ST Telemedia has inked a deal to buy a 33% stake in tiny Malaysian 3G operator U Mobile, but it will need deep pockets if the embattled startup can make head-way in the saturated market.

 

The company said on March 10  it had signed an agreement to buy a 33% stake in Vincet Tan-controlled U Television, the major shareholder of U Mobile, partly through a rights issue.

 

Price was not disclosed, but several reports peg the price tag at around MYR1 billion ($300.5 million), which is more than the $200 million former U Mobile investors NTT DoCoMo and KTF paid for a joint one-third interest in the firm in December 2007.

 

For its part, DoCoMo is believed to have pulled out of U Mobile because its calls for a faster 3G network deployment were blocked.

 

As a result, U Mobile’s 3G network coverage is limited to Klang Valley, Seremban/Port Dickson, Ipoh and Johor Bahru.

 

It is critical for U Mobile to expand its own network because its 2G roaming deal with Celcom is unfavorable.

 

U Mobile and its new backer seem to realise this. ST Telemedia said U Mobile is indeed “planning to accelerate” its 3G network rollout.

 

But ST Telemedia - which owns stakes in StarHub, Mfone and Lao Telecom - will have its work cut out if it is to impressively increase U Mobile’s mobile share beyond its current 1%-2% mark.

 

First, U Mobile needs to expand its retail presence, according to company sources.

 

Second, it will have to contend with three incumbents – Celcom, Maxis and DiGi – that are aggressively competing for a slice of the infant mobile broadband pie, leaving a handful of MVNOs to compete in the low-end voice market.

 

Moreover, Malaysia is a small market of 27 million people, with mobile penetration already above 100%.

 

U Mobile will indeed need the deep pockets of its new white knight investor if it is to expand and compete in the mature market.