With the data boom, cellular firms have to transform to stay relevant

THERE is already a washing machine that can be programmed by its user using the Internet. And maybe, one day your favourite potted plant may tweet you that it needs to be watered. A report says that beverage companies are already tracking the weather to know the change so that they can serve their customers better and retailers are finding new ways to reach out to new markets. The extent of which the Internet has infiltrated our daily lives might seem a bit of a joke for some, but the cellular companies are not seeing the funny side of that.

In fact, the data boom is already threatening their once bread-and-butter voice revenues which have stagnated as people use the Internet for much of their communication, bypassing the use of traditional avenues the cellular companies were built on. Companies are the first to jump on the bandwagon in terms of data, using software and technologies that drive efficiency and profits. Now, the man-in-the-street is doing the same to make their lives a lot easier in an ever-increasing demanding world.

“Emerging academic research suggests that companies that use data and business analysis to guide decision making are more productive and experience higher returns on equity than competitors that don’t,” says McKinsey in a report.

Thanks to the booming use of smartphones, tablets and other portable devices, the amount of data flowing over cellular and wireless phone networks is growing faster than the providers can keep up with. That is why our cellular companies are in transformation mode. Each is trying to make sure they are in the forefront of the data growth wave because the growth in the future is in data as voice revenues level off. Their biggest fear for doing that is the loss of their customers to somesone who can give them what they want. The Internet, which has revolutionised industries all around the world, is causing ripples in another seemingly more modern industry.

Need for change
Over the past two years, Malaysian celcos have been reshaping and re-inventing themselves. Their objective is to keep users on their networks. Celcom Axiata Bhd has been in transformation over the past two years. In its journey, it sees that by 2015, 50% of its revenues will come from data and the remaining 50% from voice. Data contribute just under 40% of revenue today. The have set up consumer labs and paid top dollar to experts to know what their users want. It has also flattened its decision-making processes into three three units where its CEO Datuk Seri Shazalli Ramly heads one and the most important of all – the one that zeroes in on the customer.

“Where the industry is going depends on different facets. Companies like us have to make a choice as where to specialise in, where to dominate and what to be good at. We may want to drop things that we do not want and approaching the market as a single mass may no longer be applicable. We will see companies taking unique positions and giving unique offerings,” he says. The battle lines have been drawn and for Shazalli, Celcom has to be seen as a company where a customer has access to from every possible angle and circumstances.

DiGi.Com Bhd too is on a transformation journey ever since its new CEO Henrik Clausen came on board in May 2010. Its tagline of “Internet for all” is the direction the company is focused on. Maxis Bhd , the largest cellular company in the country by subcribers, is on a similar journey. Its CEO Sandip Das says: “It is not an option but a need and there may be many life cycles.” Even Das has reorganised the group so that there is strong operating leadership combination with two COOs.

U Mobile Sdn Bhd under Dr Kaizad Heerjee has been making some noise and is gaining traction in the broadband world. It is not easy when there are three big players but operators like U Mobile, Packet One Networks Sdn Bhd (P1) , RedTone International Bhd and YTL Communications Bhd have a place in the market space and they are providing Internet connections to their customers and continue to skirmish against the big three. All operating cellular and wireless players are in expansion mode and in the same direction.



Pressure on networks
One of the reasons why networks are congested is today’s smartphones. These high-powered devices are siphoning bandwidth because of the proliferation of applications and videos. A report said that “the hope is that 4G spectrum will allow smartphones and tablet computer users to stream and download almost anywhere. 4G will further set the scene for an explosion in tablet and smartphone usage as demand for mobile data is expected to rise by more than 500% in five years.”

Another report quoting Cisco research’s Visual Networking Index data says that bandwidth consumption in key countries could grow massively between now and 2015. Citing the UK as an example, it says the average MB per mobile connection per month could see a boost from 268 MB in 2010 to 4,023 MB, an almost 21-fold increase. A similar explosion in usage is seen in other developed countries such as France, Japan and Australia.

Telcos in Malaysia are looking at 4GLTE or the 2.6G spectrum and have began overhauling the entire network to cater for this new era of data. The assignment of the spectrum will take place on Jan 1, 2013.
A report quoting Infonetics says capex is expected to rise an average 6% per year up to 2014 globally.
Here, operators spend anything from RM700mil to RM1bil in capex every year.Das of Maxis says their capex this year would be RM1bil and that is the same amount Celcom will spend. DiGi’s Clausen says this year’s investment is about RM700mil.

The Government has identified nine players for the Long Term Evolution (LTE) spectrum. The four 3G players – Celcom, DiGi, Maxis and U Mobile – will have access to 10x2 spectrum block and so will the Wimax boys – P1, RedTone, Asiaspace and YTL Comms. The difference is that P1 and YTL Comms will be based on a different band, known as TDD-LTE, while the rest including newcomer Puncak Semangat Sdn Bhd are on the FDD block. Puncak gets 30Mhz because it is a new player. It does not have a base and needs that bit more spectrum to push ahead.

Puncak is a latecomer in the mobile game but has high ambitions. It is in talks with all the big players hoping to ride on a ready infrastructure instead of having to build from scratch. But that depends on what it brings to the table because the big boys want that big spectrum that Puncak has. But is the latter willing to share that?


Forging partnerships
The challenge moving ahead for players, as consumers get used to the world of data, is the capacity issue. Will there be enough for users to enjoy a decent service?

One solution is forging partnership. No one player can do it alone and going by the limited spectrum award for 2.6G, the players have no choice but to cooperate. DiGi’s Clausen is blunt when he says that “voice business is levelling out in terms of growth. The future growth will come from data and Internet and we have a big role and responsibility to provide that experience. We cannot do it alone, we need to work with partners, be it in handsets, network capacity, application and content.”

Das seems very inviting when he says “we are open to any party wanting to share network with us.” In fact, Maxis wants to lead the pack to provide access not just to consumers but also players. U Mobile and Maxis are in partnership for RAN sharing and eventually for LTE sharing.

Celcom’s Shazalli says the celco has been working with partners in the past and will do so in the future. Its has one with DiGi and that relationship will go into the LTE era. The story out there is that both Maxis and Celcom wants to lead the pack. Both are individually trying to cajole players to join them so that they can build a network and have the spectrum to support all their customers. Thus far, Maxis has U Mobile and Celcom has DiGi and it makes sense for the parties to stick together for LTE, but the road forward is still unknown when it comes to sharing the new technology.

RedTone – which already has a relationship with Celcom by virtue of the mobile virtual network operator (MVNO) – has yet to decide which is its favourite. Talk out there suggests it could go with Celcom but then it may favour U Mobile and join Maxis. It makes sense for P1 and YTL Comms, as both will be on the TDD block, to work together. The question is, will they?

“They may not do it so soon but eventually it makes sense to combine efforts or else they will remain niche players,” said an industry expert. It is a known fact that LTE is great for data as it allows for networks to carry more data than 3G but there is a need to have fibre optics at the back haul including the cellular base stations. Today, the backhaul network is under an increasing amount of stress and the main factor contributing to that is data-centric services that have a much greater impact on the network than the voice services it was originally intended to handle.

Maxis, Celcom and P1 have forged agreements with Telekom Malaysia Bhd (TM) to ride on its high speed broadband access for its backhaul or to offer services. Those in the know claim that Celcom and DiGi are also trying to lay fibre for their backhaul after failing to come to terms with fibre-optic operators. The question is would the cost of rolling out new cables be more than riding on existing infrastructure?


The best customer experience
Technology is one thing but equally as important is keeping customers happy.
Questions have been raised if users are getting the best quality of service (QoS) operators say they are providing.

Shazalli says: “Everyone has a different kind of QoS definition. On our part, we want to create the part of quality and match the quality to our customer. It may seem impossible, but there are certain levels we can do. So it is really targeted services.” He also believes that the QoS currently needs to be fixed.

Clausen adds that there is a need for improvement all the time and it is about looking across all touch points to provide the experience.“We need to take new steps as customer expectations are increasing all the time and unless we embark on the transformational (journey), we cannot live the ambition of being the best and we intend to prove that (ours is the best service),” he says.

Das says he was making sure Maxis could provide a better experience for its customers. “You may have the coverage but at the same time we need to ensure we have the capacity. Those are the investment we have to make.”