PM to calm telcos upset with YTL’s new TV spectrum

November 26, 2010

Najib will need to reassure telecommunications players riled by the unilateral award. — file pic

 

KUALA LUMPUR, Nov 26 — New network provider YTL Communication’s sole rights to a portion of digital television broadband spectrum has upset competitors who now want Datuk Seri Najib Razak to settle the issue in the fast-growing and lucrative industry.
Singapore’s The Straits Times said the prime minister will meet senior telco officials next Monday to defuse the widening controversy over the 700Mhz spectrum said to be given to tycoon Tan Sri Francis Yeoh’s YTL to operate its hybrid television service slated for end 2011. It can also be used to widen its broadband service.

“I guess the fear is YTL gets the spectrum for ‘broadcast’ purposes and ‘later’ comes back to amend the use of it to broadband on the pretext that convergence of technologies is already happening. Hence their big mantra about quadruple play,” a government source told The Malaysian Insider when asked to comment on The Straits Times’ report.

The Straits Times report quoted the chief executive officer of a large financial institution which has made huge loans to the country’s mobile operators, describing the award of the licence to YTL “scandalous.”
“Without access to the (700MHz) spectrum, the big three won’t be able to expand.” With this stranglehold, YTL “can either shut out other telcos, or resell bandwidth to them.”

The industry fears YTL will repurpose its spectrum allocation by claiming convergence.

While details of the licence are not yet public knowledge, it is believed the award was made without consultation with the three main mobile telcos, including Celcom Axiata which is government-controlled.
Media reports over the past month said that the Malaysian Communications and Multimedia Commission (MCMC) had issued 80Mhz of the 700Mhz spectrum to YTL, which had a disastrous launch of its long-delayed YES 4G WIMAX service.
The other WIMAX provider is P1 but the new spectrum could give YTL total control over the next wave of new technologies in the telco sector. Called Long Term Evolution (LTE), it powers the 4G market which both YTL and P1 claim to provide now. However, their current services do not meet the International Telecommunication Union’s (ITU) criteria for 4G.
The other two big players are Maxis Broadband and Digi Telecommunications. There were previously nine telcos in Malaysia but the regional financial crisis in 1997 forced a consolidation in the sector.

The prime minister now has to step carefully as he works towards defusing the situation. A senior government official said in The Straits Times report, “The industry wants him to review the licence. But to backtrack could also put him in a bad light.”
Senior executives of Celcom Axiata initiated this meeting with the prime minister. Their argument is that they, “together with the other two main players in the mobile business, have invested billions of ringgit in infrastructure over the past decade to service its 26 million or so subscribers.”
They contend the “government can’t just give a relatively new player such a licence and turn its back on the established operators.”

Broadband spectrums are highly coveted in the industry, and in Europe, these are auctioned, a move which raises huge amounts of capital for the countries.

YTL signed an agreement with the US-based Sezmi last month to offer hybrid TV services in Malaysia at the end of 2011. However, YTL would require new spectrum/frequency to offer such services.
Sources said YTL will deploy the Sezmi service using DVB-T2 (Digital Video Broadcasting – Second Generation Terrestrial) technology, which is now used in the United Kingdom and Italy, and being trialled in Spain and Germany.

The 700Mhz band is now being used for terrestrial television (TV) broadcast in Malaysia until sometime around 2015, but there are some unused spectrum in 700Mhz range which YTL could use to offer basic hybrid TV services end next year, said industry website malaysianwireless.com.
The 700Mhz spectrum has been prized all over the world including the United States where Yahoo, eBay and Google banded together in March 2007 to force the hand of the US Federal Communications Commission (FCC) to enable the parties to have a say in what is to be done with the spectrum.
The FCC has dubbed  the 700Mhz to a “beach front” property and YTL’s reported rights to it is seen as disadvantageous to its rivals.

“The thing that caused the irk in most is, it seems, they were the only ones who even got a conditional offer,” the government source added.

Penang insists water rates still ‘lowest’ in country

By Shazwan Mustafa Kamal

Malaysian Insider
November 03, 2010

Lim explained that the water surcharge was designed to encourage water conservation. — file pic

KUALA LUMPUR, Nov 3 — Penang Chief Minister Lim Guan Eng today defended the state’s increase in water charges, saying tariffs there remained the “lowest” in the country despite the hike.

Lim also dismissed state opposition party Gerakan’s allegations that the administration’s decision to raise water tariffs by 27 per cent would burden households with more than five family members.

“After the water increase, the water domestic rate in Penang is still the lowest. For domestic rates you only have to pay [more] if you use above a certain limit. If you use up to 35 cubic metres, it is still the same, it’s just that [for] anything above that there is a surcharge,” Lim told The Malaysian Insider today.

The chief minister took great pains to explain that the rationale for the surcharge was to prevent water wastage, claiming there would be no motivation to conserve water if prices were maintained below production costs.

“Even in the case of water for businesses, we are still the second-lowest in the country, after Terengganu. If water is too cheap, people will tend to waste. What we want to do is to put it slightly above production costs, as it is now below production costs,” said Lim.

The Penang Pakatan Rakyat (PR) administration has come under fire from Barisan Nasional (BN) state opposition parties, who have embarked on a campaign to discredit the state government over the move.

Penang Gerakan vice-chairman, Wong Mun Hoe, claimed on Monday that the hike in state water prices would burden Penang folk and have long-term implications to households with more than five family members.

“According to our research, a family with more than five members will incur an average increase ranging from RM8 per month to about RM100 a year,” he said, adding that the rise would also affect small businesses, traders and even investors who required water in their business activities.

Wong further claimed the profits of Perbadanan Bekalan Air Pulau Pinang (PBAPP) had dropped to RM31.2 million in 2008 and RM14.8 million in 2009, while under the PR state administration.

PBAPP’s profits had been RM43.1 million in 2007, when the state was still under BN, according to Wong.

Yesterday, a group of 100 people representing Balik Pulau residents, Komtar traders and Parti Cinta Malaysia members held a demonstration in front of the Penang state assembly to protest against several issues, including the water tariff hike.

There, they had demanded a meeting with Lim but were denied entry into the state assembly.

“I don’t mind discussing matters with the protestors. But these protestors are Umno people, trying to create havoc and chaos,” the chief minister said today.

Putrajaya may bail out water bondholders

Putrajaya may bail out water bondholders, says minister

By Yow Hong Chieh
Malaysian Insider

November 04, 2010

Chin believed the huge difference in valuations made it unlikely that the impasse would resolve itself. — file pic

KUALA LUMPUR, Nov 4 — The federal government may come to the rescue of Selangor water bondholders by undertaking a bond swap if no headway is made soon in stalled water consolidation talks, Datuk Seri Peter Chin has said.

The minister for energy, green technology and water revealed that swapping existing bonds with triple-A government-backed ones was one option on the table to buy stakeholders more time as state and federal governments try to break the current impasse.

“These are all permutations that can be looked at if all else fails,” Chin told The Malaysian Insider earlier this week, when asked if the Water Asset Management Company (PAAB) will issue new bonds to replace maturing ones.

Major bondholders include CIMB, Hong Leong Bank, Great Eastern Life and the Employees Provident Fund (EPF).

Selangor’s water players — Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Puncak Niaga Sdn Bhd (PNSB), Syarikat Pengeluaran Air Sungai Selangor Sdn Bhd (Splash) and Konsortium ABASS — are at risk of debt payment default as water bonds approach their December 31 maturity date.

The debt service problem started when Syabas was barred from implementing a 37 per cent tariff hike agreed upon in January 2009, after the Selangor government claimed the sole water distributor had not done enough to reduce leakages which cost the state millions.

This in turn led to payment problems between Syabas and water treatment concessionaires PNSB, Splash and Konsortium ABASS, who supply it with treated water.

All four term loan borrowers are already in technical default following their inability to maintain six months’ worth of reserves in a special account used to pay bondholders. The shortfall is understood to be some RM50 million, although this deficit could double in six months.

The technical default triggered a downgrade of the debt issuances by Malaysian Rating Corp Bhd (MARC) and RAM Ratings Services Bhd on September 8, who warned of further multiple-notch downgrades in this quarter. An industry source told The Malaysian Insider that bondholders suffered RM457 million in mark-to-market losses following the downgrade.

Syabas, Puncak Niaga (M) Sdn Bhd (PNSB), PNHB, RUN Holding SPV Bhd (RUNH), Splash, Viable Chip (M) Sdn Bhd (VCSB) and Titisan Modal (M) Sdn Bhd (TMSB) were downgraded by MARC while RAM cut ratings for Splash and Taliworks Corp Bhd subsidiaries, Destinasi Teguh Sdn Bhd and Sungai Harmoni Sdn Bhd.

Khalid’s administration has valued Selangor’s water assets at nearly RM11 billion.

A statement by MARC at the time urged federal and state governments to urgently intervene in the water industry’s restructuring negotiations to prevent a free fall of ratings in following months.

In an interview with The Malaysian Insider, Chin, however, said PAAB will not be able to raise funds for the bond swap if Selangor Mentri Besar Tan Sri Khalid Ibrahim stands by his recent statement that state water assets were worth RM10.98 billion and not RM1 billion, as previously assessed.

“PAAB will never be able to afford that money because that money has to be raised from the bonds. And, if PAAB raised that bond, your tariffs in Selangor will rocket sky-high,” he said.

“There is no way, when you have to ask the bond market to raise money, to pay for this sort of huge sum of money unless Selangor government say [it] will bear the interest. Are they going to do it? You’ve got to think of all this. It’s not just a matter of, ‘I want this figure, full-stop’.”

The six-term Miri MP said PAAB was only willing to offer RM1.1 billion for the water assets, in line with a valuation done by the previous state government, and not RM10.98 billion derived through “so-called replacement principle of evaluation”.

“How can there be such a big difference? And our figure is not just plucked from the air. It’s from consultants. So how can be such a big difference?” he asked. “You’ve got to give a figure that’s a fair valuation of what Syabas equities [are worth] because... they have to take over Syabas equity. And so also the others.”

Chin said Khalid’s statement appeared to be an attempt to sabotage ongoing water consolidation talks between state and federal governments, and was pessimistic that a resolution could be achieved by end of next month.

“Now, of course, Selangor, to me, they have been very unreasonable to put down a figure of RM10.98 (billion) in terms of their assets value. That itself is already throwing a big spanner into the works. Who can afford that sort of money?” he asked.

“At the moment, it looks like the parties are very adamant to get what they want and each one is talking on figures that are just too high. There is no way.”

However, Chin denied he will use powers granted to him by the Water Services Industry Act (WSIA) 2006 to force water consolidation under terms favourable to the federal government, as some Selangor government officials have suggested.

Section 114(1) of the WSIA allows the minister to assume complete or partial control of concessionaires in the interest of the nation, and “shall not be challenged, appealed against, reviewed, quashed or questioned in any court”.

“How can you force? How can you nationalise companies? I mean, this sort of thing, we cannot do that. There is an agreement signed, and federal government is one of the signatories, so also Selangor government,” Chin said.

“That (section) is only when there are extreme situations. For example, [when] there is no water.”

He nonetheless urged Khalid to redouble his efforts to solve the water crisis, given the rapidly approaching deadline.

“I hope he will use his special effort, he will be able to use his persuasion or whatever to get the companies to see his line of approach. If he can persuade these companies to sell their lock, stock and barrel to him, that will be the best solution according to him. So, if that is the case, be my guest. He is welcome to do it. But do it at a fast pace, don’t just simply talk about it,” he said.

“If he has some concrete plans, I have not seen it yet,” he added.