Malaysia, Bangladesh Among Asia Units Leading Telenor Out of Global Slump

In this 2013 Interview, Sigve Brekke, Chairman of DiGi Bhd & Telenor Asia, discusses the following questions:

MARKET SHARE - COMPETITION

- The latest mkt shr data shows that DiGi and Celcom continue to gain ground on Maxis, with DiGi’s slice of the mobile revenue pie rising to 27.6% vs. Maxis’ 37% and Celcom’s 35%...
Are you happy with your current competitive position?
- When can we expect DiGi to challenge the Big 2? Is there even a desire to be top two?
- There is even a view that all three players might enjoy equal market share ..
- Maxis - problems - (lack of) management direction - inability to scrap with No.1 mentality - whether time strike while iron is hot
- Are u worried that Celcom is encroaching on your core segment – the youth mkt?
- Is there a risk that Maxis may get more price competitive to halt its declining mkt shr?

BUSINESS TRUSTS

- DiGi is reportedly exploring the setting up a business trust (BT) as a potential vehicle for its capital management initiatives, with a decision to be made by year end…
How will a BT potentially allow you to manage your capital more efficiently and boost payouts?
- There might be corporate governance concerns - chiefly that such a set-up is potentially more favourable to Telenor (higher dividends) than minority shareholders
- pros and cons of the BT structure
- Business trusts are a new concept for the M’sian mkt and DiGi could be the country’s first
Shouldn’t you be watching to see how they perform?
Especially given the performance of business trusts in Singapore has been sub-par?

FINANCIALS

- Telco companies, such a DiGi primarily focus on EBITDA as a yardstick of profitability - cons - network depreciation
- At its 2Q12 result, DiGi had RM761mn cash on the balance sheet, a big drop from the RM1.45bn at the end of last year…
Given the telcos ongoing network modernisation exercise… Are the days of DiGi’s dividend surprises over?
- Elevated cash payouts have been one of the main reasons why DiGi has re-rated so sharply in recent years (from around 15x trailing PE 5yrs ago, to 28x today…)
Do you see a risk of DiGi’s PE multiple de-rating if it fails to provide dividend surprises going forward?

DIVIDEND POLICY - MIN 80% OF NP

- We understand u continue to stand by your full-year guidance:
Revenue growth of 5-7%
Flat EBITDA margins YoY, 46%
Capex at 11% of revenue, implying flat capex YoY, within RM750 mn
>> WHAT are the main threats to any of these three?
- DiGi launched LTE services recently but cautioned that it's early days yet for LTE in Malaysia
What are the catalysts to some kind of traction occurring?
- Telenor 49% of DiGi - desire for up to 70%

M&A - SECTOR CONSOLIDATION

- And on to the thorny issue of spectrum - or the lack thereof.
Isn’t DiGi at a big risk of falling behind its peers as 4G is gradually rolled out?
DiGi is after all known in the market as being the most “spectrum-starved” of the “Big Three” players in the country ..

- What level of credence should shareholders accord the rumours that DiGi is looking at acquiring companies operating on the WiMAX spectrum, which is on the 2,300MHz band.

- After all, a successful precedence exists: in 2008 DiGi bought the rights to valuable 3G spectrum from Time dotCom Bhd for a whopping RM700mil -- a deal which has worked out well for DiGi shareholders ..

TELENOR - MYANMAR
- Telenor and Qatar Telecom finally emerged victorious in the bid for Myanmar’s coveted telco licences
However, given there were delays, confusion and chaos surrounding just the announcement of the winners of the license
What does this say about how difficult it’s going to be to operate in Myanmar?
- Myanmar currently has a penetration rate of c. 9%, if it reaches its 50% target by 2015, CLSA estimates this could generate c. US$115mn annually – will this justify the cost of the license, in addition to the difficulties of doing business in Myanmar?

INDIA - A MARKET THAT TELENOR IS COMPETING WITH MAXIS
- Entered as No.14 (No.1 player - Bharti Airtel - has 200m subscribers) - then lost licence - then regained after court battles - outline the challenges
- Learnt some lessons in India: partnerships - cost efficiency - network efficiency - adoption in Malaysia

PERSONNEL
- Maxis seems intent on recovering lost market share - no surprises - and it's doing so with DiGi / Telenor alumni
Trade secrets: what is the risk of DiGi's former execs sharing the inside line on DiGi's practices and culture?
- If Lundal is instrumental in engineering a successful turnaround of Maxis’ flagging mkt shr what strategies might DiGi instal to counteract this new competitive threat?