Telecommunications Weekly Review: 12th – 18th January 2009
• Less immediate gearing concerns for TMI
TMI and consortium lost their bid for the 3rd national mobile licence in Iran, thus immediately reducing immediate gearing concerns on TMI. The licence went to a consortium led by Emirates. The news may appear as a setback to TMI’s expansion in Iran given the limitation of 35,000
subscribers in its current licence.
However, it is a relief that TMI would not potentially need to gear up to expand regionally, given its high gearing levels at 1.5x. Had TMI been successful, it would need to fork out half or €75m (RM332m) of the upfront licence fee totalling €150m (RM684m) alone. Earnings will likely take a
dive from higher financing costs to finance additional capex, not to mention other risk factors such as execution and country risks.
TMI should instead be focused on managing its existing regional assets, notably in Sri Lanka (Dialog) and Bangladesh (Aktel) which are currently in the red before embarking on another M&A exercise. Dialog turned red in 3Q08 as profitability slid each consecutive quarter since 3Q07, while Aktel has been struggling with losses each quarter (except 1Q08) since 3Q07.
• TdC sells DiGi shares for RM463m
Time dotCom Bhd (TdC) disposed of 22.5m DiGi shares for RM463.5m or RM20.60 per share via a book-building exercise to pare down its borrowings. The transaction reduces TdC’s stake in DiGi to 55.25m shares or 7.1%.
TdC said its total cost of investment for the disposed shares was RM484.2m or RM21.52 per DiGi share. Although the disposal would result in a loss of about RM23.2m for FY09, TdC is expected to enjoy pre-tax interest savings of about RM26.6m per annum due to the repayment of
bank borrowings with the net proceeds from the disposal. Consequently, TdC’s net gearing will reduce from 0.48x to 0.25x as total borrowings decline from RM1.09bn to RM626.8m.
• Fancy an unlimited prepaid plan?
Boost Mobile, Sprint Nextel’s prepaid mobile unit, launched a US$50/month nationwide unlimited calling plan on Thursday, raising fears of a US pricing war. Boost is hoping to attract its current customers who spent an average of US$31/month in 3Q08 and postpaid customers seeking to limit their spending in view of an economic recession.
The mobile scene in the US and Malaysia however differs substantially as only 17% of total US subscribers are prepaid customers, while on average Malaysian telcos have about 80% subscribers on prepaid plans. Hence, an unlimited prepaid plan here is unlikely, as earnings of which the bulk is from prepaid subscribers will be badly hurt in a price war.
• MAINTAIN NEUTRAL on the sector
• Nortel Networks files for bankruptcy
Nortel Networks Corp, the Canadian telecom equipment maker, filed for bankruptcy protection on Thursday, becoming the sector’s first big victim of the global economic downturn. Once Canada’s biggest by market value at the height of the technology boom, Nortel has been battered in recent years by an accounting scandal, past management missteps and growing competition.
Ultimately, Nortel was brought to its knees by its customers who reacted to the global economic slowdown by dramatically scaling down their orders. This was further compounded by growing customers’ concerns about Nortel’s long-term viability, whereby it has become marginalised in an increasingly global industry. Many believe Nortel lacks the scale to compete in an increasingly competitive global market against rivals including Alcatel-Lucent, Ericsson, Nokia-Siemens and fast growing cut-price Chinese makers such as Huawei and ZTE.
• Telecom equipment makers not spared from economic downturn
While Nortel may have brought upon itself its own demise, telecom equipment makers who were previously thought to be recession proof as investors expected telecom operator spending to protect vendors, now appear otherwise. The outlook has turned for telecom equipment makers as telecom operators squeezed by the global credit crisis cut back on spending.
Some expect capital spending by telecom operators to drop by as much as 20-30%, which occurred after the dot-com bust in 2002. AT&T last month announced it would cut 12,000 jobs and scale back its network spending in 2009, citing declining fixed-line sales. Many telecom equipment makers such as Ericsson and Alcatel-Lucent have already lowered their earnings forecast.
EPF extends buying spree. Share prices of telecom stocks experienced little volatility throughout the week. Apart from that, EPF extends its buying spree of TM and TMI. In a filing on January 7, EPF bought an additional 1.88m shares in TM, bringing its equity stake to 15.7%. On January 9, EPF also added another 1.42m TMI shares to its portfolio and now owns 14.9% in TMI. Besides that, EPF disposed 78,900 DiGi shares in a filing on January 8, and currently holds 10.1% in DiGi.
Entry filed under: Business, Finance, Stock Market. Tags: 2009, Aktel, Alcatel-Lucent, AT&T, bankruptcy, book-building exercise, Boost Mobile, buying spree, Capex, Dialog, digi, earnings, Emirates, EPF, Ericsson, global economic downturn, Huawei, January, Nokia-Siemens, Nortel Networks, Nortel Networks Corp, postpaid customers, pre-tax interest, price war, Sprint Nextel, TdC, Telecom, telecommunications, Time dotCom Bhd, TMI, unlimited calling plan, unlimited prepaid plan, upfront licence fee, weekly review, ZTE.