Saturday, October 27, 2012

It's really hard to envision YTL's 4G to work

Standing on the sideline, Tan Sri Francis Yeoh's statement may be more hopeful than real. He is a businessman where his role is to convince and execute. First convince yourself, then your investors, employees and then only execution. You would not be able to execute if you yourself are not convinced, which is why he has plowed a huge sum of money into the YES network. He believed in it, I should say.

YES has kept harping on its 4G network. What is 4G? I do not have to explain much but to point you to wikipedia. Basically it is an acronym for 4th generation network which is still grey-ish in terms of its qualifying claims - that is which network provider stands to qualify to claim that it has the real 4G deployment. For the sake of this blog-piece, there are 2 standards which are commercially deployed - Mobile WIMAX and LTE. I am not going to go technical here but if you really look at the success of deployment commercially, 3G has been a success. And that success has been partly to do with Iphone and Blackberry's in making them a success and about 1 to 2 years later, Android. I remember at one point of time before Blackberry (was huge) and Iphone, the mobile players were struggling to make 3G a success. They were really struggling, and  turned around, now there are not enough bandwidth. See how fast things have changed. To claim that network providers do have the solution is not true. The devices makers like Apple, Google and RIM are the ones that have the solutions.

3G and 4G

What type of devices where the mobile networks are used often? Smartphones (Iphone, Samsung Galaxy, HTC etc) and Tablets (Ipad, Galaxy, Kindle). Now, the latest version of all these smart devices - the Iphone 5, Samsung Galaxy 3, latest Kindle Fire etc. - all of them support LTE, but none (as I see it) support Mobile WIMAX.

YTL's YES 4G technology is a version which runs under the Mobile WIMAX. Hence, for these devices to run on the YES platform, additional device has to be plugged onto the smartphones or tablets. So far, I have yet to see Apple or Samsung or even Microsoft's Surface came out supporting WIMAX, and that is a problem for WIMAX network providers.

Remember the Sony Betamax vs VHS war! History will repeat. WIMAX will not win. YTL will claim that it is going to be awarded LTE a spectrum. Where are the advantage then when the network is not to your favour (as all the rest are to be given LTE as well) and definitely money is not in YTL's favour.

No network advantage and no cash advantage = NO WIN.

6 comments:

khengsiong said...

From what I know, YES will upgrade its network to TD LTE.

The big Malaysian 3 celcos - Celcom, DiGi and Maxis will deploy FD LTE, so are America's Verizon Wireless and AT&T Wireless. But China will use TD LTE. So I expect Apple and Samsung to make phones for both types of networks.

But both YES and P1 say their Wimax networks can be transformed to TD LTE through software upgrade. That is something I don't understand.

yhtan said...

When YTL started to kick start YES, YTL Power shareholders thought the result would be positive within a short period. Dividend yield had been eroded and many shareholders were disappointed and start to sell down their stake.

For a management like YTL and its financial ability, I do think they will prevail in this marathon run, P1 is not doing well at the moment. But it will continue to hurt shareholders pocket in these few years.

felicity said...

Thanks Kheng Siong

Let's see. Even with that, the spectrum speed advantage that these players have been harping on with diminish.

I still think this business is about size, brand and marketing.

Anyway, to these guys I would think that they are relying on the allocation of spectrum to them and that is itself of value.

phantom78 said...

WiMAX is a sunset technology that failed to pick up despite all the hype created by the media. Simple reason being its non-backward compatibility with other 3GPP standards (GSM/2G, WCDMA/3G etc). WiMAX is **not** 4G, which imposes very strict conditions like 100Mbps air interface throughput, low latency, QoS etc. YTLe has been awarded a chunk of the 2.6Ghz spectrum to roll-out WiMAX. But if they do no modernize their infrastructure to be LTE-ready, the spectrum is only good for sale. My 2 cents

Blabbermouth said...

"YTL Communications Sdn Bhd, a unit of conglomerate YTL Corp Bhd, is willing to consider collaborating with other players operating in the industry to roll out Long Term Evolution (LTE) or 4G services in the future" Indirect quote to Francis Yeoh.

Source: http://biz.thestar.com.my/news/story.asp?file=/2012/5/3/business/11220764&sec=business

There's other articles out there quoting management of YTL saying that their network is LTE ready.

Came across this article showing a demonstration by P1 of a network platform capable of supporting both WIMAX and LTE concurrently.

http://www.malaysianwireless.com/2011/04/lte-demo-p1-zte-130mbps/

I suspect YTL may be going down the same path. One of the challenges for telco is getting sufficient coverage for their network, by implementing WIMAX as a stopgap technology, allowing them to have a ready pool of subscribers when the LTE is green lighted.

That says, I am no insider. YTL group have a record of making earning accretive acquisition on an international scale.

The bagging of the 1Bestarinet contract to be operated on the Yes network is likely to enhance the breakeven timeframe too..

Sure it's hard for them to make money when the technology platform is not levelled. Wimax vs 3G.

But when Yes running on LTE compete with MCD running on LTE, I believe YTL would have a good chance of getting a respectable market share from the existing telco.

Interesting number about market cap to ponder on..
Maxis - 52B
Digi - 41B
YTLP - 12 B

Currently market is ascribing a discount to YTLP's valuation due to the earning drag caused by its telco network.

Rerating could occur when the telco stop losing the 400M a year! Hopefully this will happen in 2013 *fingers crossed* but more likely in 2014. Whether the losses stop, spectrum is sold off, or YTLP manage to find another cashflow stream... the probability of a long term continued losses in Yes is not probable *in my opinion*.

However, there are comparison being made about the telco industry with the airline industry. Too much operator sinking high capex into the industry leading to margin compression... well that's an issue for another discussion.

In the meantime I am holding onto my YTLP-WB and YTLP, due to my rationale above, I find it very difficult to justify the current valuation (PB1.24, PE9.5x).. I find that the current price is being depressed by YTL for unknown reason, I think there's a conspiracy to depress the price to allow them to privatise it cheaply, but the director's sale of shares does not support this theory..



Blabbermouth said...

Anyone else there bullish about YTLP, or what's the bear view on YTLP?

The IPP dont seem to be a big issue to me as they dont contribute significantly to the business anyway.

Reduced dividend yield caused selling by YTLP's traditional dividend investor, but using the retained cashflow to par down some debt to enable acquisition when opportunity arise seems wise.

One point I didn't quiet like is their deterioration on their profitability measurement- net margin, ROA, ROE - over last 3 years.

The faith of Francis Yeoh in Christianity seems to be a plus point for me, points towards character with certain morality - less chance of hanky panky.

But what do I know, I am painfully down on my YTLP. Keep on telling myself it's a long term holding, WB only expire in 2018.