Transforming Maxis


Telco changing from voice-oriented to digital data company

THE boardroom of Maxis Bhd no longer exudes the ambience of a traditionally-run company. There are no dark wood stained walls nor can you find posh executive offices the size of an apartment unit.

Morten Lundal (pic), the CEO who is tasked to transform Maxis from its plodding ways, has done away with all that. In fact, he has dispensed with a lot of layers in which Maxis used to operate.

He tore down walls that kept people away in order to maintain a classic hierarchal structure. This made nimble decisions in today’s fast-paced Internet world easier instead of cumbersome to navigate through.

The result is that the Maxis of today is a leaner organisation. There are fewer people employed but they are more productive. Changes within the organisation have made for a breezier atmosphere where work is more fun.

With the transition in the works, legacies of the past are making way for what a digital company should be - capitalising on the data boom and 15 months on, the job is not finished.

“A lot has changed and I’m very positively surprised as to how much I think things have changed. But we keep raising the bar and that is why we can never really celebrate that we have achieved something, though there is still a lot left to be changed too,’’ Lundal told StarBizWeek..

But to get to where it is, there were some painful moments like job-cuts, doing away with the convoluted and overly-priced products and packages and tweaking its traditional delivery methods. The biggest hit of all the transformation was on earnings but the short-term pain was something shareholders and the board realised needed to happen in order for the company to embrace the modern times.

One example of that is its MaxisONEplan. With apps using data becoming the preferred way people communicate, Maxis had to innovate with the times. European carriers had started offering free voice and SMS, and offering the same type of product meant keeping users online even if their data quota had dried up. The process of re-aligning its customers to the new way of telecommunications meant that earnings and market share had to erode before yielding the gains the transformation had envisaged.

“It is a painful decision to cut down on getting better earnings,’’an analyst wrote in his report recently.

That was not the only thing Lundal did. He took the unpopular decision of stopping Maxis from borrowing money to pay out dividends, something it had been doing since it was listed. The guidance for 2015 issued yesterday says dividend will be as per its policy and the target payout ratio of not less than 75% of consolidated profit after tax for 2015.

But the changes, financially, are delivering results. After 15 months at the top, Maxis has somewhat stopped the decay. Its 2014 financial results was about flat but for the fourth quarter there was a slight improvement from 2013 but the important takeaway is that the downward spiral the company was in has reversed. Changes from within are building up momentum.

He is talking about Maxis moving out from negative service revenue growth to low single-digit growth in 2015.

“We had a momentum that was negative but we were doing well in the last few quarters and also we had an organisation that was struggling but the people were good,’’ he adds.

Though the journey is not even mid-way, he is already talking about transforming Maxis from a traditional voice company to being a digital data company.

The numbers

Prior to the top-to-bottom changes at Maxis, its prepaid segment was the worst hit, witnessing a big exodus as its subscribers, mostly migrant workers, opted out because of network issues and over-priced packages. That slide has been reversed as Maxis saw a jump in such subscribers in the fourth quarter when it added half a million new customers.

“It is the highest growth we have seen in a decade in the prepaid segment. We increased by over half a million customers in the fourth quarter. That is very good and it is a number we are very proud of.

“Not only are Malaysian subscribers growing but we got good responses from migrants. Not only Hotlink gives a hot product for migrants but also driven by the chance to have free basic Internet,’’ Lundal says.

Maxis’ postpaid revenue grew by 2.4% mainly driven by people buying more data, and prepaid by 1.5%. The new customers are expected to stay with Maxis in the first quarter of 2015, he adds.

But his real benchmark of growth is Maxis’ Ebitda (earnings before interest, tax, depreciation and amortisation) numbers. He is not overly concerned with Ebitda margins, though Malaysia’s telcos earn the highest Ebitda margins across the globe of anything between 45% and 52%.

Maxis’ Ebitda margins for the fourth quarter 2014 rose to 47.1% from 43.7% a year ago, however, it was lower from the 51.8% recorded in the third quarter 2014. For full year, it was 50.4% versus 47.4% in 2013.

“We look at the Ebitda increase as the most important measure for shareholders. And also, the market share number I’m looking at is the Ebitda market share. How much Ebitda of the industry we are taking, and not so much revenue market share number. I care about Ebitda but not so much Ebitda margins,’’ he adds.

Ebitda for full year 2014 was lower at RM4.22bil compared with RM4.31bil in 2013. But for the fourth quarter it was marginally lower at RM1bil against RM1.07bil in the third quarter, in line with higher direct expenses.


For 2015, Lundal is looking at maintaining Ebitda at similar levels as 2014.

For 2014, Maxis made slightly less net profit of RM1.72bil compared with RM1.77bil in 2013. Revenue was also down at RM8.3bil versus RM9.0bil in 2013 since it had to give up on income due to the change in its billing model. Earnings per share were also lower at 22.9 sen from 23.5 sen a share registered a year ago.

“With the introduction of MaxisONE plan, Maxis took away the very high pay-per-use (PPU) rates for data to give customers a worry-free experience. Mobile Internet (MI) revenue grew 8.4% quarter-on-quarter in the fourth quarter driven by momentum gained from worry-free propositions and higher smart phone penetration. As of end-December 2014, Maxis had 8.8 million mobile Internet users and a blended smart phone penetration of 57%. MI revenue now accounts for 32% of the mobile revenue,’’ Lundal says, adding that the growing data revenue and the strong uptake in MI was able to compensate the SMS decline.

Lundal’s guidance for 2015 is “we expect to deliver service revenue growth in the low single digits, with Ebitda and base capex spend at similar levels as in financial year 2014.’’

For 2015, analysts are predicting about RM2bil to RM2.2bil in net profit.

As for the dividend, it remains intact for 2014, but in 2015, it will be as per its policy.

Despite the better showing, some analysts are still not hot on the stock, whose appeal waned some years ago due to its legacy issues.

Though there is some recovery, it will take a lot convincing before some analysts will change their tune to a buy call. Out of the 31 houses tracking Maxis polled by Bloomberg, only a fifth have called a buy on the stock.

“I know… we’re happy being in the shadows right now. But our value proposition will be shown with facts that we are a profitable company doing well again. It’s not to hype ourselves up into something we’re not. We’re not about hype.’’

Riding on what the Internet has to offer

Maxis is moving from a being a traditional voice-oriented telco into a digital company, riding on what the Internet can deliver to its customers.

“To become the true digital company, we need to have a new digital interface for customers, meaning to have a fantastic app and online experiences. The next step is to be a paperless company internally where everything will be all electronic. We need to shift towards how an IT company works versus how a telco works.

“So there’s gonna be a lot of training and development for people in Maxis. Customer interface, company’s processes and employee’s competence, all will have to shift towards becoming a digital company ourselves in this age of the Internet,’’ Lundal says.

In 2013, Maxis invested RM814mil in capital expenditure, yet it had a host of complaints surrounding quality of its network, including dropped calls and speed issues.

Last year, the capex investment was RM1.1bil, but gaps continued to persist in network quality for 3G, though Lundal says “there has been positive customer reactions and complaints have halved last year because our network has improved so much and most of our processes have improved.

“That said, I think we still have lots to be done but we changed Maxis rather fundamentally last year and we will continue that transformation in the next few years.’’

In 2015, Maxis will spend RM1.1bil more to build up 4G/LTE and bridge 3G coverage.

“There will be leaner structures, more digital processes, digital interfaces with customers with these apps and online services being less manual, less transactional, less labour intensive.

“We are building a lot more LTE coverage and strengthen the capacity network, finalise the modernisation of the network from the old base stations to the new ones,’’ he says.

In terms of network data traffic distribution for 2014, 3% of its traffic was carried on the 2G network, 86% on 3G and 11% on LTE last year. The 4G/LTE coverage has reach a third of the populated areas in the country, while 2G and 3G modernised population coverage has reached 75%. “Our customers use a lot more data. For prepaid, they went from under half a GB to nearly 1GB. Base on my experience, it is one of the highest in the world, and postpaid has also gone up to 1.2 to 1.3GB. On average, people are using more than 1GB which is the same level in the United States and some countries in Europe.

“For LTE, they are using over 1.5GB, which is a lot of data. Essentially people are consuming more data, so we need to invest in the network to deliver this capacity,’’ Lundal says.

Funding for the capex will be via its cashflow, which Lundal says is higher than RM1bil.

Real user experience

Maxis subscribers underwent a number of issues with the company in 2013 when the erosion of users and market share were at their worst. Grouses centred on network issues, huge roaming bills and dropped calls.

Its product offering did not appeal to migrant workers and the youth as Maxis was often tagged as a product for the oldies. Now 31% of its total subscriber base of 13 million are youths.

Eight months ago, Maxis addressed the issues with a flat rate charge of RM38 for roaming, and MaxisONE plan. that allowed users to remain online even if their data quota was exhausted. Maxis also dangled the carrot in terms of free voice and SMS.

It is gaining traction in consumer satisfaction according to Lundal, but only 15% of its postpaid users are on the MaxisONE plan. That translates to plenty room for growth, says Lundal.

And he assures that “when you travel these days you cannot get a bill shock with Maxis. These things are pretty big changes in our products and they are all based on one philosophy of making people feel free to use the phone the way they want to use it even when they travel, regardless if it is prepaid or postpaid,’’ Lundal says.

He adds that it will cost a lot of money to deliver upon these promises. “We are not dependent anymore on pay-per-use revenues which we call bad revenues that upset customers and we don’t want those revenues anymore.’’

JF Apex Securities Bhd in its recent report says Maxis has started to see the impact of its restructuring and transformation programme. The house expects Maxis to slowly regain market share.

“We expect the impact of cost cutting measures and restructuring to accelerate in coming quarters, translating into improvement in subscribers, Arpu and revenue,’’ the house says.

Maxis blended Arpu is RM49 now from RM47 previously for the full year.

Maxis was perhaps the first in the region to offer free voice and SMS but in a market where there is intense competition and high consumer demand for data, is that enough?

Expect more value, says Lundal.

“We just launched it last year, so to get 15% in half a year is fantastic but we have a lot of customers to please in the next two years as part of the transition to modern plans,’’ he says.

Maxis launched its new MyMaxis app recently.

“MyMaxis app is very simple and it is a great way to see how much data you use, how much you owe but it’s also fantastic way to buy more data, I just press one thing and I can buy more data and it’s done. I don’t need to go into a store and go through complicated process, I can do it in 10 seconds and I’ll have the data,’’ Lundal says.

With the app, he expects Maxis’ call centre to shrink and its retail stores will take on a large role. He expects a channel revolution in the next three years where the Internet age generation would interact with Maxis using online channels.

Branding wise, Lundal feels the company has improved its general brand profile especially for people who use the Internet.

“Our brand is more favourably perceived especially by people who use the Internet and the youth. Overall, youth preference towards Maxis has increased 11% from the first to fourth quarter last year,’’ he says.

“A lot of things that we hoped would happen had happened in terms of customer responses,’’ he adds.

He will create a unique user experience but Maxis rivals, Digi.com Bhd, Celcom Axiata Bhd, U Mobile and others are also on the same page and time will tell if he can succeed in getting back all what was lost.

“We took those (complaints) head on and we created, as we now know well, products that I think are unique not just in Malaysia but also internationally. At least the prepaid one is, where people can choose to use social media throughout the whole month even though they only pay data for some of those days during the month.

“We’re going to be expanding the quality of Maxis in a way people will find good value. We’re not going be expensive and we’re always good value for customers,’’ Lundal says, adding that Maxis will be launching a loyalty and reward concept soon.


Related story:

Striving for better customer experience


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