Telecoms sector in for tough times


  • Business
  • Saturday, 28 Dec 2013

THE outlook for the telecoms services industry remains positive next year with service providers set to generate cashflow via broadband growth and cost savings.

However, analysts expect stiff competition as players improve on the offerings with Maxis Bhd, languishing in recent years, vowing to make a comeback.

“We believe service providers will likely see margin pressure as competition continues to intensify through competitive pricing, incentives and handset subsidies,” an analyst says.

Data revenue will continue to proliferate and have a positive effect on revenue per user while 2014, according to industry players, will likely see more strategic collaborations.

Tan Sri Zamzamzairani Mohd Isa

Telekom Malaysia Bhd group chief executive officer (CEO) Tan Sri Zamzamzairani Mohd Isa believes data and broadband will continue to be key drivers for industry growth.

“Consumer demand for bandwidth is increasing as they become more and more broadband-savvy. This is encouraged by the proliferation of smartphones now trending in Malaysia, where consumers are spoilt for choice. This, together with the increased usage of applications and over-the-top (OTT) video content, also further promote the broadband take-up.”

According to IDC, the local market for voice, data and Internet services for 2014 will increase to RM28.9bil from RM27.9bil in 2013, with a compounded annual growth rate (CAGR) of 3.6% (2012 to 2016).

The retail telco market will be led by the fixed-market segment, contributed mainly by data with a 12% CAGR and Internet at 11% CAGR.

Zamzamzairani says plans are in place to introduce more local content on HyppTV, while for small and medium enterprises, there will be new and value-added offerings.

Digi.com Bhd chief executive officer Henrik Clausen expects the industry to grow between 4% and 5%.

“This growth will be driven by improvements in coverage and quality of data networks and the introduction of more affordable smartphones to the market. These factors will continue to stimulate usage and the adoption of mobile Internet, which we see as the main catalyst for growth.”

Henrik Clausen

He says operators are likely to face more intense margin pressure in addressing increasing competition and rising cost of operations, with players making available more smart devices, which do not make the same margins as services, to drive mobile Internet growth.

Maxis Bhd CEO Morten Lundal expects a continued shift from the traditional voice and SMS segments to a variety of Internet-based applications.

He adds that the increase in smartphone penetration will also drive demand for data, apps and services such as mobile TV, location-based services and social media.

“This is clearly a very big shift in business model for all operators but the direction has been known for years, so it is something we are all in the process of managing.”

Celcom Axiata Bhd CEO Datuk Seri Shazalli Ramly notes that data and digital services will see growth in an increasingly segmented market while the emergence of new OTT players will result in new and current applications becoming more powerful and user-friendly.

There will also be more strategic collaborations for services, cross-platform offerings and increased network capacity.

Datuk Seri Shazalli Ramly

“In line with global trends, the traditional voice and SMS segments will have their margins pressed further while new OTT players will enter the fray as strong challengers to these segments.”

Lundal notes that key issues the industry faces are the increasingly crowded space and limited growth drivers.

“On the first point, the increasing number of players in the LTE (Long-Term Evolution) space, both the many new spectrum holders and also the people who lease capacity (the mobile virtual network operators), pose a pricing challenge that can be disruptive to the industry. So, in order to compete, established telcos need to provide better service and value.

“Also, the entry of new players make payback from investments a bigger challenge, so we will have to decide how big and long bets we want to take. However, as there will be a lot of potential duplication of network infrastructure, telcos can look for cost-saving opportunities from more network sharing.”

Secondly, the high mobile penetration rate (of more than 140%), coupled with the low population growth of 2%, and with the cannibalisation of voice and SMS revenues by Internet communication applications will hamper growth.

Lundal says going into 2014, telcos will need to look for ways to increase data average revenue per user (ARPU) by, for example, increasing smartphone penetration and data usage among low to mid-tier subscibers.

Zamzamzairani says players will need to be innovative and creative in introducing new offerings and increased value propositions to ensure customer loyalty and stickiness, as the industry is witnessing slower broadband subscription growth due to market saturation.

Lau Bik Soon

“In addition, industry players are struggling with cost issues. All players need to ensure costs are managed well and kept under control. Market trends are changing the way customers buy and consume bandwidth.

“The industry has evolved with the availability of smart and sophisticated devices and applications as well as content driving the need for connectivity and bandwidth. Now, it is the customers who dictate how, when and where they consume bandwidth. The industry needs to adapt to these changes,” he adds.

Redtone International Bhd group CEO Lau Bik Soon says 4G LTE services rollout will expand mainstream and this will further drive the take-up rate of data and broadband services while the second phase of the high-speed broadband (HSBB) rollout will help to increase household broadband penetration.

“OTT apps such as Whatsapp and Skype will continue to erode the voice and SMS revenue of mobile operators,” he reckons.

Meanwhile, industry players expect data consumption will continue to grow in 2014, with Clausen saying that mobile Internet consumption will grow with increasing use of smartphones and tablets in the market.

Shazalli says data will definitely continue to grow strongly but operators will face added pressure on margins. Telcos cannot rely purely on data revenue growth but will need to complement it with new innovations in digital services and related ecosystems.

Zamzamzairani envisages data expansion in tandem with the increasingly dynamic and high-growth local business environment.

Meanwhile, Lundal reckons Maxis and Celcom will be looking to spend RM1bil each on capital expenditure (capex).

Shazalli says Celcom’s capex will focus on on LTE rollouts and network building, IT transformation, and new digital services.

“Celcom has spent RM200mil for quality of service improvements in 2013 and will be investing an additional RM100mil to improve coverage, speed, customer experience and fibre infrastructure in the Klang Valley, eastern regions in Peninsular Malaysia, Sabah, Sarawak, major highways and tourist areas.

“These projects are currently underway and are expected to be completed by April next year,” he adds.

In line with the call for service providers to have a robust mobile network nationwide and to avoid duplicating network infrastructures as the industry matures, Clausen points out that there may be more strategic collaborations aimed at driving greater operational efficiency.

Shazalli says collaborations are now part and parcel of the dynamic industry landscape. The industry is already seeing collaborations not only between players but also between players and their vendors/business partners. These will mostly be in the digital services and machine-to-machine solutions space.

“Celcom currently has key collaborations including with DiGi and Altel (Puncak Semangat) and is open to further strategic partnerships in line with our vision.”

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Business , TM , Maxis , Celcom

   

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