Slight drop in revenue growth seen for telcos

RAM Ratings, in a commentary on the sector, however, said profitability and margins were anticipated to remain flattish among players. It also said data consumption would continue to register strong growth.

PETALING JAYA: The Malaysian mobile industry is projected to experience a mild contraction in revenue growth in 2017, amid aggressive competition and a maturing growth environment.

RAM Ratings, in a commentary on the sector, however, said profitability and margins were anticipated to remain flattish among players.

It also said data consumption would continue to register strong growth.

“On the mobile front, supported by a low average price per GB of data as well as rising smartphone penetration, incumbent celcos (Maxis Bhd, Celcom Axiata Bhd and Digi.Com Bhd) saw data consumption per month per user double in 2016.

“With Long-Term Evolution (LTE) rollouts largely underway and cellular operators) celcos launching new prepaid and postpaid plans every other month that include unlimited data and voice calls, consumers are spoilt for choice.”

While data consumption growth was encouraging, RAM said it continued to look out for an uptick in average revenue per user, which had thus far been elusive for celcos.

“Further to that, network capacity considerations need to be continually assessed in view of the surge in data consumption, in a bid to maintain network quality and the customer experience.”

RAM said network sharing and cost optimisation may result in celcos exploring new opportunities for active and passive infrastructure sharing.

“The presence of edotco Group Sdn Bhd and other infrastructure services companies sets the stage for celcos to explore new business models.

“Additionally, as the landscape matures and opportunities for growth decelerate, new and smaller players will continue to rigorously slash voice and data prices in an effort to build or maintain market share.”

On that note, RAM said incumbents accounted for only 80% of subscriber market share as at end-September 2016.

“Notwithstanding the sluggish revenue growth, cost optimisation and savings via digitalisation of service and product delivery platforms may enable celcos to arrest any immediate threats to profit margins.”

With newcomers and late entrants to the mobile space fuelling competition with hefty price reductions, the big three celcos’ (Maxis, Celcom and DiGi) hold on subscriber market share had dwindled to 79.2% or 34.8 million subscribers as at end-2016, said RAM.

“Furthermore, the aggressive competition saw the incumbents’ industry revenue pie shrink 4.5% year-on-year (declining for a second consecutive year) owing to a weak performance in the mobile business despite accelerating data consumption, supported by increased smartphone penetration and the continued rollout of LTE (long-term evolution) services.”

With the lines between celcos and over-the-top-content (OTT) players persistently blurring and the future advent of Internet of things (IoT), partnerships will take centre stage, RAM said.

In sectors such as transportation, manufacturing, utilities and healthcare, among others, which are at the forefront of change brought about by IoT, celcos should adapt to secure a slice of the IoT revenue pie, RAM said.

“On the local front, on top of setting up a digital arm or section, we have seen efforts by celcos to incubate start-ups via acquisitions to build a presence in the digital space.”

RAM added that Malaysia’s telecommunications industry is among the most developed in South-East Asia, boasting a mobile penetration rate of 141.3% as at end-2016, slightly lower than about 149.8% in Singapore.

“Malaysia also has one of the most established 4G networks in the region, with 4G coverage of least 77% and more than 66% of subscribers of the incumbents were smartphone users as of the first quarter 2017.