Telekom Launches Company Buys in S Africa, Thailand

Posted on August 1, 1997 
Filed Under Julian, Nikkei Electronics Asia

By Julian Matthews

The country’s largest telecommunications carrier, Telekom Malaysia Bhd, is expanding its reach with a series of investments in foreign ventures.

Telekom Malaysia’s biggest and most prominent foreign venture this year was an agreement to buy a stake in Telkom South Africa Ltd.

The deal was sealed in Cape Town in May with US-based partner SBC Communications Inc, for a joint 30% stake in the South African telecommunication firm worth US$1.261 billion.

Telekom Malaysia will take up a 12% stake worth US$504.4 million, while SBC will fork out US$756.6 million for 18%.

“This is clearly the jewel in the crown of our African investments and complements current investments in Malawi, Guinea and Ghana,” said Mohamed Said Mohamed Ali, Telekom Malaysia’s chief executive.

The landmark deal is the single largest foreign direct investment in South Africa to date, and signals Nelson Mandela’s restructuring program for state-owned enterprises.

Under the agreement, the Telekom Malaysia/SBC consortium will take management control of Telkom SA and place 75 key personnel in various positions.

The consortium has been given a five-year monopoly to develop South Africa’s fixed-line network with an option for an additional year.

The consortium plans to roll out 2.8 million new lines over a four-year period in South Africa, more than half of which is for rural and under-serviced areas, and install an additional 120,000 pay phones.

Telkom SA is licensed to provide domestic and international services throughout the country. At the end of 1996, Telkom SA already had an installed base of about 4.1 million lines. It also owns 50% of Vodacom SA, one of two cellular operators in South Africa.

On June 9, Telekom Malaysia announced further expansion plans with the purchase of stakes in a Thai telecommunications company, Samart Corp Plc, and its subsidiary, Digital Phone Co (DPC).

The US$251.6 million agreement represents the biggest ever purchase of equity in a Thai telecommunication company by a foreign party.

Telekom Malaysia is buying a 20.1% stake in Samart Corp, for US$71.6 million and a 33.3% stake of DPC for US$135 million. It is also committed to underwriting a further 10% of the DPC equity for US$45 million by March 1998.

Samart is now one of the five biggest telecommunication companies in Thailand and is listed on the Thai stock exchange with a capitalization of US$260 million.

The Samart group currently has interests in paging, satellite, cable television, electronic commerce and Internet services. Samart is already a service provider to other cellular operators with a subscriber base of 40,000.

Telekom Malaysia won the bid for Samart beating more than 40 other international players who sought entry into the burgeoning Thai market, including short-listed contender Swiss Telecom PTT.

With the purchase, Telekom Malaysia also hopes to make inroads into untapped markets such as Myanmar, Laos and Cambodia, where Samart has a strong presence.

DPC is one of the two companies granted sub-licences to offer personal communications network (PCN) cellular services on the 1,800MHz bandwidth in Thailand.

DPC plans to invest between US$260 million and US$280 million to launch its digital PCN service by March next year, which will cover 76 cities and towns in Thailand and support 350,000 cellular phone subscribers.

DPC is targeting a subscriber base of 300,000 by the end of 1999, based on expected migration from the 1.4 million current analog subscribers.

Telekom Malaysia is also believed to be engaged in talks to form a partnership with the Philippines Long Distance Telephone Co (PLDT) to set up and operate a telephone service in Mindanao.

Reduce Domestic Dependency

Analysts say Telekom Malaysia’s foreign acquisitions are part of a strategy to reduce dependence on earnings from an increasingly competitive local market.

Malaysia’s telecom industry has been in a state of flux since the early 90s when the government liberalized policies and issued a slew of licences for other operators to enter the market.

The government has deemed that the other operators will be allowed “equal access” to Telekom Malaysia’s fixed-line customers. Analysts expect this move to erode the former national telephone company’s market share.

“We realize that the Malaysian market is very small. There isn’t sufficient demand for us here to profitably develop certain products,” said Mohamed Said on the company’s overseas strategies.

“If corporations in the region can establish smart partnerships, work together and share expertise as well as resources, and achieve common business objectives, we can together attain great success, not only in our national markets but also in markets around the world,” he added.

Mohamed Said said he expects all the overseas investments to contribute significantly towards Telekom’s bottom line. He added that the company’s long- term vision was to float all the foreign subsidiaries and joint venture companies.

Published in Nikkei Electronics Asia, Aug 01, 1997

by Julian Matthews, Malaysian correspondent

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