis tie up: Wake up guys!

So at last Maxis and Astro decide to do tie-up, although the nature of the tie-up is yet still blurr. What was not possible due to each party's "protecting the brand and turf's" mentality, is now made possible probably from the Number 1 in this case - Ananda?

What is the outcome in this?

Astro is way-way stronger in terms of content production and channels delivery to the masses in Malaysia. It is Number 1 by far. Who is Number 2? Media Prima - some may not even know the name ... err TV3, NTV7 ring the bell?

In my previous article, I have mentioned at length of Astro's dominance but yet its growth is to be curtailed in future not due to local competition but the nature of the content deliveries technologies (and content itself) moving forward. IPTV is to gain dominance and who has the best infrastructure in terms of IP delivery - TM. Astro's delivery infrastructure is old!

Maxis rents the HSBB (fiber) infrastructure from TM. And from there, Maxis offers its own fiber packages to the Malaysian masses. Sounds confusing? Well, let's put it in another way. TM build the roads with the help of the government. TM puts its own toll booth and Maxis does that as well renting the booths and toll roads from TM. Who provides the transport? Astro. But so far it only offers that to Maxis using the toll roads that Maxis rents from TM.

Do I see something missing? There is still the monopoly element here. Astro does not compete against TM. Neither does it competes against Maxis as Maxis is not into content. Not that I see it.

Where are the tie-ups between Astro and TM, Digi, Celcom, P1, YES?

Bring it on. And lose the monopolistics element in content deliveries! Drop the exclusivity(ies).

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!