‘Next step’ for the telco industry in Malaysia

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KUCHING: The telecommunication industry in Malaysia plays a critical role in driving demand for the internet through investments in expanding reach of 3G coverage and healthy competition that centres on customers, resulting in smart bundling of smartphones and plans.

Henrik Clausen

Based on research, industry indicators suggested that the telco sector was approaching a steady state and analysts believed that mobile penetration was approaching saturation. However, an exclusive interview with DiGi.com (DiGi) chief executive office (CEO) Henrik Clausen proved the that the industry should be able to grow further.

“Voice penetration is just over 100 per cent in Malaysia today in terms of SIM card ownerships. If you compare this with the Scandinavian countries with more penetration of close to 150 per cent, you will see that there is still room to grow, especially when many Malaysians are carrying more than one SIM card,” he pointed out.

Clausen further revealed that data would be the growth driver moving forward for DiGi. “Over the last two years alone, you would have noticed a rise in consumption of the internet stimulated by better surfing experience and availability of more choices of smart devices at affordable prices, amongst others.

“With solid supported fundamentals and the near term outlook of the industry, we expect the trend in the data market to continue with rapid growth in the next two to three years,” he added.

Malaysia’s mobile penetration rate had grown tremendously over the past ten years, from a low 21.8 per cent in 2000 to more than 117 per cent in 2010. This represented a compounded annual growth rate (CAGR) of 18.4 per cent for the 10 year period or at an annual average rate of 19 per cent.

Assuming that the growth path for mobile penetration would continue till end of 2011, mobile penetration rate would be able to reach 138.5 per cent. Currently, the mobile penetration rate stands at 125 per cent.

“Data services are still considered as a new business in the industry. One of the challenges is to be able to provide internet for all and in order to do that, you can’t just build a wide network but at the same time you need to be able to provide the capacity for the traffic to flow smoothly,” explained Clausen.

According to MIDF Amanah Investment Bank Bhd (MIDF Research), data was the area for growth for telco companies in calendar year 2011 and it expected contributions to revenue to increase further. The data revenue contribution averaged 31.1 per cent of financial year 2010 (FY10) revenue, based on the results of the top three operators (DiGi, Celcom and Maxis).

This was an improvement of 4.3 per cent point from the average data revenue contribution of 26.8 per cent in FY09. For the first quarter of 2011 (1Q11), averaged data revenue contribution improved further by 1.2 per cent point to 35.1 per cent from 4Q10. MIDF Research expected data revenue contribution to improve by an average of five per cent points in FY11.

“In our opinion, smartphones will play a key role in the growth of data revenue, while tablet computers will also have a big role to play in calendar year 2011. We believe that 2011 will be the year in which tablet computers gain prominence especially as several consumer electronics manufacturers have launched new tablets regularly,” said the research firm.

Clausen further added that the smartphone penetration was over 20 per cent in Malaysia and it was growing by a few per cents every quarter. “When I joined 16 months ago, I was surprised by the fact that the demand for data and maturity of the market was very fast here. It normally takes two to three years to build the data businesses but in Malaysia, it all happened in just one year.”

Based on research, it was not surprising that with the increase in subscriptions, the average industry postpaid average revenue per user (ARPU) declined at a CAGR of 6.3 per cent for the period between 2005 and 2010. As at 2010, average industry ARPU stood at RM94.

The decline in ARPU also suggested that competition in the voice market space had a significant impact as the rates pressure set in. Most analysts expected ARPU to continue declining in the near term before stabilising. However, it was not a concern for most players as voice revenue would be overshadowed with a new source of growth for the telco companies, which was data.

“Looking ahead of time, with the advent of 4G technology and smartphones, long-term evolution (LTE) networks also play an integral part in the industry. This will enable substantially higher speed, stability and internet access to more Malaysians through greater coverage,” said Clausen.

“This is extremely relevant today as more Malaysians are adopting usage of smartphones stimulated by the popularity of social media applications, affordable smartphones and smart bundling. In tandem, early adopters are becoming more savvy demanding sophisticated applications and richer content. All these mean there is demand for more bandwidth,” he added.

4G is the natural evolution of 3G. The government acknowledged the need to adopt 4G and is in the midst of deciding on the allocation of spectrum for deployment of LTE (2,600MHz). DiGi is currently waiting for Malaysian Communications and Multimedia Commission (MCMC) to make a decision on the spectrum allocation of 2,600MHz, which has been identified by the regulatory body as the bandwidth for 4G.

“Spectrum is important for us to deliver LTE services to all Malaysians. As such we hope to see equitable allocation of spectrum to enable us to offer even better services to Malaysians,” Clausen concluded.