Business

Thursday October 15, 2009

Challenge heats up for WiMAX

By RISEN JAYASEELAN


Packet One believes east Malaysian market viable

KUALA LUMPUR: Despite being given the rights to roll out WiMAX in east Malaysia, Packet One Networks (M) Sdn Bhd (P1) will find it difficult to make its business profitable there, say industry players.

“Sabah and Sarawak have a smaller population while their total land mass is about three times the size of Peninsular Malaysia, making it more costly (to roll out WiMAX there),” an industry player told StarBiz.

An analyst added that the earnings before interest, tax, depreciation and amortisation (EBITDA) margins of the WiMAX business was half of what could be earned in the peninsula.

Competition is also stiff in east Malaysia, where REDtone International Bhd has had a headstart, covering more than 25% of the population there.

Puan Chan Cheong ... ‘We hope to be EBITDA positive by Q1 in 2010.’

WiMAX providers in east Malaysia also face competition from other broadband providers using satellite, copper lines, 3G as well as state-funded WiFi services.

Puan Chan Cheong, chief executive officer of Green Packet Bhd, the parent company of P1, however, believes there is pent-up demand for wireless broadband in east Malaysia. “It is a viable business, even in east Malaysia. As a group, we hope to be EBITDA positive by the first quarter of next year,” he told StarBiz.

Meanwhile, REDtone Telecom-munications group managing director Wei Chuan Beng said the entry of Green Packet into the east Malaysian market would not change things significantly. “We will continue to do our best to serve our customers and target market,” he said.

The WiMAX business has yet to provide any of its players with significant cash flows. Even so, its proponents believe it is a long-term business, not unlike how early investments into mobile telephony networks eventually paid off handsomely. This partly explains how WiMAX players continue to be able to raise funds despite the business not proving to be viable yet. (see table)

Still, WiMAX remains only a means of providing Internet access and is therefore in competition with incumbent Telekom Malaysia Bhd (TM), which has a virtual monopoly over copper-based Internet services. TM is able to keep reducing its prices as the bulk of its investments are sunken costs.

TM is also aggressively expanding its broadband services and doing so partly with government funding. Of its planned RM11.3bil high speed broadband (HSBB) network, the Government will fund about RM2.3bil.

Working in favour of the WiMAX providers is the fact that the Government has set a target of having 50% of households with broadband access by the end of next year. With the current level under 20%, the Government may quicken the use of the Universal Service Provision (USP) fund.

The fund is made up of monies contributed by the bigger telecommunications companies, based on a small percentage of their profits. The USP fund, reported to be topping RM3bil now, is aimed at providing telecommunications facilities and Internet access to underserved areas.

The Malaysian Communications and Multimedia Commission will identify such areas and invite tenders by service providers wanting to provide the communications infrastructure for those areas. “WiMAX players may be able to reap some of their investments by tapping on this fund,” an industry player said.

It is also understood that the Government is considering offering a new subsidy to Internet infrastructure providers, which include the WiMAX players, for equipment purchased from abroad. The move is aimed at encouraging the quicker rollout of WiMAX and other Internet access infrastructure in order to achieve the broadband penetration target.

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