KUALA LUMPUR: It is more of a marriage of convenience than a romantic union but the partnership forged by Celcom Axiata Bhd and DiGi.Com Bhd could pave the way for more mergers in the local telecommunication industry.
Last week, Celcom and DiGi made a formidable partnership which will see both rivals saving a combined RM2.2bil over the next 10 years.
For the first few years starting from next year, both parties expect RM100mil to RM200mil in savings and from 2015, they will save between RM200mil and RM250mil.
Datuk Seri Shazalli Ramly says the Celcom-DiGi pact has proven sceptics wrong.
The scope of the the-year tie-up will initially focus on the sharing of telecommunication sites, access transmission (microwave links), aggregation transmission and trunk fibre transmission.
The sharing of sites will essentially do away with the duplication of base stations, address escalating rental fees, reduce utility bills and transmission cost, and optimise the deployment of base stations.
Eventually, Celcom and DiGi expect consumers to benefit from the improved quality of service given higher data capacity.
Collaborative effort
DiGi chief executive officer Henrik Clausen said its collaborative effort would enable the DiGi advance the industry towards having a telecommunications infrastructure that was sustainable and supports data growth in the country.
“Ultimately, benefits derived from cost and operational efficiency will be channelled towards accelerating our reach and providing better quality service for our customers,” he said.
He added DiGi was realising the potential of this extensive network collaboration and also to pursue further operational efficiency.
However, Clausen said, both parties would remain as competitors despite forming the collaboration.
Analysts said the Celcom-DiGi partnership was one of the larger scale collaboration in the region and this could spark off more network sharing agreements as telcos realised the benefits of sharing infrastructures.
Maxis working with TM
While this partnership may be something new in the local industry, other players have also been in talks to form a partnership of one kind or another.
Maxis Bhd recently signed an agreement with Telekom (M) Bhd to lease some of its high-speed broadband network. It is also working out how best to tap the synergies from its sister company Astro TV to grow its content offering.
According to ECM Libra Investment Research the collaboration would result in increased operational efficiency and better asset utilisation, which was geared towards addressing the ever increasing data capacity requirements.
The research house assumed that the combined savings were to be divided equally between Celcom and DiGi, earnings before interest, tax, depreciation and amortisation (EBITDA) margins could be boosted by an additional 0.5% annually.
Credit Suisse said if 100% of the savings were attributed to operating expenditure (as opposed to capital expenditure), it would suggest 2% to 3% upside to its FY12 - FY13 EBITDA estimates and 4.5% upside to FY15 EBITDA estimates.
“However, a 50:50 split between opex and capex savings will potentially result in 2% upside to FY15 estimates EBITDA,” it said
The partnership came after six months of intensive discussion and planning. In June 2010, DiGi and its major shareholder, Telenor Asia Pte Ltd, and Axiata and Celcom signed a memorandum of understanding (MoU) to explore the viability of long-term collaboration on network infrastructure sharing in Malaysia.
Best option
“We have looked at all avenues over the last six months on which is the best way to execute and materialise the savings, what we have agreed today is basically the best option after due consideration,” said Celcom chief executive officer Datuk Seri Shazalli Ramly.
Shazalli said there were too many sceptics when it signed the MoU last June. “Some are asking if this partnership will materialise as corporate always sign MoU. To prove our sceptics wrong, we are signing a great partnership now.”
Celcom and DiGi will initially share 218 telecommunication sites each. They will consolidate and upgrade over 4,000 sites along with fibre transmission network by 2015.
Shazalli said the company had about 7,000 sites while DiGi had about 6,000.
He said both companies would de-commission a combined 2,000 sites to improve efficiency.
OSK Research estimates savings of RM50mil to RM130mil between 2012 and 2015, or 5% to 13% of the combined net profit of Celcom and DiGi.
“We believe the savings in terms of opex would be more apparent for DiGi given that network cost constitutes 12% of DiGi's revenue versus 10% for Celcom,” said OSK.
HwangDBS Vickers Research remains neutral on the latest development given expected marginal impact on FY12 forecast earnings and its discounted cash flow-based valuations.
“We understand that initial works involved some expenses but will likely be minimal. Savings should come in from 2012 onwards and gradually increase to RM150mil to RM250mil per annum after 2015 with estimated total savings of RM2.2bil over 10 years.
“Assuming 50:50 capex to expense savings ratio (and 50:50 savings proportion between DiGi and Celcom), this could expand DiGi's and Axiata's FY12f EBITDA margins by 0.1 to 0.3 percentage points,” HwangDBS said.
Aside from its massive collaboration with Celcom, DiGi had also announced that it had submitted a detailed business plan to Malaysian Communications and Multimedia Commission on its 2600 MHz band application.
DiGi to announce results
On DiGi's soon-to-be announced FY10 results, Credit Suisse expects it to meet analysts' forecast. DiGi is expected to announce its fourth quarter results by end of next week.
“During the last set of quarterly results, management's guidance was for potentially higher FY10 EBITDA margins. The target for 2011 is again for potentially higher EBITDA margins and for DiGi to outpace expected industry revenue growth of mid single digit,” it said, adding that it maintained a outperform rating on DiGi as it offer an attractive 7% net dividend and had a clean corporate governance track record.
|
