TM agrees to buy controlling stake in P1

• TM, Green Packet and SK Telecom to leverage their strengths to grow P1 to ‘next phase’
• The deal helps TM ‘fill up gaps,’ promises to make P1 wireless broadband powerhouse

TELEKOM Malaysia Bhd (TM), the country’s largest fixed-line operator, has agreed to buy a 57% stake in Packet One Networks Sdn Bhd (P1) for RM350 million (US$106 million), putting an end to rumours that have been percolating for almost two years.
 
The deal saw two companies which were once engaged in a fierce marketing war, initiated by P1’s Potong campaign, now working hand-in-hand to reach a common goal.
 
Under the deal, TM will also pump in an additional investment of up to RM210 million (US$64 million) into Green Packet Bhd, P1’s parent company, via newly issued redeemable exchangeable bonds.
 
These bonds can be exchanged for P1 shares held by Green Packet at a later stage.
 
The investment agreement, which was signed by TM, Green Packet and South Korea’s SK Telecom, is expected to be completed within the next few months.
 
Once the deal is completed, TM, via its wholly-owned unit Mobikom Sdn Bhd, will own the 57% stake, while Green Packet will see its stake reduced to about 30% and SK Telecom’s stake down to 13%.
 
“The RM350 million we invest will go straight into P1, not the shareholders,” TM group chief executive officer Zamzamzairani Mohd Isa (pic) told a media conference on March 27 after signing the investment agreement in Kuala Lumpur.
 
Part of the money is expected to be used to pare down P1’s borrowings. While the RM350 million is not sufficient to repay P1’s entire debt of approximately RM400 million, it is nevertheless sufficient for P1 to meet its debt commitment for this year.
 
Its latest financial report showed that Green Packet, at the group level, has less than RM150 million in borrowings, repayable in one to two years.
 
Good or bad deal?
 
AmResearch Sdn Bhd, in a report, highlighted that the deal can help fast track TM’s 4G (Fourth Generation) game plan.
 
“If TM intends to get into the 4G game in a big way, P1’s subscriber base of approximately 500,000 will give it a meaningful base to start with,” AmResearch said in the report, which was issued before the investment deal was announced.
 
On the surface, it appears that TM is paying a significantly lower sum than what market rumours had suggested, which pegged P1 with a price tag as high as RM2 billion (US$605 million).
 
“Our estimates for spectrum value (RM290 million for 2.3GHz and 2.6GHz at an average assumption of 20sen/  MHz/ population), site acquisition (RM416 million at an average of US$66,000 a site) and subscriber acquisition (RM225 million at an average of RM500 per subscriber) come up to about RM930 million,” said AmResearch.
 
[RM1 = US$0.30]
 
In for the long-haul
 
The deal also involves a long-term commitment by all three parties – TM, Green Packet and SK Telecom.
 
Under the deal, all three will raise up to RM1.65 billion based on the entitlement ratio of 60%, 25% and 15% in favour of TM, SK Telecom and Green Packet. The fund will be used to expand P1’s LTE (Long-Term Evolution) footprint, and potentially turn P1 into a wireless broadband powerhouse.
 
The partnership also brings out the strengths of each party, their executives said.
 
“This union of P1, the innovative and enterprising challenger, with big-name giants in the telecom sector, is a positive on many levels,” said Green Packet group managing director Puan Chan Cheong (aka C.C. Puan).
 
He said it would bring “significant synergies” to P1’ existing business capabilities. “SK Telecom’s enhanced commitment to the P1 business is not only reaffirming, but also strongly transitions P1 into the LTE era,” he added.
 
The deal can also be seen as a win-win-win solution for all parties.
 
For TM, it would allow the company to have a bigger presence in the wireless space, and also help it to “fill up gaps” it had earlier acknowledged. The bulk of its income comes from selling fixed-line telephony and broadband services to consumers and businesses.
 
For Green Packet, the deal would help the company solve P1’s short-term problems, such as its debt obligations, without losing out on P1’s long-term potential gains.
 
Meanwhile for SK Telecom, having an investor like TM in the picture would help increase the chances of P1 succeeding in the wireless broadband market and could help SK Telecom to achieve its desired return on investments over the long run.
 
“This is in line with TM’s vision of being an ‘Information Exchange’,” said Zamzamzairani.
 
“We are further expanding our capabilities into the adjacent wireless broadband space, as a natural evolution of our suite of Internet and data services, in order to better serve our customers’ needs.
 
“The partnership provides an LTE-ready platform for us to more efficiently roll out wireless broadband products, and accelerate time-to-market for our customers,” he added.
 
The deal also raised speculation on whether P1 will still be continuing its WiMAX network.
 
Puan said that P1 will still be serving its customers via WiMAX technology over the near-term. However, eventually -- over a three- to five-year period – he expects P1 to fully migrate its customers to LTE.
 
“Over the longer-term, about three to five years, we will use both the 2.3GHz and 2.6GHz spectra, all for the LTE network, in order to deliver bigger capacity and greater speed to our customers,” he added.
 
Related Stories:
 
TM open to talks with any party to ‘fill up gap’
 
Green Packet bets its future on LTE
 
P1 lays off nearly 100 workers to ‘streamline operations’
 
 
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