P1 targets 250,000 subscribers by 2Q

KUCHING: Green Packet Bhd’s (Green Packet) 55 per cent owned subsidiary, Packet One Network Sdn Bhd, (P1) which deploys Worldwide Interoperability for Microwave Access (WiMAX) broadband network is targeting to secure 250,000 subscribers by the second quarter of financial year 2010.

OSK Research Sdn Bhd (OSK Research) in a research report cited that P1’s subscriber base has risen steadily since its service was commercialised in August 2008.

It noted that the number of new subscribers added jumped from 25,000 in the first quarter of 2009 to 39,000, surpassing that of dominant asymmetric digital subscriber line (ADSL) operator Telekom Malaysia (TM), with P1 getting the largest share of fixed broadband subscriber addition in the third quarter of 2009.

It observed that subscriber additions soared to over 5,000 per week in the months of October and November 2009 from an average of 1,500 to 2,000 per week after the launch of the aggressive ‘Cut Already’ advertising campaign.

This raised its cumulative subscriber base to 125,000 at the end of November 2009.

Meanwhile, P1 was the first WiMAX operator to roll out WiMAX in Asia and also among the earliest to launch the technology globally in August 2008.

In the period of 12 months, P1 managed to capture over 70,000 subscribers, which was a notable achievement.

Presently, P1 commanded a strong lead over three other WiMAX spectrum holders namely, Asiaspace Sdn Bhd (Asiaspace), REDtone International Bhd (REDtone) and Y-Max Networks Sdn Bhd (Y-Max) which is controlled by the YTL Group.

It also noted that while Asiaspace and REDtone have also launched their broadband offerings, their acquisition momentum were lacking behind P1 given their lack of scale and coverage.

On the other hand, Y-Max has revealed that they planned an aggressive roll out of its WiMAX service in July 2010 and the company could emerge as a strong long term competitor to P1 given the strong financial backup from YTL Group.

Further, Y-Max recently signed a wholesale agreement with TM to offer high speed broadband to homes utilizing TM’s high speed broadband (HSBB) network that will be launched in the first quarter of  2010.

Apparently, P1 has the most extensive WiMAX coverage in the country with more than 500 installed sites as at end of October 2009.

Besides that. P1 operates one-stop retail outlets called P1Stop in the Klang Valley, Johor Bahru and Penang allowing customers to experience first-hand the quality of its WiMAX service.

The company also has a team of support staff to handle on-site trouble­shooting and off-site technical assistance.

At the meantime, P1’s network operations centre (NOC) provides active surveillance of live sites nationwide with full redundancy support to minimize network interruptions.

According to OSK Research, P1 has fulfilled the conditions under the spectrum award of a minimum coverage of 25 per cent by the end of March 2009.

The company’s WiMAX service is currently available in 10 of the 12 States in Peninsular Malaysia.

The company is working to cover the remaining States, namely Malacca and Kelantan in the next few months to boost its nationwide coverage to 37 per cent from the current 35 per cent.

The research firm noted that the target was to achieve population coverage of 45 per cent by the end of 2011 and 65 per cent of 2012.

Likewise, P1 has been given the go-ahead signal to implement its service in East Malaysia, which is expected to start in the second half of 2010.

Typically, OSK Research noted that P1 has adopted the innovative direct marketing models by Dell Incorporation, AcerIncorporation and Hewlett-Packard Company (HP) allowing customers to ‘dial-a-broadband’ or register a subscription online.

It viewed the direct marketing initiatives by P1 as an inherent part of its overall distribution strategy to keep a tight lid on its subscriber acquisition cost (SAC) through longer term savings in dealer commissions, which made up a significant portion of its overall SAC besides subsidized customer premise equipment (CPE).

In addition, P1 also sells CPEs on an original equipment manufacturers (OEM) basis, competing with equipment manufactures such as US based Motorola Incorporation and Cisco Systems Incorporation.

Following a company visit, the research firm believed that worldwide shipment of WiMAX CPEs have doubled  over the past 12 months due to aggressive deployment and the growing acceptance of WiMAX as a more cost-effective technology for the roll out of broadband.

Interestingly, OSK Research pointed out that Malaysia’s broadband market is on the verge of explosive growth.

It observed that the underserved and insatiable demand for broadband was driven by Malaysia’s low household broadband penetration rate of 25 per cent against Internet penetration rate of 67 per cent.

This situation indicated that there is a large and savvy Internet population still without the access to basic broadband.

In contrast, Singapore’s household broadband penetration including wireless stood at 132.4 per cent while the equivalent for Hong Kong and Taiwan were 79.2 per cent and 66 per cent respectively.

OSK Research forecast that wireless broadband subscribers are expected to grow at a strong compound annual growth rate (CAGR) of 69 per cent between financial year 2009 to financial year 2011.

The growth of wireless broadband will be supported by heavy promotions and more attractive deals by existing as well as new mobile or alternative broadband service providers which include TM, increased take-up rate of broadband subscriptions assisted by the RM500 tax relief announced under 2010 Budget and improving nationwide wireless coverage.

The research firm expects the number of wireless broadband subscribers to surpass fixed broadband (ADSL) subscribers in 2010. This will boost broadband penetration level to over 60 per cent by 2011.

P1 also announced that it was awarded a Universal Service Provision (USP) Project worth RM41.5 million from the Government to provide WiMAX to under-served areas in Penang and Kedah.

On the corporate side, Green Packet recently undertook a 1-for-2 rights issue of 197.6 million shares with free warrants attached. The proceeds of the shares sale totalled RM98 million will be utilised for expansion of its WiMAX network and strengthen its cash balance and bank borrowings.

To further strengthen Green Packet’s balance sheet and to make sure the better use of funds to meet forward capital expenditure commitments, Green Packet is in the process of placing out up to 84.8 million shares to raise another RM69 million to RM98 million.

OSK Research observed that the proposal is expected to be finalised in the first quarter of 2010. Moving forward, the research firm highlighted that P1 is eyeing to penetrate into three new markets by 2012 targeting to capture 1 to 2 million subscribers in each market through joint venture or submitting independent bids for national wireless broadband spectrums.

It believed the immediate target markets are Indochina, Middle East and Indonesia where its parent company, Green Packet has a strong presence there.

At the same time, P1 has ventured into the Singapore market with the acquisition of a facilities-based operator (FBO) licence and the wireless access spectrum rights from Pacnet Ltd for RM6.9 million.

The company was optimistic that the Singapore market represented a lucrative market for its wireless broadband offerings given its rich technology eco-system and rich broadband roaming market.

Financially, Green Packet registered its first net loss of RM55 million in financial year 2008 since its listing as a result of heavy upfront investments in the provision of broadband services.

For the nine months ended September 2009, Green Packet recorded a net loss of RM81.9 million, a four-fold increase in losses year-on-year (YoY).

On the other note, OSK Research estimates that Green Packet’s core losses should peak at around RM117.5 million in financial year 2009 as revenue from its solution sales have recovered from a low of RM0.8 million in the third quarter of 2008 to RM9.6 million in the third quarter of 2009.

The company’s earnings before interest, tax, depreciation and amortisation is expected to break-even in the second quarter of financial year 2010 based on 250,000 broadband subscribers attained.

The research firm highlights that the recovery of its revenue will be supplemented by fresh orders for WiMAX CPEs from customers in markets where WiMAX has been deployed or in various stages of live commissioning.

Therefore, OSK Research maintained its neutral call on Green Packet on its positive outlook pending its target to register 250,000 subscribes for its broadband service in the second quarter of 2010 with a target price of RM1.23 per share.

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