Published September 4, 2008

Telekom wins RM11.31b M'sian broadband project

Award ends RM18b rival bid from firm partly owned by Pahang state govt

By S JAYASANKARAN
IN KUALA LUMPUR

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THE government's award of a RM11.31 billion (S$4.7 billion) nation-wide, high- speed broadband project to Telekom Malaysia (TM) on Tuesday will ensure a high- growth business for the utility going forward and closes the door to another politically linked RM18 billion bid from a private company in Pahang state.

In an announcement to the stock exchange late Tuesday, TM said that it has received a letter of award from the Malaysian government for the project with the funding split between Kuala Lumpur (RM2.4 billion) and TM (RM8.91 billion). Pending a formal agreement between the government and TM, analysts said that the rollout would probably kick off by the first quarter of next year.

The deal was supposed to have been sealed much earlier because TM had announced that it had been chosen by the government in May. But the award was postponed twice because of the emergence of High Speed Broadband Technology (HSBT), a private company that proposed building the same network for RM18 billion but without any government aid.

HSBT is 20 per cent owned by the Pahang state government and the team that delivered its sales pitch to the Cabinet Committee on Broadband, chaired by deputy premier Najib Razak, was led by Pahang chief minister Adnan Yaakub.

The bid failed, apparently, because HSBT's concept paper on the project was vague on specifics. The fact that Mr Najib also hails from Pahang may have also helped derail it: giving it the OK would have inevitably triggered questions about the 'political' flavour of the award.

TM, on the other hand, isn't a stranger to broadband: it currently has an 88 per cent market share, while mobile phone operators Maxis and Celcom have a 6 per cent share each.

But TM desperately needs new growth drivers going forward: the restructuring of the parent company last year split the utility: Telekom Malaysia International which held all the international and wireless business and TM which held the drying-up fixed line business and broadband which will contribute the bulk of its revenue going forward.

With voice revenue falling off, analysts believe that revenue from data services will be the key growth driver for TM, rising to 44 per cent of revenue from around 26 per cent currently.

Broadband penetration rates in Malaysia are around 25 per cent or so and are expected to almost double in three years. That will be crucial to TM's ambitious nation-wide project which the company should easily finance. It is owed RM4 billion by its sister company TMI, an amount expected to be repaid by 2010.

According to CLSA, despite its expenditure for the broadband project, the company is still expected to be in a net cash position of RM2.5 billion next year.

The only problem is that its grip on the broadband market is expected to be loosened with stiffer competition, new products and the entry of new players like mobile company Digi and niche wireless operators Green Packer, Redtone, YTL-e and Asiaspace into the fray. Indeed, analyst Claire Chin expects its market share to slide to 77 per cent by 2010.