Aims to grow its two core businesses to offset losses incurred by P1
Expanding product range in solutions business to attract more customers
AFTER registering losses for six consecutive years, Malaysian-based telecommunications solutions provider Green Packet Bhd, once an investor darling, has plans in place that it believes can turn the company around and return to profitability.
Green Packet, which at one point was the majority shareholder of Packet One Networks (M) Sdn Bhd (P1), has posted an average of about RM98 million of net losses annually from fiscal years 2008 to 2013.
The losses were mainly incurred by P1, a wireless Internet business that is very capital-intensive and which competed against many players, both new and incumbent operators.
Last October, telco giant Telekom Malaysia Bhd (TM) completed its acquisition of a 55.3% stake in P1, becoming the new holding company for the latter. Green Packet retains a 31.1% stake and South Korea’s SK Telecom Co Ltd has 13.6%.
In March 2014, TM said it had agreed to buy a 57% stake in P1 for RM350 million (US$106 million at the exchange rates then).
But investors who thought that Green Packet selling its majority stake in P1 to TM would solve everything and automatically turn a loss-making company into a profitable one, have been proven wrong so far.
In fact, for the second quarter ended Dec 31, 2014, Green Packet registered a net loss of RM23.35 million. The net losses were partly driven by the interest incurred from its exchangeable bonds, as well as its share of losses in P1.
[RM1 = US$0.27]
In an interview with Digital News Asia, Green Packet chief executive officer (CEO) Kay Tan said that the company has drawn RM120 million from the exchangeable bonds, which come at an interest rate of 8% a year.
"But, without the share of losses as well as the interest from the exchangeable bonds, we would be registering RM4-5 million of net profit for every RM100 million revenue we make,” declared Tan, who joined Green Packet in 2005 and took over the CEO role last October.
In its early days, Green Packet was a favourite among investors and punters. At one point, its market capitalisation exceeded the RM3-billion mark. Today, its market cap is at about RM200 million.
While Tan (pic above) did not promise that its market cap will ever hit the billion-ringgit mark again, he said the company’s focus for 2015 is to improve its profitability.
“Our aim is to grow our two core businesses – the solutions and communications pillars – so that we can offset the losses from P1 as well as interest from the exchangeable bonds,” he said.
Its communications business basically involves the provisioning of international voice traffic, and to do this, Green Packet has set up hubs in Indonesia, Hong Kong and Singapore.
How this roughly works is that Green Packet will buy a bulk of ‘voice minutes’ from one operator, and then resell it to other operators.
“This is not a technology play,” Tan admitted. “Essentially, it is … a voice wholesale business.”
Although the business has been in existence since 2008, almost the same time P1 was launched, there was not much awareness and attention on Green Packet’s voice wholesale business.
“It’s not a sexy business; it’s like a trading business,” said Tan.
Meanwhile, Green Packet’s solutions business includes developing devices such as indoor and outdoor modems, hybrid mobile routers, wireless gateways, and other devices. These devices are not sold or marketed to consumers directly, but to operators.
Tan said that last year, the company sold some half-a-million units of 4G fixed and nomadic wireless broadband devices, which translates to a 5% share in the global fixed and nomadic wireless device space.
“Today, there are more than 350 operators already deploying Long-Term Evolution (LTE). We see this as a big opportunity ... currently, we are selling the devices to 17 operators, but there are about 300-odd [operators] that we have not reached,” he declared.
As at December 2014, the company is conducting trials with 47 operators.
“Hopefully, these can be translated into purchase orders. We see this still as the start of the [curve] of the hockey in terms of potential growth,” said Tan, adding that he estimates that the size of the fixed and nomadic market can grow by five to eight times by 2019.
Those who have been following Green Packet from the early days would know that its strength was mainly in developing software for mobile operators to help them better manage their bandwidth and traffic. It also offered analytics tools for operators.
Today, telecommunications equipment vendors are offering products that come embedded with network management systems, and this has, to a certain extent, eliminated the need for Green Packet solutions at the infrastructure level.
The company, which saw how the market has been evolving, has also adapted, said Tan.
“We still sell software, but we do it differently. It is no longer pure software sales.
“Today, it’s more about ‘buy our hardware, and our software will come with it.’ Operators can monitor performance via the network management system supplied by infrastructure vendors, but at the device level, there’s no such monitoring tool.
“So when a customer complains, the operators have to figure out whether the call is valid, and where the fault is. Our solutions complete that last bit,” he claimed.
Plans for 2015
One of the areas Green Packet will look into seriously is cross-selling its services. For example, selling its LTE devices to an operator which is already doing voice wholesale business with it.
Another area it will focus on in 2015 is geographical expansion. Currently, 55% of its solutions customer base is from Asia, 32% from Latin America, and 9% from Europe.
However, in terms of revenue contribution to the group, Tan said that Latin America and the Middle East are currently contributing less than 10% of the total.
“We hope to increase this contribution to a double-digit percentage this year,” he added.
2015 will also be the year it expands its product range for its solutions pillar, to attract more customers.
“If we go into emerging markets, we want to have devices and solutions that are more cost effective; and if we go into Tier-1 and developed markets, we want to be able to offer feature-rich products … that give them better connectivity and throughput,” Tan said.
“Ultimately, we like to position ourselves as having the widest portfolio in fixed and nomadic wireless products – so that we can go to any operator and be able to give it a product that suits it,” he added.
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