A key player in Malaysia, Telekom Malaysia (TM) has also made considerable inroads into the international telecommunications space through its operations’ arm ?? Telekom Malaysia International Sdn Bhd. Recently, the company was seen making a serious attempt to increase its presence in India (it currently has a stake in Spice Telecom) by bidding for Hutchison Essar. In an interview with tele.net, Yusof Annuar Yaacob, chief executive officer, TM International, talks about the company’s achievements in the past year, its plans in India, industry concerns and trends in the telecom sector…
What are the current telecom technology trends worldwide?
3G is one of the most important developments in the mobile industry in recent times, capable of delivering high speed data services based on IP with greater capacity and efficiency. The 3G platform provides converged voice, data, internet and multimedia services supported by a high data rate. High data rate services can also be provided by broadband technologies like Wi-Fi and Wi-Max. Emerging technologies for broadband wireless access are viewed as an extension of 3G services.
The trend that the industry is preoccupied with now is Wi-Max. This is the next big thing in high speed wireless communications where users are virtually connected inside or outside buildings. In many markets, Wi-Max is being proposed as an alternative to 3G. However, Wi-Max has limitations with regard to providing mobile services.
How do you perceive the Indian telecom industry in terms of growth opportunities?
There exist vast opportunities for growth in the Indian telecom sector. It is the fastest growing mobile market in the world with a monthly net addition of more than 5 million users, in a country where the pan-Indian mobile penetration rate is still in the single-digit level of 8 per cent. In a country of more than a billion people, this is in itself a staggering growth potential.
In relation to this, we also note with great interest that the Indian government has, in December 2006, launched a 10point “Vision 2010” programme for the communications sector, premised on the following key parameters: network expansion targeted at 250 million telephone connections by 2007 and 500 million mobiles by 2010; 85 per cent mobile coverage by 2007 and 90 per cent by 2010; and 50 million rural connections by 2007 and 80 million by 2010.
Much of this growth opportunity, however, may necessitate new approaches to managing the spectrum scarcity issue.In that respect, we look forward to the release of the official 3G spectrum policy, as well as decisions on 2G spectrum allocation for new circles.
What is the future after 3G?
The future of wireless is Wi-Max, in essence when the industry talks of new developments post-3G, the experts are in reality talking about Wi-Max. The future is mobile multimedia computing due to fast time-to-market, greater throughput, multimedia centric, greater broadcast capacity at 2 Mbps per user, vehicular mobility at up to 75 miles per hour and broad global support by all the major telecommunications providers.
Wi-Max is likely to increasingly go mainstream with more commercial launches of mobile Wi-Max networks all around the world including India, one of the most dynamic telecommunications markets in the world. In fact, in key areas around the globe, Wi-Max is already accepted as the next big revenue earner for network operators. Infrastructure to support Wi-Max is already being driven by major equipment vendors as the industry expects spending for such backbone to be in the region of $3.5 billion by 2011, growing at a compounded annual growth rate (CAGR) of 31 per cent, according to research group IDC.
However, India has rightly chosen to temper a Wi-Max-centric future with its own national aspirations for broadband connectivity, declaring 2007 as the Year of Broadband. Plans for the introduction and spread of IPTV and mobile television have also been announced for 2007-10.
How would you compare India with other South Asian countries in terms of technology adoption?
Our strength in Sri Lanka and Bangladesh is being a low-cost operator where our average revenue per user (ARPU) is under $5. When you are operating at lower ARPU levels, you have the option of driving profitability through low-cost options, including technology.
In India, the landscape is similar, in that growth is primarily driven by low rates for services. However, the approach to technology may be a little different as there is greater awareness of technology options. Given the intense competition amongst network providers to gain a bigger share of the huge 300 million middleclass market segment, technology may be a key differentiator for operators who provide more value-added services to consumers and corporate users.
What is Telekom Malaysia’s outlook on India?
Overall, we are very excited about the prospects in India. The country has consistently recorded exponential growth, especially in the mobile segment. According to the Telecom Regulatory Authority of India, the total mobile subscriber base reached 143.02 million at the end of November 2006. Comparing this mark with the numbers recorded in September (129.51 million) and October (136.22 million), we are looking at average new mobile connections of over 6 million per month. Surely, this is an incentive for any communication player wanting to achieve regional acknowledgement.
Riding on these sentiments, we believe there are vast opportunities for growth. Falling handset costs and lifetime prepaid packages will fuel further growth in the sector. Moreover, with two-thirds of India’s population living in the rural areas, this is a key growth area for Spice and TM, if we intend to grow beyond our current two circles.
What, according to you, are the concerns that need to be tackled?
Over the last two to three years, the Indian regulatory framework has become more certain on foreign ownership and telecom sector developments. Major breakthroughs have been made in the licensing framework, for example, as well as rules in relation to FDI in the telecom sector.
India’s growth story is, however, not without its challenges. Some of the concerns that we feel need to be tackled are: the need to sustain the high growth levels with heavy network spending; the need for an optimal resolution to spectrum scarcity, undertaken in an equitable manner; a fragmented yet highly competitive cellular market; and limited competition in the national and international communications segments.
What are Telekom Malaysia’s overall plans in India?
The way forward for TM and our partner, Spice Telecom, is to aggressively pursue a pan-Indian presence, premised on a twopronged strategy: first, rapid rollout in our existing two circles of Punjab and Karnataka; and second, footprint expansion to 21 new circles plus new offerings via an NLD/ILD presence. The requisite licence applications for the latter have been submitted. In short, our shortto mediumterm focus is to ensure that we improve our position in Punjab where we are currently the second largest operator. And, in Karnataka, you will see us replicating our success in Punjab, where we will push to roll out the network over the next 12 months or so. In the long term, we wish to make Spice a leading and profitable operator in its existing and new circles. All our efforts and intentions will be undertaken through Spice.
Virtual network models (both fixed and mobile) may be the way forward to facilitate faster rollout. With Spice also pushing for it, we as a strategic investor can provide the technology and share our knowledge in network rollout. We believe this is a much more efficient route for the operations than trying to build 20,000 to 30,000 towers and base stations to expand our coverage areas.
TM would also continue to explore both organic and inorganic growth opportunities as and when they come along, provided these have a strategic value addition to TM/Spice.
Do you see more consolidation in the telecom sector in 2007?
Moving into 2007, our view is that the ongoing consolidation will continue. However, the driving force for consolidation in the Indian telecom sector will be the availability of spectrum. While operators may have the resources to purchase spectrum, as long as spectrum does not become available, the faster way to access spectrum would be to acquire competitors. Some of the more recent moves in the market in relation to the Hutchison Essar Telecom stake, for example, reflect this.
How would you rate Telekom Malaysia’s performance in the past year?
For the nine months ended September 30, 2006, the TM Group posted a 13 per cent increase in its profit before tax to $632.14 million* as compared to $561.07 million* in the corresponding period of the previous year. The increase in profit was driven mainly by continued robust revenue growth of the group’s overseas operations and internet and multimedia, which registered a year-on-year growth of 179.9 per cent and 43.6 per cent respectively. The group’s revenue stood at $3.42 billion,* up 17.6 per cent from the $2.91 billion* posted in the nine months ended September last year.
Specifically, TM’s overseas operations contributed 30 per cent to the group’s profit after tax and minority interest for the nine months ended September 2006, up from 23 per cent recorded in the same period in 2005. In addition to this, the international arm contributed 24 per cent to the group’s revenue which stood at $3.42 billion* for the nine-month period ended September 30, 2006. Our Bangladesh unit, TM International Bangladesh, recorded a sterling CAGR of 60.4 per cent followed closely by Dialog Telekom, our Sri Lankan subsidiary, at a CAGR of 41.2 per cent. We also recorded an impressive growth of 63 per cent in regional mobile subscriber numbers in our third-quarter financial results as of end-September 2006 to 26.5 million from 16.3 million a year ago.
To give an indication of our strong past performance, we recorded a CAGR of 38 per cent in our Asian investments in revenue terms over the past five years (2001-05).
