Wednesday, October 17, 2012

Axiata ... Oct12

Axiata has been vying for a piece of Myanmar 's market and it hopes to play a major role in the Myanmar telecoms market and has no qualms about partnering a Burmese party for that purpose.

Axiata, though, faces competition. Global players like Norwegian firm Telenor (parent of DiGi.Com Bhd), Digicel, the largest mobile operator in the Caribbean, Vietnam's VNPT-Fujitsu, Russian heavyweight VimpelCom and Sweden's TeliaSonera AB, are all jockeying for a chance for the four telecom licences that will be dished out. Telecoms suppliers like China 's Huawei are fast positioning themselves as network suppliers and consultants. The Myanmar government is in the midst of selecting a consultant that will oversee an upcoming tender for the telecom licences.

It is yet unclear when the tenders will be out.

The Myanmar government has said that four telecom operating licences would be granted two for Burmese companies and two for foreign firms with 4G services targeted as early as 2013.

Several Indian cabinet ministers have suggested that telco operators should fork out a one-off fee for those holding spectrum above 4.4MHz for the remaining period of their 20-year licence. If this materialised, Axiata's 19.3% owned Idea Cellular Ltd would have to fork out Rp2,300 crore (about RM1.3bil) to retain its spectrum. Note that this is unrelated to the 122 licences which were issued by the scandal tainted former Telecom Minister, and later cancelled by the Supreme Court in February 2012. Idea Cellular would still need to re-bid for its affected cancelled licences.

Concerns about Axiata Group Bhd's 19.9% Indian affiliate Idea Cellular Ltd possibly needing to spend on fresh wireless licences and additional airwaves would not have a significant impact on the regional telecommunication player.

India's Supreme Court had asked the government to hold an auction for airwaves by Nov 12 2012 for 122 licences, including some held by Idea, cancelled by the court saying several bidders at the 2008 sale had “money power” and the “ability to manipulate the system.” Phone companies in India may need to pay a one-time fee for spectrum they decide to hold in excess of 4.4 Mhz for each region. Idea Cellular could end up paying up to 28 billion rupees (RM1.63bil) on the one-time fee.

The issue in India was not likely to have a significant impact on Axiata Group. The situation in India is fluid, and the regulatory issues can change.

The question for Idea Cellular was how it intended to raise the money for the potential spending. If Idea Cellular does a cash call, Axiata Group might have to contribute up to RM324mil, based on its 19.9% stake.

As at June 30 2012, the Axiata Group had deposits, cash and bank balances amounting to RM6.48bil.

Idea Cellular's revenue contribution to Axiata Group is tiny. Although the news flow from India was seen as negative, “nothing is really confirmed at this juncture.”

Axiata Group's mobile subsidiaries and associates operate under the brand name Celcom in Malaysia , XL in Indonesia , Dialog in Sri Lanka , Robi in Bangladesh , HELLO in Cambodia , Idea in India and M1 in Singapore .

Idea Cellular, which is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India , is part of the US$40bil multinational Aditya Birla Group. Idea Cellular is the third largest mobile services operator in India with wireless revenue market share at 15%, and subscriber base of over 117 million.

Idea Cellular was also the fastest growing operator in India , with an annual revenue growth of 25.3% as against industry growth of 16%

The 3G spectrum auction in Bangladesh, based on management's guidance, will only likely take place in late 2013, if not 2014-2015. Note that Robi Axiata Ltd had its 2G licence renewed at a cost of RM276mil, which would be amortised over the 15-year life of the licence.

In Malaysia, from mid-September 2012, U Mobile Sdn Bhd's domestic roaming agreement with Celcom Axiata Bhd had been discontinued, after crafting out a similar agreement with Maxis Bhd. The loss to Celcom will be to the tune of RM40mil per quarter, or a full year impact which is 2.2% of Celcom's financial year ended Dec 31 (FY11) revenue.

The loss of this domestic roaming agreement would also dampen the chances of revenue growth for Celcom in fourth quarter 2012.

Separately, Celcom's home fibre broadband project has been delayed to 2013, as it thrashes out a pricing structure for its product, which according to management will not merely be a pure re-seller.

Meanwhile the management stressed there are no immediate plans in the short term for mergers and acquisitions with regards to the US$1.5bil (RM4.8bil) sukuk facility established by Axiata in July 2012.

While Axiata had used the facility to raise a 1 billion yuan (RM489mil) sukuk on Sept 11 2012, the funds will be used used for Robi's capital expenditure upon conversion to US dollars. The sukuk facility enables Axiata to be prepared for corporate exercises, which may involve market consolidation in its regional markets (such as Sri Lanka and Bangladesh).

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