Business

Friday September 18, 2009

Wondering what a gaming company is up to by entering telco sector?

Friday Reflections - By B.K. Sidhu


MULTI-PURPOSE Holdings Bhd’s (MPHB) foray into the telecoms sector has raised many eyebrows.

Skeptics wonder why a company with gaming as its forte is getting into the telecoms sector. More startling is that the entry is via smallish U Mobile Sdn Bhd at a time when giants such as Japan’s NTT DoCoMo and South Korea’s KT Corp are exiting.

What does MPHB see in U Mobile that KT and DoCoMo did not? Could MPHB have done it via another vehicle instead of exposing the company to risks?

The way the deal was crafted also gives rise to speculation that it could be one friend helping another.

MPHB announced on Tuesday that it was buying a 3.9% stake in U Mobile. It also has a “put’’ option from AmBank (M) Bhd to buy an additional 41.63% stake in U Mobile for RM280mil within 13 months should there be a default on a financing facility taken to part pay the Japanese and South Korean investors.

If the put option is exercised, MPHB gets 45.53% stake in U Mobile for a song in comparison to the US$200mil (RM750mil) that U Television Sdn Bhd (UTV) has to pay the Japanese and South Koreans for their combined 33% stake.

The two friends here are Tan Sri Vincent Tan – who controls UTV, which in turn controls U Mobile – and Datuk Surin Upatkoon, the managing director of MPHB. Surin has an effective 34% stake in MPHB.

Tan asked Surin to take up the U Mobile shares. Surin agreed but not before getting the MPHB board’s nod.

“It is a friendly deal,’’ Surin told StarBiz in an interview. A director of MPHB pointed out that “it is done at arm’s length.’’

MPHB views the deal as “not to help a friend, but an opportunity to get into the telecoms sector.’’

For MPHB it is a chance to get into a new business where the downside risk is minimal; U Mobile has a 3G spectrum whose potential has yet to be exploited; there is room for further growth in Malaysia’s celco sector and margins earned by celcos are the highest in the region; and this investment could be income generating even though there may be some hurdles in partnering U Mobile.

That is why MPHB took up the put option and being an investment holding company, took the plunge itself instead of using another vehicle. MPHB is also involved in the stockbroking, insurance and property sectors. So as Surin puts it, it is not solely a gaming company.

Surin is excited about the prospects the telecoms sector holds despite the huge capital expenditure needed and the long gestation periods. In fact, he has been involved in the sector via his effective 17% stake in Thailand’s Shin Corp.

Whatever the deal, what is clear is that U Mobile needs a strategic investor with telecoms expertise to drive the company forward. Surin concurs. There have been preliminary talks and Surin has his own list of potential investors for this purpose.

The strategic investor should be given total control to develop U Mobile into a serious player in the cellular services market. Set up in 2007, U Mobile offers limited coverage and services, rendering it unable to steal market share away from the larger service providers. It currently has less than 1% of the cellular market that has more than 28 million subscribers.

With growing competition, celcos must keep their promises of quality services, cost-effective packaging and timely delivery or risk their customers switching service providers. Celcos should realise that if they cannot deliver, they should let someone else do the job. For U Mobile, the time has come for it to get its act together.

·B.K. SIDHU is deputy new editor and hopes that all players awarded a spectrum, which is a rare commodity, will put the spectrum to good use.

 
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