All eyes on P1’s spectrums

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KUCHING: All eyes are on Packet One Networks Sdn Bhd (P1) with Telekom Malaysia Bhd (TM) rumoured to have acquired a 30 per cent stake in the Green Packet subsidiary, with DiGi (DiGi,com Bhd) also rumoured to be eyeing P1’s spectrum.

Channel checks made by RHB Research Institute Sdn Bhd (RHB Research) indicated this, noting that the Green Packet’s 55 per cent-owned subsidiary holds 30Mhz of the 2.3Ghz spectrum that is currently used to roll out P1’s WiMAX broadband services.

It is noted that P1 also holds 20Mhz of the 2.6Ghz spectrum, awarded in December 2012, which is meant for LTE services.

“We view TM’s rumoured 30per cent stake acquisition in P1 as mildly positive to TM as having access to P1’s spectrum will allow the latter to complement its fixed broadband services with a wireless platform,” RHB Research analyst Lim Tee Yang highlighted in a research note on the matter.

“Our view is based on the assumption that TM does not overpay for the P1 stake (amount unknown).

“While we believe that wireless broadband solutions would not become TM’s key revenue growth driver, offering more holistic broadband services could enhance TM’s market potential while also reducing churn.

“However, the potential of higher capital expenditure may dim the prospects of special dividends from TM.”

As P1 is still loss-making, Lim said it was difficult to make a fair assessment of its valuation.

Having said that, the analyst noted that SK Telecom paid US$100 million (about RM325 million) for a 25.8 per cent stake in P1 back in June 2010.

This implied that a 30 per cent stake in P1 could cost TM US$116 million or about RM377 million.

However, TM may have to pay more now because P1 holds more spectrum now following the award of the LTE spectrum; and P1’s losses narrowed to RM101 million in 2012 from RM174 million in 2010.

“Besides TM, DiGi is also rumoured to be eyeing P1’s spectrum,” Lim said, adding that it is widely known that DiGi has limited 900Mhz spectrum and needed more to refarm the 1,800Mhz spectrum for LTE use.

“The 2.6Ghz spectrum that P1 owns may not be the most optimal given its poorer propagation qualities, but we think DiGi may not have many options left.

“The company may choose to compress traffic on the 1,800Mhz spectrum to free up some capacity for LTE services, but we think there are limits to this approach as quality may be compromised.”

With all these speculations arife, RHB Research maintained its underweight stance on the sector, taking into account a lack of catalysts while valuations remained stretched amid rising bond yields.

“We believe there is little dividend upside within the sector in the short term with the exception of DiGi (which is to decide on business trust structure by year-end),” Lim concluded.