Filled with new product launches and tie-ups, the telecommunication sector had an eventful year in 2010. While the general trend continues to be declining voice revenues and growing data revenue contribution, the proliferation of smart devices has set a whole new competition landscape for the sector that now has a bigger and diverse group of players.
The competition will get even more intense with the entry of new players such as YTL Communications Bhd, new foreign stakeholders in companies such as Green Packet Bhd and U Mobile Sdn Bhd, and the strengthening presence of mobile virtual network operators (MVNOs) to further hurt the voice segment for telcos.
As the mobile market continued its saturation at more than 100% penetration in Malaysia, new markets for bundled high-speed broadband (HSBB) and Internet protocol TV (IPTV) could emerge as the new battleground this year.
Although much has been said about the intense competition, the pie is set to grow due to the strong shift from traditional voice services to non-voice services on the back of a recovering economy. With consumers constantly being enticed with newer devices in the market such as tablets and smartphones, the biggest slice of the pie for telcos are the increasingly data-hungry consumers.
In a recent report, International Data Corp (IDC) noted that 26% of all phones shipped last year were smartphones for the local market. This is set to grow to 35% in 2011. After the various price wars sparked by the introduction of devices such as the iPhone 4, telcos are certainly cashing in on the still small smart devices market.
“For the coming year in Malaysia, we do expect non-voice services to grow faster than voice. As the prices of devices and computers are expected to reduce significantly over the next few years, and with the proliferation of new types of devices, such as tablets and smartphones, we expect data to be the main driver for growth in 2011,” said Axiata Group Bhd’s president and group CEO Datuk Sri Jamaludin Ibrahim in an email interview with The Edge Financial Daily.
The state of declining ARPU
According to the Malaysian Communications and Multimedia Commission (MCMC), the fastest growth last year was in mobile broadband. Mobile broadband subscribers grew around 50%, adding close to half a million to 1.4 million subscribers as at the second quarter in 2010. Fixed broadband was a laggard with less than 100,000 in net additions.
Total population penetration for broadband was still low at 11.2%. However, household penetration was at 37.5%. Telekom Malaysia Bhd remains the market leader.
The current leader in the mobile broadband market is Celcom with more than 50% market share with 803,000 subscribers as at Sept 30, 2010. This is a market that is growing by contributing close to 10% of year-to-date’s (nine months of 2010) total revenue for Axiata. Maxis Bhd follows with 524,000 subscribers. WiMAX leader Green Packet has around 200,000 subscribers.
Average revenue per user (ARPU) for this segment has been relatively stable, hovering between RM70 and RM80 for all three players as of 3Q10. This is in sharp contrast to both postpaid and prepaid ARPU in the voice segment that has been declining over the last few years.
However, Maxis CEO Sandip Das believes that declining ARPUs only paints one side of the picture. Instead, telcos that recognise the significant shift to data should consider looking at a different set of numbers.
“ARPU is no longer a relevant measure, particularly because of multiple SIM usage and incremental subscriptions coming into play. In the future, when SIMs are used across various media, ARPU is bound to come down further. The key forward is the percentage of revenue share.
“In a highly competitive market where voice tariffs are under tremendous pressure, Maxis’ growth in data and broadband has been very strong. Our data revenues have touched about 40% of mobile revenue (as at Sept 30, 2010). These numbers put Maxis absolutely in the top bracket of telcos’ performance in the region. Over 50% of our base is composed of active data users. We expect these figures to steadily improve in the near term,” he said in an email interview recently.
On the other hand, Green Packet CEO Michael Lai feels that telcos that are able to develop a niche for itself will come out strong in order to maintain or increase ARPU.
“The challenge is for operators to come up with new innovative services to maintain and increase ARPU. P1 4G differentiates itself in the telco sector by providing the best value-for-money on wireless. Our customers use an average of 10GB per month and 58% of their usage is on rich media — videos, YouTube, Facebook and photo uploads,” he said in another email interview.
For 3Q10 results, research houses noted that results have been within expectations. Axiata has remained the top pick due to the growing contribution from its Indonesian PT Excelmindo Axiata. “Overall for 2011, we expect economies in most of the countries we are in to rebound further, which will benefit the sector. In our emerging markets we expect subscriber growth to continue strongly, especially in fast growing markets, such as Bangladesh, Indonesia and India,” Jamaludin said.
Overall, Maxis still maintained the market lead with the largest subscription base.
“2010 was a strong year for Maxis given the market conditions. At the (launch of the) IPO we had announced our intentions to broaden the scope of Maxis’ businesses, from being a predominantly mobile player to becoming a leading integrated player. Maxis continues to be a strong market leader with 41% cumulative market share (as at Sept 30) and the widest subscription base of 13.52 million,” said Sandip.
New markets emerging?
With the convergence of various multimedia platforms, the telco sector also looks poised to offer consumers much more exciting products this year. In the HSBB space, Telekom Malaysia Bhd (TM) has successfully launched its high speed network and IPTV. The fixed network would enable other service providers to offer new and innovative products and solutions.
Meanwhile, competitor Time dotCom Bhd (TdC) took a bold move by combining its high-speed network with pay-TV leader Astro to offer Astro’s channels on IPTV — a first for the nation.
Maxis, which recently signed a 10-year lease agreement with TM on the HSBB, is also set to offer new products for the consumers at home this year. Finally, late entrant YTL Communications has announced it will roll out a hybrid TV service by end of this year involving service such as digital broadcasting and IPTV.
However, this market where products and solutions are bundled over a high-speed network has yet to be fully tested as the grounds have only been recently laid out. So far, TM has chalked up close to 30,000 subscribers on the HSBB. TdC, on the other hand, has fewer than 10,000 customers on its network. But with more players entering this new space, this year could see a new battleground for the telcos.
In a recent note, OSK Investment acknowledged that the IPTV battle could intensify. “We are not entirely surprised by the latest development as TdC has been working with Astro for some time to replicate its content on TdC’s fibre network. We think this presents a threat to TM’s Unifi (high-speed broadband) service, the country’s first mass market and commercial IPTV/broadband bundled offering launched in March, given Astro’s more compelling content of more than 130 channels including video on demand and high-definition content versus Unifi’s 39 channels currently,” it noted.
In the wireless space, nine companies have been awarded an apparatus assignment (AA) subject to a viable business plan just this year. In the long run, this means that more players will attempt to make a mark as technologies evolve towards being fully IP-based in the coming 4G era.
In its 2011 outlook report, CIMB Research forecast “overweight” in 2011 for the telco sector from its current “neutral”. “We upgrade the telco sector from ‘neutral’ to ‘overweight’ on the back of likely catalysts from capital management and earnings surprise,” it said.
“Small and large screen data revenue should be the key revenue drivers, thanks to pent-up demand, the rapid take-up of social networking and access of Internet and email on the go,” it added.
As 2011 rolls out, one thing for certain is that the landscape for the year certainly looks exciting.