REDtone’s managing director Wei Chuan Beng sheds some light on what to expect from the group with TheStar’s Bizweek.
BIZWEEK: How different are things for REDtone now as opposed to a year ago?
Wei: It’s been pretty good for us of late. What we have been planning over the past year is beginning to bear fruit. We laid the groundwork to transform REDtone and it seems to be showing positive signs. We are now on track.
If you look at our past releases, you will see that we planned two things quite specifically. One was our foray abroad and second, to have balanced growth in Malaysia by having a few products and services, while maintaining the existing discount call business.
The new areas we have gone into include travel phones, and the provision of data and broadband services. This gives us a balance in business, earnings stream and revenue for the company. This transformation with the two-pronged strategy is now beginning to show … early fruits, which we can reap.
Things are definitely looking up for your ventures in Pakistan and China. Can you elaborate?
Wei: They have improved tremendously. Moving forward, for the Pakistan venture, we are in negotiations with a potential new investor. But nothing is firmed up yet.
We have been in Pakistan for two years; we have a very strong network in the country.
The management is one of the important factors for the turnaround in the Pakistan venture. Stability at a senior management level is a factor.
We are already making profits in China, where we are now looking to balance our revenue contribution. Besides voice, we are also actively looking at data business. For this, we are in negotiations for certain acquisitions which can enhance our presence.
China is going to be interesting with the contribution from voice, data, broadband and the Internet in the near future.
What brought about the turnaround?
Wei: Most new ventures will initially be loss making. They have a gestation period. Two years ago, we ventured into Pakistan and last year, we went into China.
Since last month, we have been recording EBITDA (earnings before interest, tax, depreciation and amortisation) profits. This month onwards, China will contribute about 8 million or about RM4mil a month.
For the new financial year (FY08) starting June, China will contribute more than RM50mil. The margins may not be that high but we have the economies of scale. To record a profitable EBITDA position within a year is remarkable, especially in the telco business, considering the competition.
But China can be very competitive. How do you see REDtone competing with the local players?
Wei:I think REDtone as a company is able to withstand competition. It just needs an environment where it can fully expand its capabilities. We must seize the opportunity and move along.
We have our core competencies, our technology and our innovative products and packages, which allow us to add value to the customers, support the channel well and serve the market effectively. This also allows us to grow in a particular market … this is how we grew in China amidst the competition amidst the well-educated Shanghai consumers.
It must have been a trying time for you these past few years when things were not going too well.
Wei: People used to say that REDtone is so dependant on the long distance calls, discounted calls and is subject to competition. They said REDtone is vulnerable and so on.
We agree that was the impression in the past. The management has thoroughly assess the market(s) and we’ve done the changes accordingly. Admittedly, some of these changes take time to show itself in a positive way.
This is our transition year and we will be back on a higher growth path in the new financial year.
Quarter-on-quarter, revenue has come down, then stabilised, and tapered off a little bit. So, we foresee Q4 and Q1 next year to start to show growth. I think it’s a very important indication to us.
If we merely dependent on one product line, we wouldn’t have been able to do this.
There is speculation that REDtone may list its travel phone business. Is this on?
Wei: There is a lot going on. In fact the telco business is a very international business; it has to integrate with the world’s telco structure, the connectivity and the network of different entities.
Our travel phones presence in Malaysia, Singapore, China and Pakistan will allow us to have connectivity with more than 70 to 80 carriers across the world. In the telco business you must have connectivity with other telco’s. There must be inter connectivity as you cannot live on your own.
Our presence in all these countries also gives us the economies of scale. We are in talks with telcos for other opportunities such as voice, data or international links.
The listing of the travel phone business is still very preliminary. The business can be very substantial, but I think it hinges on a few factors, one of which is how soon we can get a strategic partner on board, to expand the business. We plan to form a tie up and penetrate markets.
A tie up can benefit the strategic partner tremendously as well as you are looking at bringing subscribers from outside their network to them.
When this takes off, we will be looking at a different phase of growth. But until then, it’s still an integral part of REDtone.
The entity that seems more ready to go to the market is the Chinese venture … it is seems more ready.
What about the recently awarded WiMax licence, many say that with a high capex (capital expenditure) of about RM300mil, it will be difficult for REDtone considering its focus will be on East Malaysia. Can you comment?
Wei: Most of the business has been in Peninsula Malaysia. Chances are when they do roll out more broadband data services, peninsula is likely to make a lot more monetarily.
For the time being, we are actively making assessments on what could be the appropriate plan for Sabah and Sarawak. But there are still a lot more plans in the pipeline, which should become clearer over the next two weeks. Some important initiatives have yet to be announced. WiMax is part and parcel of our data and broadband strategy. -The Star