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TM: Broadband capex declining

TELEKOM Malaysia Bhd (TM), the country’s largest fixed-line company, expects to spend about RM1 billion on high-speed broadband (HSBB) network next year, as it is banking on it to maintain its broadband leadership.

The company, which allocated some RM1.4 billion in capital expenditure (capex) last year, expects slightly lower capex this year.

“Moving forward, we expect this (capex) to continue to go down,” said TM group chief executive officer Datuk Seri Zamzamzairani Isa in an interview last week.

Lower capex will help improve the company’s margin in the future. This is critical as the government’s contribution for the RM11.3 billion HSBB project ends this year.

The project launched in 2008 is a public-private partnership in which TM is investing RM8.9 billion over 10 years while the government is coinvesting RM2.4 billion.

So far, the government has paid RM2.2 billion (of the RM2.4 billion) to TM.

“There’s only like RM200 million left in terms of contribution from government,” added Zamzamzairani.

It means starting next year, TM will self-fund the continuous rolling out of HSBB network and demand will decide the rollout.

Under the HSBB agreement with the government, TM had agreed to blanket 1.3 million premises passes with its HSBB network by the end of 2012. To date, the company has covered about 1.18 million premises passes.

“We are on track to meet our commitment,” he said.

Besides rolling out HSBB network, capex will also be used to build a submarine cable connecting Peninsular Malaysia and Sabah and Sarawak, as well as expanding its fibre footprint there. The cost for the submarine cable has yet been finalised.

Nevertheless, Zamzamzairaini stressed that the company is willing to invest more on network if there is a business case and such action would not hurt its balance sheet.

“We still have headroom for borrowings,” he said.

The launch of HSBB services is critical to TM’s future growth and to some extent, its survival. During the past years, the company has seen its fixed-line voice revenue declining.

Once its bread and butter, the voice business now contributes about 40 per cent of its total revenue. Non-voice businesses such as broadband constitute 60 per cent of TM’s sales.

The company, which posted a net profit and revenue of RM1.19 billion and RM9.15 billion, respectively, for the full-year ended December 31 2011, expects revenue to rise by 5 per cent this year, at an Ebitda (earnings before interest, tax, epreciation and amortisation) margin of 32 per cent.

TM’s shares rose 0.97 per cent to RM5.23 last week. So far this year, its shares have gained 4 per cent, as compared with the benchmark FTSE Bursa Malaysia KLCI which has risen 2.6 per cent.

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