This article first appeared in The Edge Malaysia Weekly on November 25, 2024 - December 1, 2024

WHILE the big boys were fighting tooth and nail to get spectrum to roll out the second 5G network, Tune Talk Sdn Bhd distanced itself from the battlefield.

Being a mobile virtual network operator (MVNO), Tune Talk knows that it has to choose the battles that are worth fighting. But it is observing the current evolving landscape and is on the prowl to seize any opportunities that emerge.

Unlike the giant CDMU clique — CelcomDigi Bhd (KL:CDB), Maxis Bhd (KL:MAXIS) and U Mobile Sdn Bhd — Tune Talk co-founder Gurtaj Singh Padda sees the new industry environment in a positive light because MVNOs will be on a par with the big players because the competition is now in retail service quality since all the players have equal access to the same infrastructure.

Tune Talk is a big MVNO with about one million subscribers. It does not own any infrastructure but is piggybacking on the network of its substantial shareholder Celcom Mobile Sdn Bhd (which is now part of CelcomDigi).

Celcom Mobile is the second biggest shareholder of Tune Talk with a 35% stake, after Gurtaj, who owns 37.71% equity interest in the company. The bulk of that stake he bought from from Tune Group, which is controlled by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun.

“We were way ahead in technology on how to do certain things,” says Gurtaj, recalling Tune Talk’s earlier days when “choose your own number” SIM cards put the telecommunications company (telco) in the spotlight — the four last digits could be chosen by the customer — and when it partnered with artists like Avril Lavigne to bundle its products with their concerts in Malaysia.

“That excitement is what I’m going to bring back,” Gurtaj tells The Edge in an interview.

Launched 15 years ago, in August 2009, Tune Talk’s earnings shot up during the Covid-19 pandemic as mobile data consumption surged among customers who had no WiFi at home as many had to work from home.

That earnings trend has been sustained, backed by Tune Talk’s network of 5,000 dealers and higher data consumption per user compared with that of mobile network operators (MNOs), according to Gurtaj. “We’re a small company but we do almost a petabyte of data a day,” he says. That translates into an average of 37GB of data per month among Tune Talk subscribers, more than that of Maxis (27.8GB in 2023), Celcom (31.2GB in 2023) and Digi (26.1GB in 2023).

As at January 2024, Malaysia had 9.1 million households and 10.65 million living quarters, official data show. Comparatively, Malaysia’s National Digital Network Programme, or Jendela, recorded 7.74 million fiberised premises at the end of 2022, with a target of nine million premises by the end of 2025.

Being a pure prepaid mobile service provider, Tune Talk’s target market is the lower- to middle-income group who want internet access without getting tied down to long-term contracts. Players in this segment compete through data pricing, such as unlimited data for social media or streaming apps.

“Surprisingly, the growth [in Tune Talk’s subscriber base] is not among the Gen Zs, but it is in the middle — the young families,” Gurtaj says. Tune Talk is also “not a foreign worker play, we are a Malaysian play”.

In some households, customers use such mobile prepaid, or pocket WiFi, as hotspots to emulate having fibre internet at home.

But as the technology changes, more thought needs to be put into existing products, says Gurtaj, whose close to 30-year career includes stints at Lucent Technologies, Nokia Singapore, Tata Communications and Boolean Tech (Ireland). One notable trend is the emergence of eSIM services, which allows a customer to activate multiple mobile plans in phones or Internet-of-Things devices.

“[The industry] has the technology where you may be locked in with one operator but another will still be in your phone.

“Just like everyone has the same Lego toys, we can use the same technology to build something that is unique … That’s going to shake up the market,” says Gurtaj, hinting at the great potential that Tune Talk is eyeing.

Tune Talk has been profitable in eight of the last 10 years since it commenced operations, with retained earnings of RM29.55 million at the end of 2023. It slipped into the red in 2016 and 2017.

In the financial year ended Dec 31, 2023 (FY2023), net profit came in at RM42.4 million on revenue of RM440.7 million. In the four years between FY2020 and FY2023, it posted an average net profit of RM44.8 million annually.

For comparison, among smaller MNOs, U Mobile, which had nine million subscribers, averaged RM57.75 million in net profit per year in the four-year period. YTL Communications Sdn Bhd, a unit of YTL Power International Bhd (KL:YTLP), which operates Yes 5G, posted annual losses exceeding RM200 million despite having 2.8 million users currently.

Tune Talk’s direct rival, Red One Network Sdn Bhd, which operates redONE with over 1.2 million subscribers and is planning to list on Bursa Malaysia in 2026 or 2027, posted an average annual profit of RM46.78 million in the same period.

Tune Talk is in a net cash position with a cash balance of RM136.83 million — its cash up front pre-paid service has helped build a sizeable cash balance.

Its total liabilities stood at RM120.88 million, including trade and other payables (RM85.33 million) and contract liabilities (RM33.98 million).

The company has little capital expenditure as it has adopted the infra-less model across the board. It is currently moving most of its digital infrastructure into the cloud, removing the need for maintenance and allowing it to rapidly scale up capacity if needed.

This may explain the minimal borrowings on its balance sheet.

That said, Gurtaj does not discount exploring infrastructure opportunities. “As we move forward, we will be open to bringing in new investments.”

New capital will give the group “the freedom to do mergers and acquisitions” should it decide to go into telecommunications (telecoms) infrastructure, he adds, declining to elaborate in detail.

Commenting on the current operating environment, Gurtaj says whether a single wholesale network (SWN) model or a dual network landscape is in use, it does not make a big difference as far as Tune Talk is concerned because all MNOs and MVNOs will have to subscribe to either of the two 5G networks, he says.

The debate on single or multiple 5G network models will continue, Gurtaj says. Of course, there has to be a logic for the second network as well, such as backup when one network fails. “Competition is always good,” he adds. “With SWN, we may [be complacent and] not keep up with technology.

“But for a single person to build his own 5G network parallel to the existing DNB, I feel that is going to be an economic challenge because the number of cell sites [required] in 5G is six to 10 times more compared to 4G.”

At the 4G network level and below, Tune Talk piggybacks on Celcom’s network. The collaboration is on a revenue-sharing basis and the agreement is renewed every three years. Celcom has received just under RM1 billion in network charges from Tune Talk in the last four years from 2020 to 2023.

Tune Group’s exit, meanwhile, gives Tune Talk a free hand to form new partnerships instead of having to consult with the AirAsia group first on many matters, says Gurtaj. “We are looking at going aggressively with large partners who can bring a lot of customers to us,” he says, adding that Tune Talk owns the Tune Talk brand.

To recap, Tune Talk has been through several shareholder disputes in recent years. The first started in 2019 when Tune Group, which then held 20.69%, and related parties sought to sell their stake to AirAsia group.

Under the shareholders’ agreement, Gurtaj and Celcom had first right to acquire the stake before it could be sold to third parties. For Gurtaj, the opportunity “fell into my lap” and he managed to acquire the shares after an arbitration process.

In 2021, meanwhile, Gurtaj and two other Tune Talk shareholders also tried to block Celcom Mobile from including its 35% Tune Talk stake in its merger with Digi.com Bhd. The 35% stake was eventually included following an arbitration process.

Apart from Gurtaj and Celcom Mobile, Tune Talk’s shareholders are Datuk Mohd Aqliff Shane via Tune Strategic Investments Ltd (14.4%) and former Credit Suisse banker Dennis Melka via East Pacific Capital Pte Ltd (5.85%).

Tune Group still has a 3.25% stake, followed by Jason Lo (2.88%), Lim Kian Onn (0.41%), Datuk Seri Kalimullah Masheerul Hassan (0.41%) and Mark Lankester (0.08%).

Affirming a “good relationship” with Celcom, Gurtaj adds this is not the end of shareholding changes within Tune Talk. “This is evolving. There are consolidation efforts that will happen moving forward.”

The new operating landscape with two network providers is expected to put all telecoms players on a level playing field, should the authorities, such as the Malaysian Communications and Multimedia Commission, be supportive of competition. In short, a new stage is set for smaller players like Tune Talk to put on a good fight with the big boys for market share. 

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