IT was a key milestone for GREEN PACKET BHD since it started its foray into the world of broadband in 2008. After spending almost RM800mil in capital expenditure, wiring up some 50% of Peninsular Malaysia with 401,000 subscribers and setting up more than 1,500 base stations, it has finally delivered what it has promised.
Having stomached 15 quarters of operating losses, Green Packet has turned EBITDA (earnings before interest, taxation, depreciation and amortisation) positive with a operating profit of RM3.9mil, contributed both by its solutions and broadband pillar.
To date, P1 claims it has captured a 34% market share of the Malaysian broadband market based on a 50% population coverage, thus giving it an extrapolated market share of 68%. Over the next 12 months, it will spend a remaining RM205mil which will give it 60% coverage of the Malaysian broadband market.
While Green Packet had already turned EBITDA positive in December 2011, that was mainly contributed by its solutions pillar. As of its first quarter to March 31, 2012, the figure was contributed both by the broadband segment under Packet One Networks Sdn Bhd (P1) with a operating profit of RM3.3mil and the solutions business with RM0.8mil.
For the first quarter to March 31, while group EBITDA grew 153% to RM3.9mil, the company narrowed its net loss to RM14.71mil from RM19mil previously. Revenue grew 5% to RM128mil.
The EBITDA positive figure was achieved on the back of a total subscriber base for P1 of 401,000, with net additions of 13,000 as of the first quarter.
“The 400,000 subscriber mark was our magic number to being EBITDA positive. Being EBITDA positive means that there shouldn't be any problems from a operating business cashflow standpoint from here forth. We are on track to achieve our 500,000 subscriber base by year-end,” says Green Packet Bhd group managing director and CEO Puan Chan Cheong.
Revenue from the P1 segment grew by 52% to RM85mil, driving up average revenue per user (ARPU) to RM78 from RM75 previously.
Puan says that with the EBITDA positive figures, this now marks the second phase of P1's journey, which he defines as P1 2.0.
“P1 will be growing from a pure wireless player to a total converged telco. We started from fixed wireless service to nomadic wireless service to fibre services and now to fixed voice,”
“People always ask how we address competition. Well, P1 has never been afraid of competition and we have always brought the competition to the market. We have been one of the smaller wireless players and we have managed to garner quite a big subscriber base. I see us as the David, who has triumphed over Goliath,” says Puan.
He adds that P1 will have 200 more base stations by the end of this year. While P1 will effectively be self sustaining just by staying put with its current coverage of 53% in Peninsular Malaysia, it wanted to expand its broadband coverage and deploy more base stations to suburban areas and Sabah and Sarawak. P1 will be venturing into Kota Kinabalu in the second half.
For the first quarter, revenue from the solutions pillar, which include software solutions and 4G devices, was 53% lower to RM22mil due to lower shipment of 90,000 units versus 188,000 the year before. The solutions pillar seasonally performs better in the second half.
Puan says the solutions business isn't just going to be about organic growth and will eventually see “multifold growth”. For starters, Green Packet will be getting two large contracts from Europe and one from the American market from one of the largest mobile operators in the world in the second half of the year. This will significantly increase the solutions pillar which currently contributes about 30% to Green Packet's top line.
Green Packet is already engaged with more than 90% of the 500 Wimax operators worldwide. The engagement is via buying and selling of products or jointly undertaking trials.
Puan is proud that Green Packet has managed to sell its products to companies like Time Warner Cable, which is the second-largest cable operator in the world and Telefonica, which is the world's fourth largest operator. Its other big clients include China Mobile, China Unicom and PCCW.
According to Analysys Mason estimates, mobile broadband and mobile Internet revenue is the fastest growing segment in Malaysia.
“Mobile broadband will be RM4.1bil and mobile Internet will be RM4.3bil by 2015. Fixed broadband will be RM2.8bil by 2015,” says Analysys Mason.
Nielsen's research has shown that 68% of traffic in the Internet is currently being generated from smart phones and nomadic wireless modems. Cisco and AT&T estimate that by 2016, some 70% of network traffic will come from videos and cloud. Some 40% of this will come from the Asia-Pacific region and there will be 10 billion connected devices by then.
This is one reason why Puan expects revenue from the software business to increase multifold in line with the increase in traffic.
“Right now, there are some 6.6 million households in Malaysia, and out of this, 1.9 million households already have fixed broadband, while a further 200,000 are on the high speed broadband (HSBB) services,” says Puan.
Green Packet will be targeting the 4.7 million households, which it sees as the low hanging fruits.
Its other growth catalyst will come from P1 Fiber, which is Green Packet's HSBB service. That service was launched on March 28 and will be officially rolled out in the third quarter of this year.
Last October, P1 signed an agreement with TELEKOM MALAYSIA BHD to use the latter's HSBB network for the provision of transmission and access services. The deal grants P1 access to all 1.3 million homes connected to the HSBB network nationwide.
“We view P1's strategy of using its fibre service to migrate bandwidth hungry broadband users instead of competing head-on with TM positively for the incumbent. The off-loading of high ARPU customers to fibre would allow P1 to retain high-yielding users, in line with the focus on driving revenue through higher quality subscribers going forward,” says OSK Investment analyst Jeffrey Tan.
As for Green Packet's voice business Homevoice, this is a growing market in the business market segment, rather than the residential segment.
As of the first quarter, it has already secured 30,000 subscribers. The quick take-up is because there is no monthly rental or contract required for this service. There is also a flat rate to all fixed and mobile numbers nationwide.
On the bigger picture, Puan feels that the Malaysian telecommunications sector can only support a maximum of about four players before saturation and innefficiencies start kicking in.
Recently, Malaysian Communications and Multimedia Commission named nine companies as recipients of the 2.6 GHz spectrum, to be used for the roll-out of LTE or 4G services.
These are the four 3G players: namely Digi.com Bhd, Celcom Axiata Bhd, Maxis Bhd and U Mobile Sdn Bhd, four WiMAX players Asiaspace, P1, REDTONE INTERNATIONAL BHD and YTL Communications Bhd. The ninth player is Puncak Semangat Sdn Bhd.
The Malaysian regulators have also mentioned that they like to see smart collaboration between the nine licence holders.
“The industry will consolidate. In the long run, perhaps there will be a need to combine the spectrum. We are always in discussion with some of the other players to see how we can collaborate and what is the best way to deliver,” says Puan.
Thus he is not ruling out a possible merger in the future.
On a possible listing for P1, Puan says that currently there are no such plans, but he will not rule it out in his future roadmap.
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