Gpacket ... Jul10

Green Packet Bhd’s target to turn earnings before interest, tax, depreciation and amortisation (Ebitda) positive by year-end may be delayed to next year following South Korea’s SK Telecom buying a 25.8% stake in its subsidiary and WiMAX arm, Packet One Networks (Malaysia) Sdn Bhd (P1), for US$100 million (RM325 million).
They were targeting for Ebitda to break even and turn positive by end of 2010, but after discussions with our new partner (SK Telecom), they are going to be more aggressive this year (2010) in expanding its network, advertising and gaining subscriber base. The new target was also dependent on the subscribers gained and the average revenue per user (ARPU) by next year.

P1 closed with nearly 140,000 subscribers in 2009 and an ARPU of RM80. This year (2010), it expects to double the subscriber base to about 280,000. As at end of March 2010, it had garnered 175,000 subscribers.

In its first quarter ended March 31, 2010 (3QFY10), Green Packet’s loss before interest, tax, depreciation and amortisation totalled RM29.8 million, while revenue was RM86.8 million, an increase of 53% on a quarter-on-quarter basis and 109% on a year-on-year basis.

Meanwhile, following SK Telecom’s entry as a strategic investor in P1, the US$100 million will be used to expand its WiMAX rollout nationwide, enhance quality, accelerate and expand customer acquisition activities and other corporate purposes over the next two to three years.

The group had invested about RM550 million in capital expenditure in the WiMAX network since 2008 and would require another RM450 million to cover 65% of the population by 2012 from 40% currently. The expenditure would be financed by internal funds, vendor funding and SK Telecom’s investment.

It will go into East Malaysia by next year (2010). Right now, they are also running WiMAX trials in Singapore. Over there, they have a bigger spectrum of 62Mhz compared with 30 Mhz here.

Furthermore, SK Telecom will offer P1 its customer products portfolio and expertise in technology and network. SK Telecom is one of the leading telcos in South Korea and operates a WiBro licence, a family of WiMAX.

Its entry into P1 comes from new shares issued, making it the second largest shareholder in P1 after Green Packet. There would be no changes in the management team at P1, and SK Telecom would play an advisory role while sitting on the board.

SK Telecom is about to embark on a collaboration with P1 that includes more than the US$100 million investment.

Later, in a separate event, P1, with Intel Malaysia, hosted the launch of Malaysia’s first WiMAX-ready 4G laptops running on embedded chips from Intel. Intel Capital, an investment arm of Intel Corp, in 2008 had injected RM50 million into Green Packet to boost WiMAX deployment.

It is believed that the introduction of the WiMAX-ready 4G laptops will increase P1’s subscriber base. P1 plans to offer free WiMAX subscription within the first few months when users buy these laptops. Acer, Asus, Dell, Lenovo, MSI and Toshiba have introduced both notebooks and netbooks based on the Intel processors featuring the dual mode Intel Centrino Advanced-N + WiMAX 6250 embedded solution, which has been certified and ready for use on the P1 WiMAX network.

They are coupling mobile computing and mobile networking. Just like the embedded Wi-Fi you see in laptops, this is going to make the whole city into a hot spot.

Going Forward …

From an optimistic outlook, Gpacket tie up with South Korea phone operator SK Telecom Co Ltd goes beyond boosting expertise at Malaysia’s WIMAX operator in the broadband market. The strong endorsement from SK Telecom could also open new markets to Gpacket.

The partnership has opened up its solutions business to gain access to the South Korean market. South Korea could present a new OEM market for Gpacket.

P1 is also collaborating with SK Telecom for 4G wireless broadband opportunities in the SEA region.

Apart from a strong presence in South Korea, SK Telecom is also looking at expanding its footprint overseas and Gpacket could ride on its expansion. SK Telecom views P1 as the gateway to the SEA market. In return, SK Telecom’s expertise and scale will be P1’s springboard to achieve its longer term aim to be the leading 4GW WiMAX telco in Malaysia and the region.

Gpacket do not expect to raise any more capital, with the new equity investment by SK Telecom. However, over the longer term, P1 may undertake more equity fund raising for future network and business expansion.