Saturday February 26, 2011
By B.K. SIDHU
bksidhu@thestar.com.my
THE landscape in the country's telecommunications sector is changing ever so rapidly which has led many telco players to re-invent themselves and reverse their strategies to stay competitive.
So, when over the week, Telekom Malaysia Bhd (TM) announced its plans to partner Celcom Axiata Bhd, no one bat an eyelid. They are after all, sister companies. The tie-up closely followed a similar pact TM signed with Maxis Bhd a few weeks ago. And globally too, the trend to outsource and form tie-ups to save on capital expenditure is also picking up.
But TM's latest move has raised a question: Wasn't it only about four years ago when TM and Celcom split up into separate entities, all in the name of unlocking value?
The signs were there much earlier. Two years ago, TM's boss Datuk Seri Zamzamzairani Mohd Isa had said that mobile was an option. That stance has become more compelling lately given the surge in demand for mobile broadband and the robust growth in data traffic.
Indeed, while the fixed high-speed broadband (HSBB) network brings enormous potential for TM, it still can do a great deal more with the mobility/wireless equation. Mobility is the game changer in the world of communications even though fibre is a major component for the backhaul for exponential growth.
In a recent report, Cisco projected that mobile data traffic would increase 205 times, reaching 6.3 exabytes per month by 2015 due to a projected surge in mobile Internet-enabled devices delivering popular video applications and services. With that, capacity on current 3G networks will likely be exhausted by 2013 putting pressure on providers for additional investment in radio access and backhaul networks.
Against that backdrop, it may be easy to understand why, after operating separately for three years, TM and Celcom have decided to come together again.
The pact
TM has signed a memorandum of understanding with Celcom to explore areas where infrastructure can be shared. The parties will hammer out a definitive agreement in two months for a 10-year partnership.
The collaboration will cover access and transmission on TM's high-speed broadband (HSBB), wholesale Internet access and digital subscriber-line access. Essentially, this means that Celcom will have access to both TM's copper and fibre line while TM can tap the mobile realm by riding on Celcom's infrastructure.
“It is a sibling factor,” says Celcom CEO Datuk Seri Shazalli Ramly. Both companies share a common shareholder, Khazanah Nasional Bhd, which owns 33% of TM and 44.5% of Axiata.
Celcom has the widest coverage in populated areas for its cellular network. It also claims to have wide coverage for wireless broadband. Evidently, Shazalli has great plans for Celcom but without a fibre network, it may be difficult to realise the vision as the telco will need plenty of “dump pipes and content.''
Celcom also has a partnership with rival DiGi.Com Bhd to work together in many areas, mainly with the aim of cutting cost.
TM wants a slice of the mobile voice and data business and it wants to ride on a MVNO (mobile virtual network operator) model just like TuneTalk, XOX Bhd, Merchantrade Asia Sdn Bhd and REDtone International Bhd, instead of building an entirely new network. Many years ago, it used to own TM Touch but had eventually merged it with Celcom.
In a statement issued on Wednesday, TM says it will have an opportunity to gain access to Celcom's cellular network as a MVNO to offer its own branded mobile voice and data services to complement its existing fixed line portfolio.
(An MVNO offers mobile phone services such as phone calls and text messages but does not have its own licensed frequency allocation of radio spectrum. It also may not have the necessary infrastructure to provide mobile phone services. For example, TuneTalk rides on Celcom's network to offer cellular services.)
In the case of TM, it has the 450MHz and 800MHz bandwidth. The question is whether it is economically viable to build a whole new network or just hop on to an existing network.
Zamzamzairani says: “We are using the existing bandwidth that we have for CDMA.''
Sharing obviously has its benefits. AmResearch points out that TM would not have to overly burdened with capex to build a full-blown mobile business. Instead, it says TM will capitalise on Celcom's network via wholesale capacity purchase and operate its own subscribers franchise and monetise its own user base, which currently stands at 2.8 million of residential subscribers.
Demerger a right move?
With the latest development, the question begs itself on hindsight was it a right decision to hive off Celcom back in 2008?
Back then, Celcom used to be TM's wholly-owned unit. TM had forked out about RM4bil to buy Celcom in 2002 only to let go of the cellular unit in 2008 under a demerger exercise, along with other international cellular operations, which is now parked within Axiata Group.
“It was the right decision then. Just look at the market capitalisation that has grown. TM used to be a laggard and now it has a second chance to shine with HSBB.
“Even if Celcom was listed, it would be a worth a lot more but that's not the route Celcom will take,” says a source close to the companies.
At the point of demerger, both companies were worth nearly RM40bil. Today, Axiata is worth RM41bil and TM about RM14bil.
John Cheah the associate market analyst with IDC Malaysia says the demerger allows TM and Axiata to focus on their individual resources to excel in the fixed line and wireless markets respectively.
“Looking at the present, this new strategic partnership attempts to address the fast-evolving communications user habits. In terms of infrastructure, TM has a wide coverage, in addition to its recent HSBB network that has enabled it to provide FTTH services and fibre resale to other parties.
“As for Celcom, it currently has one of the widest wireless coverage within Malaysia and Axiata's mobile subsidiaries in other emerging Asian markets are also showing good growth,'' Cheah says.
The growth in data and video usage has beaten all projections which is placing pressure on celcos and telcos to ramp up network capacity.
Cheah of IDC says “when we look at current market, the increase in ubiquitous computing and the need for constant connectivity with mobility now calls for more converged services. Current market saturation, declining ARPU and constant capex spending have also driven the need for product and service innovation.”
“Future quad play environments that require both cellular and fixed line components is the reason behind this collaboration. IDC believes that the TM-Celcom MoU will be beneficial not only to the respective parties, but to the end users as well,'' he adds.
The shift from voice centric services to data-centric services is real.
Players like Celcom, TM, Maxis and DiGi can remain operators of dumb pipes/wireless networks or they can monetise further these pipes/networks to make more money in the future.
A report says that if telcos do not conform to the new reality, they face the risk of becoming nothing more than access only, “dump pipes utilities,'' like many of the fixed line cousins, with much of the new data related revenue growth leaking from the sector to new service providers.
“That is not to say that an access dump utility model is not sustainable in the long term but we should expect such a model to have lower financial returns than currently enjoyed from that perspectives. Operators need to try and maintain a content/service focus in the increasing data-centric world,'' the report says.
Hwang-DBS Vickers Research believes that Celcom is a bigger beneficiary of the recent tie-up given that the fixed broadband services will complement its current mobile offerings to existing subscribers.
It added that TM may have difficulty to compete with other bigger celcos (DiGi, Celcom and Maxis which collectively control 99% of the country's subscriber base), being the last to enter the MVNO market.
“Although we think the deal is positive for Celcom, near-term earnings impact would likely be minimal,'' says Hwang-DBS.
http://biz.thestar.com.my/news/story.asp?file=/2011/2/26/business/8142791
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