Why Malta? Why have you drifted so far from the American telecommunications market that you know so well?
We specifically invest in North America and Europe; we have had an office in London for six years. For the past 25 years, we have focused primarily on the media and the telecommunications environment.
My partner Rob Savignol has been looking for wireless opportunities in Europe for four or five years and it was around this time that he took an interest in this third licence in Malta.
He was looking for opportunities that were an appropriate size and a pro-competitive and pro-business environment.
The EU has always been in our sights for telecommunications but it has been difficult there because the licences tend to be issued on a national basis, which is beyond the scope of private equity or venture capital. It is different in the US as they tend to give out licences city by city or at least region by region.
In Europe, Rob was looking for countries that we could get our arms around in terms of size.
In Malta there are two established operators and it is quite saturated in terms of penetration. And the uptake of 3G services has not been very successful. Why would you want part of a market that is already sewn up?
The penetration is high because everyone needs the product but usage is very low because the rates are high. There are many reasons for this but one is that there are only two competitors in the market.
We think there is an opportunity for someone to come in and get a very good rate of return while providing a more competitive product.
In the US, the forerunner to ATT shook up the market by offering bundles, as opposed to per minute pricing. This has evolved even further. I am on the board of Metro PCS, which offers unlimited minutes for $45 - including long-distance within the US. Average usage per month is 2,000 minutes per customer compared to the US average of 750 minutes; in Malta it is a fraction of that.
So it is not a case of penetration but of usage and in that sense this market is underpenetrated.
I associate venture capital with people who are in to make a fast buck and then move out and let the company get on with it. This is a very expensive venture with high capital outlay for the licence as well as for the technology...
Telecommunications industries always require very high capital. The premise of venture capital is to team up with great entrepreneurs and start a company and that is what we will do with mobile here. It may be on a different scale in terms of the capital needed - as a firm we invest anywhere from $5 million to $55 million in any one project.
How long would you stay in a company before your investors wean it off their capital?
In the US, the Securities Exchange Commission does not allow the public or the unsophisticated to invest in start-up companies. They leave that to institutions that have a large enough capital base to take those kind of risks. It is a riskier business. But we start companies and nurture them to a point. Our businesses often go public. We have just taken Metro PCS public - with a $12 billion market capitalisation. Until February 2002, this company did not even have one client...
We think of it as a relay race where we pass the baton to someone else to run with.
What will your strategy be in Malta? Will it be based on pricing?
Yes. The merger with Melita Cable affords us alternative marketing and distribution strategies as well.
When did Melita come into the picture? Did you have it in mind when you applied for the 3G licence?
No. As you know Melita went through its own transactions in the past few months when GMT came in from London and was involved in a buy-out. I was on the board of a company that the senior partner of GMT was also on, back in the 1990s and I called on them with our London partners as we do the same thing.
So the dialogue started because they were going to be involved with Melita and we were going to be involved in 3G. We signed the initial term sheet earlier this week. Ultimately, instead of investing in a stand-alone company, we will invest in Melita and use that capital to build the 3G network.
I and Rob will sit on the board; Joe Gasan will stay on as chairman. The amount of capital has not yet been precisely defined but we will own approximately 35 per cent of Melita Cable. But we will be adding shareholding, rather than buying someone else's.
It is a wonderful opportunity for Melita but also for consumers who will have very distinct choices. Had we done it on a stand-alone basis, we would have come in and created a new price point within the market. We can now do that but also create value by linking it to the Melita fixed-line system.
One of the differences between the US and Europe is that the termination costs (charged by the operator of the recipient's phone) in the US are a fraction of those in Europe. So you can offer bundles of minutes without the termination costs killing you. Here, it is one of the reasons why prices have stayed high. If you have your own wireless network, you can offer unlimited minutes, for example, as long as they stay on our network. Go (Maltacom) will have the opportunity to do the same.
Will broadband wireless access change the scenario?
This product offers great utility to the consumer as it means you can take your laptop wherever you are. At the same time, if you have a cable network and telephone network, you will always be able to offer more bandwidth at cheaper cost. So we will be able through Melita to offer bundles of broadband and mobile that will effectively compete with broadband wireless.
Will you invest in more than just 3G? Melita has been wanting to upgrade its television content offering for some time... And it never managed to justify the cost of installing pay per view.
I would think that this would be driven through joint decisions with the major shareholders - us, GMT and Joe Gasan.
Our capital will completely fund the wireless roll out within the next year or so. Some of the investments you are talking about are relatively small - although not insignificant - compared to the 3G. You can assume that we would not be so excited about putting in large amounts of capital if we were not going to exploit all the opportunities.
When we compare the Malta cable product to those in the US, there is definitely a lack of programming here that long-term makes the product stickier. We definitely look forward to adding more products because I think we have the capacity to do that compared to some of our competitors.
The more we can do that, the more we can differentiate ourselves.
Apart from that, over my 25-year career, I have always found that as you get involved in something, you hear of other alternatives - which could mean more investment in Malta.
You said that the roll out would be in a year?
We are going to be very aggressive and move as quickly as technically possible. We had our first board meeting this week so it is premature to give an exact timeframe. The capital is there, the desire it there; it is just a matter of execution.
We specifically invest in North America and Europe; we have had an office in London for six years. For the past 25 years, we have focused primarily on the media and the telecommunications environment.
My partner Rob Savignol has been looking for wireless opportunities in Europe for four or five years and it was around this time that he took an interest in this third licence in Malta.
He was looking for opportunities that were an appropriate size and a pro-competitive and pro-business environment.
The EU has always been in our sights for telecommunications but it has been difficult there because the licences tend to be issued on a national basis, which is beyond the scope of private equity or venture capital. It is different in the US as they tend to give out licences city by city or at least region by region.
In Europe, Rob was looking for countries that we could get our arms around in terms of size.
In Malta there are two established operators and it is quite saturated in terms of penetration. And the uptake of 3G services has not been very successful. Why would you want part of a market that is already sewn up?
The penetration is high because everyone needs the product but usage is very low because the rates are high. There are many reasons for this but one is that there are only two competitors in the market.
We think there is an opportunity for someone to come in and get a very good rate of return while providing a more competitive product.
In the US, the forerunner to ATT shook up the market by offering bundles, as opposed to per minute pricing. This has evolved even further. I am on the board of Metro PCS, which offers unlimited minutes for $45 - including long-distance within the US. Average usage per month is 2,000 minutes per customer compared to the US average of 750 minutes; in Malta it is a fraction of that.
So it is not a case of penetration but of usage and in that sense this market is underpenetrated.
I associate venture capital with people who are in to make a fast buck and then move out and let the company get on with it. This is a very expensive venture with high capital outlay for the licence as well as for the technology...
Telecommunications industries always require very high capital. The premise of venture capital is to team up with great entrepreneurs and start a company and that is what we will do with mobile here. It may be on a different scale in terms of the capital needed - as a firm we invest anywhere from $5 million to $55 million in any one project.
How long would you stay in a company before your investors wean it off their capital?
In the US, the Securities Exchange Commission does not allow the public or the unsophisticated to invest in start-up companies. They leave that to institutions that have a large enough capital base to take those kind of risks. It is a riskier business. But we start companies and nurture them to a point. Our businesses often go public. We have just taken Metro PCS public - with a $12 billion market capitalisation. Until February 2002, this company did not even have one client...
We think of it as a relay race where we pass the baton to someone else to run with.
What will your strategy be in Malta? Will it be based on pricing?
Yes. The merger with Melita Cable affords us alternative marketing and distribution strategies as well.
When did Melita come into the picture? Did you have it in mind when you applied for the 3G licence?
No. As you know Melita went through its own transactions in the past few months when GMT came in from London and was involved in a buy-out. I was on the board of a company that the senior partner of GMT was also on, back in the 1990s and I called on them with our London partners as we do the same thing.
So the dialogue started because they were going to be involved with Melita and we were going to be involved in 3G. We signed the initial term sheet earlier this week. Ultimately, instead of investing in a stand-alone company, we will invest in Melita and use that capital to build the 3G network.
I and Rob will sit on the board; Joe Gasan will stay on as chairman. The amount of capital has not yet been precisely defined but we will own approximately 35 per cent of Melita Cable. But we will be adding shareholding, rather than buying someone else's.
It is a wonderful opportunity for Melita but also for consumers who will have very distinct choices. Had we done it on a stand-alone basis, we would have come in and created a new price point within the market. We can now do that but also create value by linking it to the Melita fixed-line system.
One of the differences between the US and Europe is that the termination costs (charged by the operator of the recipient's phone) in the US are a fraction of those in Europe. So you can offer bundles of minutes without the termination costs killing you. Here, it is one of the reasons why prices have stayed high. If you have your own wireless network, you can offer unlimited minutes, for example, as long as they stay on our network. Go (Maltacom) will have the opportunity to do the same.
Will broadband wireless access change the scenario?
This product offers great utility to the consumer as it means you can take your laptop wherever you are. At the same time, if you have a cable network and telephone network, you will always be able to offer more bandwidth at cheaper cost. So we will be able through Melita to offer bundles of broadband and mobile that will effectively compete with broadband wireless.
Will you invest in more than just 3G? Melita has been wanting to upgrade its television content offering for some time... And it never managed to justify the cost of installing pay per view.
I would think that this would be driven through joint decisions with the major shareholders - us, GMT and Joe Gasan.
Our capital will completely fund the wireless roll out within the next year or so. Some of the investments you are talking about are relatively small - although not insignificant - compared to the 3G. You can assume that we would not be so excited about putting in large amounts of capital if we were not going to exploit all the opportunities.
When we compare the Malta cable product to those in the US, there is definitely a lack of programming here that long-term makes the product stickier. We definitely look forward to adding more products because I think we have the capacity to do that compared to some of our competitors.
The more we can do that, the more we can differentiate ourselves.
Apart from that, over my 25-year career, I have always found that as you get involved in something, you hear of other alternatives - which could mean more investment in Malta.
You said that the roll out would be in a year?
We are going to be very aggressive and move as quickly as technically possible. We had our first board meeting this week so it is premature to give an exact timeframe. The capital is there, the desire it there; it is just a matter of execution.