Friday, April 24, 2009

Comments On YTL's RM3 Billion Broadband Venture

On Business Times, YTL in RM3b broadband push

  • YTL in RM3b broadband push

    By Goh Thean Eu Published: 2009/04/24

    YTL e-Solutions Bhd (YTLE) (0009), a subsidiary of YTL Corp Bhd,
    plans to pump in almost RM3 billion to set up a wireless broadband network in Peninsular Malaysia over the next five years.

    It will spend one-third of that in the next 12 months as it seeks to play catch-up. Out of the four firms licensed to provide high-speed wireless Internet access, it is the only one that has yet to launch its service commercially in a big way.

    YTLE, which will spend RM2.5 billion on the network, is tying up with South Korean electronics giant Samsung Electronics Co.

    The company will use its own money for the investment, managing director Tan Sri Francis Yeoh said in Kuala Lumpur yesterday.

    "We will start rolling out (the wireless infrastructure) immediately. We have identified 2,000 sites. We have mapped it. We know where we are going to put all the base stations already," he added.

    Unlike its rivals which have launched their wireless services in geographical stages, YTL will commercially launch its wireless services, comprising voice and data, only when it has nationwide coverage.

    "If you do it in stages, it won't work and it's not fair. This kind of technology doesn't work like that. It just won't work. Not enough equipment maker is going to support you. Not enough network people are going to support.

    "And then you are killing yourself. How many people are going to have this experience? For example, I go out of Kuala Lumpur. I cannot use (the service) already. Who are you kidding? Just KL for KL? It's not right to me,"
    Yeoh said.

    When the government awarded the WiMAX licences, the four companies were expected to expand their network to cover 25 per cent of the population by end-March this year.

    However, it is unclear if any of them met the target.

    "At the end of the day, it's about achieving the national broadband objectives. Actually, our programme is ahead of the government's programme in terms of nationwide coverage," Yeoh said.

    In 14 months, YTLE will launch its wireless broadband services nationwide covering 70 per cent of the population.

    Yeoh was speaking to the media after the signing ceremony between YTLE and Samsung Electronics. Samsung has agreed to supply network equipment and handsets to YTLE.

    YTLE is one of the four companies awarded the licence to offer wireless broadband services using WiMAX technology. The others are Packet One Networks (M) Sdn Bhd (a unit of Green Packet), REDtone International Bhd and Asiaspace Sdn Bhd.

    WiMAX, short for worldwide interoperability for microwave access, is a telecommunications technology that provides transmission of data. It works like the current popular WiFi technology.

    A WiFi hotspot can cover a radius of tens of metres. In contrast, a WiMAX base station can cover several kilometres. The technology also promises the ability to surf the Internet from laptops while in a park, on a bus during a traffic jam, or anywhere in a residential neighbourhood.

Firstly, I am impressed with what's said by the boss. Yes I am.

However, I am not a WiMax fan because I simply believe that this is an extremely difficult business venture to profit from. This is my flawed view. And if I am wrong, what's new? :p2

Many have tried WiMax already. Have you?

If you have, how impressed are you?

Are you happy with the upload/download speeds? Are you happy with the connectivity?

Ok, so how good is WiMax as a business?

Yeah, from a business perspective, how good is WiMax? :D

Take the more recent news. Like for example, early this month, on Nokia dismisses WiMax prospects

  • “I don’t see that WiMax is taking hold anywhere in a big way,” said Anssi Vanjoki, Nokia’s head of sales and manufacturing, at a Nokia launch event in San Francisco.
    “I don’t think the future is very promising [for WiMax]. This is a classic example of industry standards clashing, and somebody comes out as the winner and somebody has to lose.

Clearwire is one of the leader in US and some are extremely impressed with what Clearwire has to offer.

Ok, le't go back in time a bit.

A year ago, on Washington Post, Whatever Happened To Sprint's WiMax Venture?.

Sprint then had to merge with Clearwire: Sprint, ClearWire merging WiMAX operations.

    Clearwire has agreed to merge with Sprint's wireless broadband division in a new, as yet unnamed, joint venture. The deal has financial support in the form of $1.05 billion from cable giant Comcast, $1 billion from chip champ Intel, $650 million from Time Warner Cable and its subsidiaries, and $500 million from search Brobdingnagian Google. That's a grand total of $3.2 billion of outside investments, plus whatever cash Clearwire and Sprint might bring to the table.

    Don't expect Sprint itself to bring a fat dowry, though. The company has about $2.4 billion in cash equivalents, but also a staggering $20.5 billion debt load. Sprint is trying to sell off its Nextel unit, which was acquired for $35 billion in 2005, but reports on that effort say that Nextel is only worth about $5 billion today. And ClearWire is in a similar situation of more debt than cash, albeit on a much smaller scale.

Ahem.. big money business. :D

SmartMoney had the following article WiMax Venture Gets Weak Reception From Market

  • There's a lot to take in at first glance, and there's no simple explanation for Wednesday's early rise and late-in-the-day drop. This is a complex project that's failed to get off the ground, and that accounts for plenty of investor skepticism. A WiMax deal last summer between Sprint and Clearwire was agreed upon, but never signed.
    But you don't need to be Alexander Graham Bell to understand that a 9% one-day pop in a stock that has nearly one-fifth of its shares held short can create a classic short squeeze, even if it's a squeeze of short duration.

    Philip Solis, an analyst at ABI Research, sees short-term profit taking at work, but says the implications for the new Clearwire go well beyond Wednesday's trading.

    "Sprint chose WiMax in 2006: it had the vision, and it pulled together an ecosystem of chipset and equipment companies. But there was one missing piece: money," he wrote in a Wednesday report. "They needed financing and the confidence of the investor community. The formation of this joint venture completes the picture."

Here is the two year chart of Clearwire or CLWR on yahoo's finance. Not impressive at all.

And if you click the Income Statement on that yahoo finance, you would understand the reasoning of the poor performance.

So how?

Capital expenditure is massive in this business and yet the return is lacking.


value investing in malaysia said...

Good analysis Moola.

High cap+low return = lousy business.

Moolah said...


Many thanks for your kind words.

That was just one issue in my opinion.

I could have talked about competition. Four WiMax players in a country like Malaysia? That's tough, real tough.

I could have talked about product alternatives, such as regular broadband and even wifi. How strong is the justification for the user to switch to WiMax?