Malaysia’s top mobile telcos, also known as the Big Three comprising Celcom Axiata Bhd (Celcom), Digi.Com Bhd (Digi) and Maxis Bhd (Maxis), have always been highly competitive against each other, especially in terms of packages and prices offered.
Of late, these three giants have been engaging in a price war to gain bigger market share, pitting their most affordable postpaid plans into the turf. The unscheduled competition saw even U Mobile Sdn Bhd (U Mobile) joining in the fray.
However, Lim Tee Yang, a financial analyst of the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Research) noted that despite increased competition in the form of generous data at sub-RM50 packs in the postpaid market, they expect the ripples in the cauldron to be temporary as Maxis’ management said in a recent meeting, that such low pricing appears unsustainable in the longer term.
On Celcom’s front, as a customer-centric organisation, the telco has introduced innovative and affordably-priced initiatives that take into account the best interests of its customers following the implementation of the goods and services tax (GST).
Datuk Sri Shazalli Ramly, chief executive officer of Celcom told the BizHive Weekly in an email interview that during the first three months after the GST implementation, Xpax customers who bought RM5 prepaid reloads and above, enjoyed an additional value which was higher than the six per cent GST in the form of free air time and text messages.
“The freebies were given as a transitional measure to ease the burden of customers,” he said.
Celcom recently launched Magic Sim, the latest limited edition SIM from Xpax which it said offers customers more free Basic internet, free High Speed Internet and free call and SMS than any other telcos.
Shazalli said that the launch of Magic Sim exemplified Celcom’s goal of becoming the Internet Champion and ensuring that every segment of society is connected to lightning-fast 4G LTE speeds in Celcom Territory.
Celcom also introduced the attractive postpaid First Basic 38 plan, whereby customers can enjoy the onset of First by Celcom. With the new First Basic 38, customers can sign up for a monthly commitment plan of RM38 which offers 3GB Internet and 3GB Wi-Fi, with 50 minutes and 50 SMS.
“Customers will enjoy the promotional offering of 3GB Internet and 3GB WiFi if they sign up for the First Basic 38 plan within the promotion period,” he added.
The base plan can also be converted into the First Basic 38 for Business with additional features whereby small and medium enterprise (SME) and business owners will have to just top up RM10 for 50 hours of calls within their office colleagues with Business Circle, or RM50 for unlimited calls and SMS within Celcom (with Business Unlimited).
“Additionally, Celcom’s basic internet plan has been reduced from RM28 to only RM25, with a quota of 1GB monthly. This is one of Celcom’s efforts to support the Government’s call to ensure broadband access and affordability for all,” he said.
According to AffinHwang Research, the meeting with Maxis’ management revealed that they believed for the industry to show healthy growth going forward, it is important for the industry as a whole to focus on growing average revenue per users (ARPUs) via rational data pricing.
“One such way of achieving growth is by expanding ARPU via ensuring data is priced appropriately with room to upsell more data.
“For example, Maxis is already doing so with the Maxis One Plan (MOP),” the analyst said.
On a positive note, the research arm saw that Digi has followed Maxis’ lead in offering data-oriented products by offering unlimited voice and SMS but with relatively low but still sufficient data quotas.
AffinHwang Research noted that the thinking behind the MOP is to monetise voice while it is still valued by customers.
Lim believed this is the right approach due to the rising threat of voice potentially being substituted by over-the-top (OTT) products such as Whatsapp.
“As voice usage continues to decline, we believe the pricing of MOP is the right approach to monetise data and is a pro-active step taken by management.
“In the past, we observed that the industry has been relatively slow in responding to the substitution of SMS by OTT products, which led to lost revenue opportunities,” the analyst said.
As for Celcom, the telco has in the first half of 2015 (1H15), been putting key focus on its current core activities whilst concurrently enhancing its focus on mobile data and adjacent services. The telco’s products are thus now heavily geared towards being the mobile data leader.
“Data will be the main focus as it will be incorporated in all new product launches and takes priority when it comes to network roll out.
“For example, 4G LTE will continue to play an important role to meet the exponentially growing demand for data services and content.
“Work is already in place to continuously improve network quality and capacity to enhance customer data experience.
“The efforts are in line with the global trends primarily on data due to growing demand and opportunities for this segment,” Shazalli said.
With the proliferation of smartphone devices and growing shift in consumer behaviour towards quest for data and adjacent services, Celcom is expected to move up the value chain in order to capture higher growth and larger market potential.
Shazalli noted that Celcom will continue to embrace OTT and digitalisation by building alliances and digitalising the telco’s businesses.
He further noted that the areas of focus include the ‘new economy’ of content, convergence, machine to machine (M2M) and solutions, digital advertising, digital payment and digital commerce.
“In addition, these will also further spur the data utilisation growth and uptake,” he said.
Bridging Sarawak’s digital divide
With Sarawak always looking to bridge the digital divide between the urban and rural areas, BizHive Weekly noted that one way the state plans to do so is through telecommunications, that is, enhancing telco infrastructure and coverage to allow for greater connectivity across the state.
Shazalli revealed that closing the gap between the urban and rural areas is one of Celcom’s main goals in planning for the betterment of the telecommunication infrastructure in Sarawak.
“In the past, rural areas were considered backward and poor where the villagers were shut off from the outside world.
“Children would leave their villages to further their studies in bigger towns and cities, leaving the older and younger generations behind,” he said.
As such Shazalli emphasised that it is vital to empower rural communities and provide them with opportunities to grow.
He noted that Celcom has the best network coverage in rural areas and will continue to invest in these areas in order to support the growth of both urban and rural communities.
Offering the widest coverage to urban and rural areas in Sarawak, Celcom has to date, carried out various initiatives to enhance its strength, competitiveness, position and growth in the state.
Shazalli said that this is in line with the Malaysian Communications and Multimedia Commission (MCMC)’s objectives on Universal Service Provision (USP) as provided by the USP Regulations 2002 to bridge the digital divide between urban and rural communities and to encourage the use of information and communications technology (ICT) in building a knowledge based society.
Since 2004, Celcom has implemented USP projects nationwide where underserved communities are provided with collective or individual broadband access including Pusat Internet 1Malaysia, Kampung Tanpa Wayar 1Malaysia and WiFi 1Malaysia.
In addition to these initiatives, Celcom through MCMC, is also considering the implementation of a new approach to provide individual broadband access at a sizeable long-house population in Sarawak.
Overall, Celcom has invested quite a substantial amount towards the deployment of 3G and 4G telecommunication coverage in Sarawak by rolling out new base stations and upgrading its existing base stations to support 3G and LTE.
Over the years, Celcom has continuously deployed its 3G network and to date, it has an extensive 3G coverage in Sarawak.
Celcom also has strong LTE presence in four major cities in Sarawak namely Kuching, Sibu, Bintulu and Miri.
The telco has the largest LTE coverage amongst its competitors and is expected to achieve almost 40 per cent coverage of the population in Sarawak by year end.
“Celcom has made and will continue to make significant investments in Sarawak to provide wider coverage, faster speed and better quality service on its 3G and 4G network.
“Celcom will also continue to offer exclusive offers and the best mobile internet plans for customers to ensure that they enjoy the best customer experience in Celcom’s Internet Champion Territory,” he enthused.
With the widest network coverage in the main cities and secondary towns in Sarawak, the state remains a key contributor to Celcom’s growth.
The telco aims to cement its market leading position in Sarawak by enhancing its distribution management to flood the market with Celcom products.
Shazalli observed that in this day and age, technology rules almost every aspect of our daily lives, adding that this promotes the thriving online business sector that offers busy professionals a 24-hour access to online shopping which enables them to shop anytime, anywhere.
He noted for instance, the telco’s exemplary online shopping website, Buzzaar, which supports local businesses in urban and rural areas, offering local manufacturers to market their products online to customers throughout Malaysia.
“For example, customers from all over the country can easily get Sarawak Laksa paste online through Buzzaar,” he said.
Celcom’s e-commerce portals, including Buzzaar, offer customers a wide range of popular regional specialities from all over Malaysia such as Sarawak’s renowned kek lapis and ikan terubuk.
Through these portals, Celcom is also providing opportunities to all new SMEs/ small and medium industries (SMIs) and entrepreneurs to kick start their business.
Big Three’s outlook for 2015
Celcom
Customer intimacy is key in Celcom’s daily operations, according to Shazalli, and hence, this year, the telco intends to invest more in its Customer Experience.
“Through this, Celcom will be able to differentiate itself by providing the best quality products and services to the consumers and data-centric infrastructure while concurrently transforming its cost structure to achieve smarter spending,” he said.
Meanwhile, Shazalli has revealed that 2015 and 2016 are expected to present Celcom with many challenges and opportunities.
He noted that the telecommunications industry as a whole has witnessed a decline in traditional mobile service particularly in SMS and voice, which represents over 60 per cent of total revenue in 2014.
He further noted that Celcom has obligations to move together with its customers’ demand in data-centric services whilst continuing to strengthen its traditional telecom.
“Celcom will also embark on its next generation of revenue stream with emphasis on digital brands and solution businesses.
“Celcom will continue to invest in new core technologies to support its expanding infrastructure.
“Such initiatives are bound to translate into a stronger ecosystem to deliver better customer experience, which will inadvertently help Celcom capitalise on the ever-changing nature of the industry in the coming years,” Shazalli affirmed.
Digi
Digi said in its second quarter of 2015 (2Q15) growth momentum will improve in the 2H15 alongside stronger consumer sentiments after a period of adjustment post GST and continuous strong demand for quality mobile internet services.
Digi noted that while most of the current data pricing centers on driving stronger internet adoption, the telco believes it has the right steps and strategies in place to drive data monetisation opportunities from incremental usage sustainably.
The telco further noted that the relentless focus on Internet For All, customers, value proposition as well as brand and momentum, uniquely positions it to capture mobile internet growth opportunities in the market.
“For the second half of the year, we will build on the solid 4G LTE momentum with an ambition to continue expanding our reach to more areas nationwide to ensure even more customers enjoy quality experience on our network.
“We will also continue to strengthen our products and services value proposition, and introduce new digital innovation to encourage adoption and stimulate usage on our high-speed network, and do this while we deepen our customer relationship towards delivering sustainable growth,” Digi’s chief executive officer Albern Murty said.
RHB Research Institute Sdn Bhd (RHB Research) expected Digi to continue benefitting from the improvement in network quality and its expanding LTE footprint (target population coverage of 50 per cent by end-2015 from 35 per cent in 2Q15).
Maxis
As for Maxis, the group said that it will remain focused on strengthening its market position.
For the financial year ending December 31, 2015, Maxis expected service revenue growth in the low single digits with earnings before interest, tax, depreciation and amortisation (EBITDA) at a similar level as in financial year 2014.
Maxis said that it will continue with high capital expenditure (capex) for 2015 at above RM1.1 billion to complete its network modernisation, drive 4G LTE expansion, as well as to further improve capacity and quality.
The telco added that it already leads the 4G LTE population coverage in the country, approaching 39 per cent of the population and covering key market centres and state capitals.
On a side note, Lim of AffinHwang Research highlighted that the migrant market remains a segment in which Maxis is keen to have a reasonable market share.
“Management was relatively unconcerned about the rising US$ impact on international direct dialling (IDD) costs, as management indicated its market share in the migrant market remains small,” Lim said.
The research arm further noted that while there was some discussion surrounding spectrum re-farming and 700 megahertz (Mhz), management is not optimistic that the 700Mhz spectrum will be available by 2018 as the digitisation of TV is slower than expected.
What the analysts say?
While overall competition among the top three mobile operators will always be constant in the telco sector, some analysts and companies believed that the current price war, especially of late, with the low-end postpaid plans, will likely be short-lived.
In a company update on Digi, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said that the intense price competition amongst telco operators is expected to be temporary as Digi and another key players do not intend to respond any further to the recent ‘price war’ initiated by both Celcom and U Mobile, which launched several value-destructive plans.
“Although these headline packages’ prices managed to draw some subscribers’ eyeballs, it could compromise their network qualities as well as users’ experience,” the research arm said.
Furthermore, Kenanga Research noted in a sector update that while there was no doubt that these affordable plans could encourage subscriptions (especially to those less sticky subscribers) over the short-term, it could potentially lead to higher churn rate as well as operating costs moving forward.
The research arm said that based on the first quarter of 2015 (1Q15) MCMC data, the country’s postpaid subscribers’ loyalty tends to fade over time as the mobile number portability has increased progressively since the mid-2010 and stood at circa 500,000 in the past two quarters (the highest level since 2010), thus suggesting that subscribers tend to port to other networks should the latter offer more values and attractive services.
“On top of that, the trend could also be potentially powered to a certain extent, by the increasing number of swelling contract free plans, which provide subscribers more liberty in selecting plans,” it added.
On a side note, the research arm underlined that Digi’s management believed the big boys are still very much focused on earnings and subscriptions while the smaller players tend to emphasise more on market share, thus suggesting that the current value-destructive plans are not sustainable.
“Digi believes the industry may need to take a few more months to get to the equilibrium price,” it said.
On the prepaid segment front, Kenanga Research noted that incumbents tend to differentiate themselves through various rapidly altered offerings and unique features to keep subscribers loyal.
The research arm believed these complicated ‘customised’ plans could draw subscribers’ attention in the short-term, but could also lead to higher operating and marketing costs moving forward.
“We reckon operators that have strong network, higher operational efficiency and comparable offer prices but with simple and easily understandable plans will be the ultimate winner in the current prepaid segment battle,” it said.
AffinHwang Research recently noted in its outlook for the industry that how Celcom prices its products with future launches may have longer term consequences on data pricing and revenue growth.
However, the research arm believed that competition will likely become more rational towards the end of the year should Celcom regain growth traction in its subscriber base.
In its sector update, AffinHwang Research believed the cellcos’ focus will be on sustaining EBITDA margins in 2H15, given the relatively soft figures seen in 1Q15.
The research arm noted that for 1Q15, the cellcos saw generally softer EBITDA margins on a yoy basis, with higher sales and marketing being one of the key culprits.
“Amid a more competitive landscape, we think sales and marketing efforts would likely remain extensive in 2H15 as the cellcos seek to defend their market share,” Lim said.
In AffinHwang Research’s view, other than higher-than-expected sales and marketing expenses, the research arm saw a stronger US$ as a possible downside risk to its 2015 EBITDA margin estimates.
While not a major component of a celco’s overall cost structure, the research arm noted that IDD costs are mostly denominated in US dollar.
“Therefore a weak ringgit could inflate IDD costs and squeeze margins if cost management initiatives are not in place.
“The cellos do not disclose actual IDD costs separately and therefore it is difficult to gauge the actual impact,” Lim said.
Overall, while Kenanga Research admitted that the telecommunication sector’s outlook appears challenging in view of the challenging economic outlook during the post GST transition period as well as intense competition (especially in the mobile space), the research arm believed the incumbents will be able to sail through the challenging wave under the cluster management strategy (which allow operators to response instantly and enhance operational efficiency).
The research arm noted that heightened competition is not a new issue to the incumbents.
“In fact, the battle has been intensifying every year but yet most of the incumbents still managed to sustain their normalised EBITDA margin at a reasonable range.
“Thus, so long as there is no irrational price war between the players as well as drastic changes on regulations, we believe, the incumbents’ EBITDA margin may likely to drift at their historical range over the short-to-medium term,” it said.