Tuesday March 5, 2013

The Star Biz

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.

Written by Cindy Yeap    Wednesday, 07 December 2011               

REDtone International Bhd and billionaire Tan Sri Syed Mokhtar Al-Bukhary’s Puncak Semangat Sdn Bhd have a tad more to cheer about among the nine fourth generation (4G) spectrum winners. All nine will receive the coveted resource after their business plans are approved by the Malaysian Communication and Multimedia Commission (MCMC), sources said.

“While Puncak Semangat’s 30Mhz [of 4G spectrum] is at least 10Mhz bigger than all other winners, everyone else has existing spectrum — 900Mhz, 1800Mhz, 1900Mhz [3G] or 2.3Ghz [WiMAX]. From that perspective, the bigger existing players still have more spectrum,” said a source close to the regulators.

“The decision was made to bring in new entrants and allow room for market forces, and in that light the spectrum allocations are equitable, though not entirely equal,” the source told The Edge Financial Daily. “We believe Puncak has the financial resources for a decent rollout,” the source said.

The 4G allocation will give REDtone, whose existing 2.3Ghz WiMAX licence is limited to Sabah and Sarawak, a licence to roll out mobile services in Peninsular Malaysia and a more level playing field relative to the remaining three WiMAX spectrum holders, the source said. Its challenge, however, will be to secure the necessary funds for a wider rollout, an observer said.

To recap, all four 3G spectrum assignment holders — Maxis Bhd, Celcom Axiata Bhd, DiGi.Com Bhd and U Mobile Sdn Bhd — stand to receive 20Mhz of 4G spectrum. Like REDtone, two other WiMAX spectrum holders — Green Packet Bhd’s Packet One (Networks) Sdn Bhd and YTL Communications Sdn Bhd — will also receive 20Mhz of 4G spectrum in January 2013, if their business plans are accepted by the MCMC.

The remaining WiMAX spectrum holder, Asiaspace Sdn Bhd, will be given a 10Mhz block of 4G spectrum, provided its business plan gets MCMC’s go-ahead. Asiaspace, will also need to settle a sizeable fine first for not meeting rollout commitments made in its WiMAX business plan submission, another source added.

All nine winners will need to submit their 4G rollout plans to the MCMC by Dec 15 and pay a RM5 million irrevocable guarantee for every 10Mhz of spectrum.

But why not just give bigger blocks of spectrum to the big boys? After all, only three out of seven newcomers in the mobile telecoms space have decent-sized coverage and service offerings close to five years since the powers that be decided to sidestep incumbents and allow new entrants. Didn’t one 3G pectrum winner even make money from transferring its 3G spectrum?

Moreover, easily 94% of Malaysia’s 35.7 million mobile phone users are with the big three — Maxis, Celcom and DiGi — and they have the most money to invest, going by their earnings pool. Wouldn’t giving them more spectrum help on network quality?

“Yes, incumbents have a lot more subscribers, but they still have a lot more spectrum than the new entrants. Their spectrum allocation is already bigger than the likes of Vodafone in the UK, which has a bigger population size and wider geographical area to cover,” an industry observer pointed out. This could not be independently verified at press time.

“Are you satisfied with your current mobile phone service?” the observer asked, drawing attention to the sizeable earnings margins of 45% to over  50% that the big boy operators here command.

“Those margins are very high by industry standards. I’d call 30% a decent margin. From where I stand, that level of margins either means operators are not investing enough money in network or they’re charging customers too much,” the observer added.

Maxis, the leader in terms of earnings before interest, tax, depreciation and amortisation (Ebitda) margin, has maintained that its 50% plus margins are ahead of Celcom’s 45% and DiGi’s 46% because it has a bigger pool of higher spending subscribers.

To be fair, Maxis, Celcom and DiGi have spent an average of RM1 billion a year on improving their networks. And if that level of investment is not enough, only time will tell if the solution is to bring in new players, especially those with smaller purses.

What is certain is that more competition is on the way for existing players and the cost of delivering seamless Internet on-the-go is much higher than enabling voice and plain text message.

To maintain the kind of margins and dividends that their investors have come to expect, telecoms players are already cutting back everything they can and are now letting rivals piggy-back on their networks.

They have even resorted to no longer absorbing the 6% service tax on prepaid users to help shore up margins — or at least they tried. It is understood hat regulators have asked the operators to pass on the cost of the service tax to prepaid users on a staggered basis, instead of doing it at one go.

All that throws into question whether the high margins the big boy operators are enjoying will hold. To be sure, chances are that margins will not immediately collapse, but investors may need to start considering the possibility of smaller growth numbers and, in turn, lower dividend payouts — at least until the mobile broadband space matures.


This article appeared in The Edge Financial Daily, December 7, 2011.



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1.數碼網絡 (Digi) 正與立通國際（REDTONE)探討合作
2. All nine telecoms players given smaller blocks of 4G spectrum (2.6GHz)
3. Transforming cellular companies