Telekom surprises industry with investment in Singapore mobile market

Telekom surprises industry with investment in Singapore mobile market

Associated Press, Kuala Lumpur

State-controlled Telekom Malaysia Bhd.'s move to invest in Singapore's saturated mobile phone market has surprised analysts who see few immediate benefits from the deal.

Malaysia's largest telecommunications operator, tying up with the state investment arm Khazanah Nasional Bhd., last week agreed to buy a 12.06 percent stake in MobileOne Ltd., raising its ownership in Singapore's No. 3 cell phone company by customers to 17.7 percent.

The move appears to be a shift in Telekom's strategy of investing in red-hot Asian markets that can deliver quick returns, such as Indonesia, Cambodia, Bangladesh and Sri Lanka, as well as its hopes of expanding to emerging territories like India and Pakistan.

"We are somewhat surprised by this announcement as it does not fit into the company's previous strategy of acquiring high growth-low penetration investments," investment bank Goldman Sachs said in a statement.

Under the Singapore deal, Telekom will pay 856.3 million ringgit (US$227.1 million) to become the largest shareholder in a company with limited scope for growth.

Telekom has been buying assets elsewhere in Asia recently as competition in the domestic market grows. It has a 27.3 percent stake in Indonesia's Excelcomindo and also owns Sri Lanka's Dialog Telekom Ltd., the South Asian country's No. 1 mobile phone company.

Analysts said immediate financial gains from the MobileOne deal are limited, as 3 million of Singapore's 4 million people already own mobile phones sold by three established companies.

But Telekom believes that the deal is "not so much for growth, but synergy and product innovation and cross border transactions," said Abdul Wahid Omar, Telekom Malaysia's chief executive.

"That's why we're buying into this company," he said.

Lee Chee Kunn, chief executive of Alpha Asset Management Sdn. Bhd. in Kuala Lumpur, said the deal is positive in the long run for Telekom because it will allow the company to tap MobileOne's technical expertise, expand in the region and gain economies of scale.

Telekom Malaysia and MobileOne can also cross-sell products, jointly develop and sell third generation technology content and gain leverage in buying equipment from vendors, said Tursina Yaacob, a telecoms analyst at Mayban Securities.

Goldman Sachs said the deal won't have a major impact on Telekom's earnings, but noted the company was probably attracted to MobileOne's strong cash flow and dividend payout policy.

So far this year, Telekom Malaysia's stock is down 4.3 percent, underperforming compared to the Kuala Lumpur Composite Index, which has gained 1.7 percent in 2005.

However, the stock has risen 22 percent since April, when it hit its lowest level.