Malaysia's smallest mobile operator DiGi.com announced today it will buy rival Time dotCom's broadband spectrum to meet foreign ownership rules.

DiGi will issue 27.5 million new shares valued at RM649 million to fund its planned purchase of Time dotCom's 3G spectrum at the last traded price of RM23.60 per share.

DiGi is the local unit of Norway's Telenor ASA and the deal is part of Telenor's plan to cut its stake to 49 percent to abide by a Malaysian government requirement. Telenor currently owns 61 percent of DiGi.

The purchase will allow DiGi to boost competition.

"DiGi believes that the transfer of the spectrum to DiGi Telecom would further enhance the competitiveness of the DiGi group in the long term by providing it with greater growth potential," it said in a statement.

In March, DiGi failed in its second attempt to win a licence to provide high-speed wireless internet services via a 2.3 Gigahertz Wimax spectrum.

Financially-troubled Time dotCom via its unit TT dotCom Sdn Bhd owns a broadband licence which expires on April 1, 2018.

Government investment arm Khazanah Nasional controls 30 percent of Time dotCom. It has set a deadline of end-2007 to complete a restructuring of Time dotCom.

Problem unresolved

Under the acquisition plan, it may also appoint Time dotCom as its main supplier for the international and domestic fibre leases, it said.

DiGi will also explore the sharing of transmission towers with TIME dotCom.

But Mohamad Izhar Allaudin, research analyst at MIMB Investment Bank, said the purchase will not solve DiGi's shareholding dilemma.

"The deal is of course a good thing for DiGi but it doesn't seem to fit into Telenor's plan to cut its stake to 49 percent," he said.

"Telenor's shareholding issue remains unresolved as the new shares will only lead to a two percent dilution."

Trading in DiGi and Time dotCom shares were suspended on Monday. They will remain untraded until further notice.

DiGi shares were last quoted at RM23.60, while Time dotCom was at 87 sen.