28-09-2007: Telekom to split into fixed biz, mobile biz, spin off Celcom

KUALA LUMPUR: Telekom Malaysia Bhd (Telekom or TM Group) has proposed to split its group’s business into two entities to create two leading telecommunications companies, which will see it focusing on regional mobile champion by spinning off Celcom (M) Bhd and another to focus on local business, including rolling out high speed broadband.

Under the plan announced on Sept 28, the proposed demerger of the mobile and fixed-line businesses of the TM Group is to create two separate entities to serve the different market segments within the telecommunications industry (regional company). The completion date is the second quarter of 2008.

Celcom will be transferred to TM International Sdn Bhd (TMI), and TMI will become the holding company for all of TM Group’s mobile and non-Malaysian businesses. It will be demerged from the TM Group through the distribution by Telekom of all the TMI shares to its shareholders, and will be listed on Bursa Malaysia Securities Bhd.

The remaining TM Group will after the demerger comprise of fixed line voice, data and broadband services, as well as other telecommunication and non-telecommunication related businesses. It will remain listed as Telekom on the Main Board of Bursa Securities.

Telekom said that the company undertaking the regional mobile business (RegionCo) will undertake the mobile business of the TM Group, which is presently being carried out by Celcom and the various operating subsidiaries and associated companies of TMI.

“RegionCo will be focused on becoming a best-in-class regional mobile champion with strong exposure to high growth mobile markets. As at June 30, 2007, RegionCo has a total of 31.8 million subscribers in high growth markets in Asia. The year-on-year subscribers growth as at June 30, 2007, was 33.1%,” it said.

Telekom said that the proposed demerger would enable RegionCo to better position itself in expanding its regional presence. Such strategic initiatives, which will continue to spur RegionCo’s growth, are expected to be supported through the steady cashflow streams derived from Celcom and a flexible capital structure.

The fixed line business will be undertaken by FixedCo, which will carry on the fixed-line voice, data and broadband services and other telecommunication and non-telecommunication related businesses.

FixedCo has a 95% market share in the fixed-line business, and a 96% share of broadband business. As at June 30, 2007, FixedCo has 4.4 million fixed-line subscribers and 1.1 million broadband subscribers.

“FixedCo intends to lead the broadband penetration in Malaysia, which has strong growth opportunity given Malaysia’s broadband penetration of only 12.8% for the second quarter of 2007. As at June 30, 2007, FixedCo’s broadband subscribers grew by 66.8% year-on-year (y-o-y),” it said.

Telekom said that the proposed demerger would provide each company with a set of additional benefits.

RegionCo will benefit from increased deal structuring capability with its enhanced profile as a successful and growing pure-play mobile operator. The separate listing also provides RegionCo with a more attractive acquisition currency, in the form of its own listed shares, and greater access to equity markets and increased flexibility in funding. These allow RegionCo to be better positioned to pursue its growth strategies.

Secondly, it would also provide the respective entities, which are involved in two distinct areas of business, the opportunity for better and more-tailored capital management initiatives.

“This would allow each business to design optimised capital structures through differentiated gearing levels, as well as enable better capital allocation processes, for more effective capital spending. Each entity will also be able to pursue specific dividend policies and investor relations strategies,” it said.