Saudi Telecom Strikes US$3.01-bil. Deal with Malaysia's Maxis; Gains Foothold in India, Indonesia 

Binariang GSM Sdn Bhd (Binariang), the parent company of Maxis Communications, yesterday announced it had entered a US$3.05-billion deal with Saudi Telecom Company (STC), the largest telecom operator in Saudi Arabia. Under the deal, STC will acquire a 25% stake in Maxis Communications, as well as a 51% stake in Maxis' Indonesian unit, PT Natrindo Telepon Selular (NTS). STC and Maxis will also jointly invest US$900 million in India to expand Maxis' operations in the country. The conclusion of the deal, however, still requires the approval of the authorities concerned by the end of the third quarter of this year. As of the end of March, Maxis had 8.5 million mobile subscribers in its Malaysian home market, a market share of 41.5%. The operator owns 74% of the Indian mobile operator, Aircel, and 95% of the Indonesian mobile company, NTS. Upon completion of the deal, Maxis’ ownership in NTS will be reduced to 44%, while STC will own 51% as a result of its investment.

Outlook and Implications

• Strategic Alliance for Overseas Expansion: Malaysian tycoon T. Ananda Krishnan, who controls Binariang, has teamed up with other Maxis shareholders to buy the 41% of Maxis they do not own in a US$4.6-billion deal. The buy out was driven by Krishnan's desire to accelerate Maxis’ overseas expansion, which would demand huge capital investment (see Malaysia: 4 May 2007: Malaysian Billionaire Offers US$4.6 bil. to Take Maxis Private). Although Maxis has already entered India and Indonesia, two of the fast-growing mobile markets in the world, both ventures are only small players in their respective markets, requiring significant investment for expansion. Aircel, which has operations in 9 of the 23 telecoms circles of India, had a total subscriber base of 5.5 million as of March 2007. The operator has received licences for all the remaining 14 circles, but its expansion into the new areas is being delayed as it is still waiting for spectrum allocations for 13 of these new circles. In Indonesia, unprofitable NTS, which has pocketed 2G and 3G mobile service licences for years, has so far only launched very limited service coverage and its subscriber number is minimal. Nevertheless, the strategic alliance with the cash-rich Saudi operator will help strengthen Maxis' existing overseas operations, as well as enabling the two parties to expand jointly into other significant markets in Asia, the Middle East and Africa for new growth opportunities.
• Strategic Move by STC: The deal is STC's first foreign investment and is part of the operator's strategy to increase its income sources from arenas outside its domestic market. "This transaction represents an important step for the company's drive to become an influential player in the global telecoms sector," Saudi Telecom Chairman Mohammed al-Jasser said in a statement. The operator is facing intensifying competition in its home market, where the market is opening up to other telecoms operators. STC currently competes with Etihad Etisalat and will face increased competition in 2008 when Kuwait's Mobile Telecommunications becomes Saudi Arabia's third mobile operator. STC's monopoly over the country's fixed-line market will also end soon with the entry of three new players. Bahrain's Batelco, Hong Kong's PCCW and U.S. firm Verizon Communications have won initial government approval to operate new fixed-line services in Saudi Arabia (see Saudi Arabia: 14 June 2007: Saudi Fixed-Line Winners to Receive Licence in July). The deal is the latest in a series of investments made by Middle East operators abroad. In March, for instance, Doha-based Qatar Telecom agreed to buy a controlling stake in Kuwait's second-largest mobile operator, which has assets across the Middle East and Africa, for US$3.7 billion (see Kuwait: 5 March 2007: Qtel Wins 51% of Wataniya for US$3.72 bil.). Egypt's Orascom Telecom and Kuwait's Mobile Telecommunications have also in recent years expanded rapidly through acquisitions in the Middle East, Africa and beyond. Orascom bought nearly 20% of Hutchison Telecommunications International Ltd. (HTIL) in December 2005 for around US$1.3 billion.