Interview | Wednesday, 16 September 2009

Melita, two years after

MASSIMO PRELZ, one of the partners in GMT Telecommunications Partners, speaks extensively to Charlot Zahra on Melita’s performance over the past two years since they took over from UPC and the Gasan Group, and launched Melita Mobile

What led GMT Telecommunications Partners to invest in Melita two years ago? Was it a strategic decision to enter the Maltese telecoms market or was it a one-off opportunity?
GMT Partners invest exclusively in media and telecoms.
The decision to invest in Melita was both at the same time strategic and opportunistic.
Strategic, as we looked at the potential of the market, the expected growth of the Maltese economy, the competitive dynamics in the market and we liked the economic landscape; and opportunistic because the former owner of Melita had decided to divest and they gave us an opportunity to enter the Maltese market.

Why did GMT opt for a buy-out of the majority shareholding in Melita from UPC and Gasan Group rather than a partnership?
The idea behind the investment was to be a significant participant in the Maltese telecoms market.
To achieve that, we needed a significant player and Melita fitted the bill.
UPC and the Gasan Group had jointly decided to divest, as UPC was not interested to remain involved in the island so we had no choice to buy them out.
We very much wanted to have a local partner and therefore we invited Joe Gasan to reconsider, but given his long standing association with UPC he decided to sell part of his stake alongside the other shareholder. However the Gasan Group ended up with a significant minority stake and Joe Gasan has underlined his commitment by retaining his position as Chairman of the Board.

In the two years that GMT has been a majority shareholder of Melita, how has the company performed when compared to before? Has it performed better or worse?
I don’t think I want to get involved with presenting the operating results that management has already presented to the press at the launch of the Bond offering.
Let me say that we are very satisfied with the results of the last 2 years and with the acceleration in operating profit since our investment.
In addition Melita has launched significant new programs, like the mobile operation and the submarine cable, that have greatly enhanced the value of our investment.

One of the first decisions that GMT Telecommunications Partners took was the take-over a month later of 3GTelecommunications Limited, the third mobile telephony licensee, which had still not rolled out.
How vital was this decision in Melita’s strategy to become a quad-band player like GO?

We had been aware for a while about this opportunity and we had even looked at it on a self standing basis, and turned it down.
Once we completed the investment in Melita, in accordance with Joe Gasan we approached MC Partners, a Boston-based private equity house – and now a significant investor in Melita – who had continued to pursue the opportunity.
We consider it would make sense to have a mobile licence to be able to address the need of our customer across the full spectrum of their communication requirements.
I would say that acquiring a 3G licence has allowed us to deliver a true quadruple play.
I consider that, when it comes to multi-channel TV, cable is way superior to wireless, which has inherent technical limitations, and I do not believe GO can claim to have full quadruple play at this state of the game.
The traditional telephony network is also not too well suited for transmitting video due to speed limitations and therefore I do not believe that at this point their service is comparable.

Why did Melita take almost two years to roll-out its mobile phone service?
We didn’t! We completed the acquisition of 3GT after the summer. That makes less than 18 months.
In that period we had to build a network from scratch as not much had been done with the licence before we bought the company and we wanted to make sure that by launch we had a robust network and system.

How did the fact that the network is a 3G one, therefore requiring more base stations, impinge on Melita Mobile’s launch date?
Of course a 3G network is over time more performant but requires a bit more time to calibrate.
Also in certain areas it is more difficult to achieve the kind of service quality we expected. That has added a couple of months to our schedule.

Now that you have been operating Melita Mobile for the past six months, do you think there is enough market space for a third full mobile operator in Malta or not?
I don’t know whether there is space for a third self-standing operator, but one must not forget that we are no the second telecom operator in Malta.
The convergence between cable, internet and telephony; the substitution of fixed by mobile are all occurring today. I would say: if there is no space for a third mobile operator in Malta we might not be the one who have to be worried about it.

What has been the impact of Melita Mobile on the Maltese mobile telephony market?
I think the arrival of Melita Mobile has totally changed the dynamic of the market. The old incumbents have discovered they could no longer maintain the high rates and limited choices for the clients, so I think from a client perspective it has been very positive.

One of the complaints often made by Melita Mobile subscribers is that reception is not adequate in most parts of the island. How does Melita intend to address this problem effectively?
As I said, 3G is more performant in the long term but slightly more complex to tune at the beginning. We have received some complaints in specific zones and we have addressed them.
Service has improved since launch and is consistently continuing to improve. We monitor that on a daily basis. However we are comparing a brand new network with high growth potential with old, ‘mature’ if we want to be nice, networks.
Young is not always better but has potential to deliver. Old, as I’m starting to learn, has a lot of experience but not much to look forward….

Another major infrastructure project for Melita has been the installation of a submarine cable from Madliena to Pozzallo, giving Melita its own dedicated broadband infrastructure.
How important was this investment in Melita’s overall corporate strategy?
I believed in it from the very beginning.
In fact, since we first looked at the investment, we knew that having connectivity was a major strategic advantage.
That will allow us to offer our customer higher speed internet than any other provider.
You see, our infrastructure has superior capacity, but given the prior less than competitive situation in the submarine connection, we were not able to exploit it. Now things have changed.
The cost of bandwidth has decreased consistently across Europe and around the world in different but quite dramatic ways year after year. Everywhere, except in some very specific markets and for very specific reasons. Malta is one of those.

In view of this investment, how much more room does Melita have to bring down its own broadband prices further?
The first reason to make this investment was to be in a position to deliver a quality product to our customer in line with international demand.
There is no reason why people in Malta should have a service which is inferior to the one you can receive in London or Rome.
Pricing was a secondary consideration.
Without going into our price strategy, you have seen that the cost of capacity has decreased substantially over the last 18 months.
And we must have done something right, as our market share continues to be above 53 per cent!

Unlike Vodafone and GO, which already have an interconnection agreement with each other in case of an infrastructure breakdown in their own submarine cable, Melita does not have any interconnections with either GO or Vodafone till now.
What has led to the delay?
Are you confident of reaching an agreement with GO and Vodafone regarding this issue soon, which might expose Melita if there is a breakdown in its own submarine cable?
There is a regulatory requirement that all operators can count on redundancy. As we are in process of negotiating the practicalities of the implementation of the MCA rules, I would rather not enter into any discussion on the topics.
But yes, I am confident we will reach an agreement. That is in the interest of all the operators and in the interest of the island.

Until then, how is Melita ensuring that it has enough spare capacity in case of a breakdown in its cable infrastructure? Could you kindly elaborate more on this?
As I said, this is part of current negotiations and I would rather not enter into the subject.

After the launch of Melita Mobile and the bond issue, what is the next step for Melita?
One of the fascinating aspects of our industry is the continuous evolution and improvement.
We have several new projects under review, even if no major new product launch is imminent. We believe that we can bring to Malta an even better entertainment experience.
But we also know that after the major effort to launch mobile we need to make sure we can offer the client the best service. It is not simply important to innovate, it is much more important to give the best experience to the client.

Are there any plans by Melita for a share issue any time soon or not? If not now, when does Melita plan to float on the MSE?
Please, one thing at a time!
We are now in the process to get the local financial community familiarized with Melita through a bond offering. This is a required first step.
We have not discussed the possibility of a new share issuance or a listing on the Malta Stock Exchange. But in any case the bonds represent a good step.
We’ll keep you posted when we decide to make the next!

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16 September 2009


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