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Matchmaking Malaysia's telcos
Merger Scenarios
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Vincent Tan buys back 30% equity in DiGi Swisscom Bhd from Swisscom AG
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Telekom Malaysia's Half-Year results
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Merger Scenarios

Industry players are reluctant to reveal their hand on consolidation moves but analysts say telcos have had discussions about "business combinations." The signals given out have sometimes been confusing, to say the least.

For example, Maxis' controlling shareholder, T. Ananda Krishnan, while dismissing speculation that Maxis was keen to acquire a stake in Time Telecommunications, also left a teaser. "Halim (Saad, chairman of Renong Bhd which controls Time Engineering) is a good friend of mine ... if we are doing something, we will be doing it together," said the low-profile tycoon in response to reporters' queries at a recent function.

On possible merger combinations, SG Securities' regional telecoms analyst Michael Millar believes there will eventually be two main groupings, headed by Telekom and Maxis, and possibly one other smaller niche player.

"Telekom and Maxis are in better financial shape than their rivals," said Singapore-based Millar. Privately-owned Maxis has British Telecommunications (BT), which bought a 33 percent stake last year, as a partner and is bolstered by the latter's technical and financial support.

Millar views Maxis, Malaysia's second largest cellular operator with about 600,000 subscribers, as a more suitable partner for Time Telecommunications than Telekom. "Maxis is strong on the cellular side but lacks Time's fixed line infrastructure,'' he adds. ''A Telekom-Time tie-up would result in a duplication of assets as Telekom already has a fibre-optic network through subsidiary Fiberail,'' he says.

Millar also sees TRI's Celcom as a good match for Telekom. "Its cellular operations are still quite weak. Given TRI's strength in this area, a tie-up with Telekom will make more sense," he adds. If Telekom were to buy Celcom, this would give it a commanding position in the cellular market.

DiGi Swisscom may yet have an independent future, even though it suffered a body blow when Switzerland-based Swisscom AG bailed out of DiGi and another Indian telco, purportedly to refocus on its operations in Europe. Swisscom had held a 30 per cent stake, worth US$243.6 (RM925 million) in DiGi Swisscom since 1996.

OCBC's Lian said Digi Swisscom could possibly survive as a niche player by concentrating on its cellular service. DiGi, which has about 300,000 subscribers, currently holds more than two-thirds of the market share in the pre-paid sector. Its future will be considerably brighter if it manages to woo a new foreign partner. Analysts say DiGi has been talking to several interested parties, including Australia's Telstra.

Lian says the merger process would move faster if the government provided prospective buyers with incentives like tax break, and creditor banks agreed to write down the debts accumulated by the ailing telcos.

Analysts are worried that the stronger telcos such as Telekom and Maxis may be pressured into bailing out the weaker telcos. "I don't discount that possibility," said Shamsul Shamsudin, senior analyst at Pesaka Jardine Fleming Sdn Bhd. Being state-owned, Telekom may have to take over a weaker telco if the "government willed it," she adds.

In the past, cash-rich Telekom has rescued loss-making cellular operators. Telekom acquired TMTouch for US$167 million in 1996 and forked out US$48 million last year for the remaining 43.5 percent in associate company Mobikom Sdn Bhd.

"The Mobikom deal was quite obviously a bailout," says an analyst at another securities firm. Turning around these ailing companies has been major headache for Telekom. Together, TMTouch and Mobikom blew a hole in Telekom's first half results, with a loss of US$52.6 million.


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