GPacket/Redtone ... Sept 2008

Sources said the Penang state government has given WiMAX licensee PacketOne Networks Sdn Bhd (P1), a subsidiary of Main Board-listed Green Packet Bhd, the go-ahead to roll out the service in the state.

The WiMAX (or Worldwide Interoperability for Microwave’ Access) rollout is a component of Wireless@Penang, a state government-led initiative which involves wiring up the whole state with free access to high-speed Internet using WiFi technology. The second component entails a paid service for access in other areas using WiMAX for mobile users who require better speeds.

The WiMAX portion will be provided by P1, which is one of three players licensed to offer the service in the peninsula. The other two players licensed to serve this part of the country are YTL-e Solutions Bhd and Asiaspace.com Sdn Bhd.

According to the sources, P1 will foot the entire investment costs for the project, from building the infrastructure, including base stations, to providing the WiMAX services.

The state government, meanwhile, would support P1 via the local councils. They will be given priority for applications, regulatory approval and placement of their equipment on state government buildings.

P1 commercially launched its WiMAX services in mid-August 2008, the first operator to do so in Malaysia and the Asia-Pacific region. The company plans to extend coverage to major cities in Johor, Penang, Kedah, Perak, Negeri Sembilan and Malacca by year-end (2008), in line with its mandate to cover 25% of the peninsula’s population. Its services are currently available in selected areas in the Klang Valley.

P1 is spending some RM300 million under the first phase of its rollout programme, while another RM300 million is budgeted for the second phase, to cover 45% of the peninsula’s population by end-2010.

The Penang Free WiFi services would be rolled out without incurring any capital investment and operating expenditure on part of the state government. The project would be funded by the service providers — REDtone International Bhd and its consortium partner, Hotgate Technology (M) Sdn Bhd.

REDtone, which has a WiMAX licence that covers Sabah and Sarawak, has been selected by the Penang government to co-provide WiFi services under the Penang Free Wi-Fi project banner.

Hotgate will design, build, own and operate a WiFi network comprising 750 wireless access points linked by a combination of asymmetric digital subscriber line (ADSL) and WiMAX technologies.

Still, with P1 having already committed a relatively large investment to Wireless@KL, the question arises whether its extensive investments in WiMAX were financially viable for the company.

Given the high rollout costs as well as marketing and promotion expenses, the business will be loss-making in the near term. But the potential market is vast and mostly untapped. Only 920,000 of the six million households in the country had access to broadband services.

The company will most probably remain in the red in 3Q08 but should gradually turn around in 4Q08. We estimate net loss of RM16.2 million in 2008. Green Packet is expected to return to profitability next year. (2009) The pace of growth should then pick up steam in 2010 and beyond, when the broadband business reaches critical mass.