The Risk Professional: the danger of not thinking things through

A report in The Star, a Malaysian daily, says that four companies were awarded contracts for WIMAX which included an undertaking to meet a target to cover 25% of the country's population by March 2009.

However, three of the companies failed to meet that deadline and remain in default, despite warnings from the MCMC and a six month informal grace period.

The fines vary substantially, says The Star, and reflect how far away from the target the company is.

The head of YTL, the Malaysia-based international conglomerate, reportedly told The Star that his company was appealing. His reasoning is simple: YTL decided to re-write the terms of the agreement without the government's agreement. The next roll-out target is 40% he said and YTL plans to have "an extensive network up and running as we don’t see the point in having incremental coverage...We will have 60% coverage (more than the needed 40%) by the next deadline,” he is quoted as saying. According to The Star, this plan has cost YTL a penalty of MYR1.9 million (approx USD560,000).

Other players told the newspaper that their problems had been in securing interconnect (backhaul) services from state-owned Telekom Malaysia.

But both of those companies demonstrate failures in the planning process. First, RedTone reported told The Star that it had made many complaints to the MCMC because its spectrum was too close to that of normal WiFi and therefore caused conflicts. The company's CEO Zainal Amanshah said that it took two years to resolve that problem, causing delay in roll out.

An unnamed person speaking from an unnamed company (but there is only AsiaSpace which was not directly quoted) reportedly said “It takes a long time for these government approvals. And if the land is privately owned, prices can be prohibitive for us. This makes it almost impossible to roll out."

Again, delays in dealing with government are the norm, and the cost of sites for their kit should have been fully researched prior to bidding for the contract, one would imagine.

All three companies are appealing - and to be fair, delays in dealing with government departments should be taken in to account, even though they were predictable.

But the real consequence is much more worrisome: the clauses were bonded by bank guarantees - and MCMC has claimed against those with the inevitable speculation as to how the banks will view these drawdowns.

The fines are not large, relative to the budgets of the companies concerned. But AsiaSpace and RedTone are both planning capital raising rounds and this news will be an embarrassment to them.

But there remains one big stick that MCMC has not wielded yet: the contracts provide for cancellation without compensation if they persistently fail to meet targets.

But there are problems with measurement: the 25% of the population would include much of Kuala Lumpur (for YTL and AsiaSpace - RedTone operates only in Malaysian Borneo). Even where there is coverage, it falls away with height and many apartment dwellers are within the ground level coverage but the signal does not reach up to their homes. The same afflicts businesses who might consider moving to WIMAX.

So a two-dimensional coverage calculation gives a much better picture than would an analysis of the 3D that many urban dwellers live in.