Celcom’s big digital drive


  • Telcos
  • Saturday, 01 Feb 2020

ONCE a traditional mobile operator, Celcom Axiata Bhd is on a roll to become a digital service provider, in line with the global telecommunications industry that is changing faster than ever.

The paradigm shift to digital is fully underway, as players continue to see shrinking revenue streams driven by over-the-top (OTT) competitors, and finding new areas of growth to remain relevant becomes a crucial step, going forward.

While Celcom is not far off from its ambitious vision to be the nation’s most inspiring digital organisation by 2022, the telco operator has already started to adopt and embrace artificial intelligence (AI), the Internet of things (IoT) and data analytics in every aspect of its operations.

The group has implemented more than 20 different aspects of IoT, robotics and AI to innovate its daily work processes, including in customer service, marketing and human capital.

Recall that at the beginning of last year, Celcom, a subsidiary of Axiata Group Bhd, allocated an investment of RM100mil for the next five years to develop its digital innovation hub, IoT centre of excellence (CoE) and IoT-related infrastructure in Malaysia.

The CoE, which includes network, content, research and ecosystem developments in the country, marked Celcom’s commitment to the fourth industrial revolution.

Notably, the company has also been working on initiatives with electricity provider Tenaga Nasional Bhd on smart metering, as well as national carmaker Proton Holdings Bhd on providing network connectivity to their vehicles.

Not forgetting that Celcom recently partnered with Malaysia’s licensed IoT network provider, Xperanti IoT, to commercialise IoT solutions and accelerate the adoption of IoT in the country, signifying its commitment to the development of the nation’s digital ecosystem.

The man behind these innovative initiatives to optimise the digital transformation agenda is chief executive officer Idham Nawawi, who had previously led the Axiata Transformation Programme 2.0 from 2012 to 2015. He was also instrumental in establishing the RM100mil Axiata digital innovation fund, which was set up to help bumiputra companies upscale their products in the digital sector to become regional champions.

But will re-innovating Celcom digitally be enough to withstand the sector’s vulnerable shifts in technology cycles, competitor actions and customer needs?

Banking on more than 25 years of experience in the telecommunications industry, Idham tells StarBizWeek that a crucial step the telco operator is embarking on is turning around Celcom into a 32-year-old startup.

He explains that re-innovating Celcom to behave like a startup will allow its employees to think beyond just traditional mobile services.

For instance, startups like Grab have solved transportation problems that brought convenience to customers and Idham is aware of the huge potential that social value holds for Celcom, given the gradual decline in revenue from traditional telco services.

“Behaving like a startup will also accelerate the speed on decision-making and executions internally. It will allow Celcom to be a risk-taker, be innovative and produce products that will have a social impact, ” he says.

One of the key startup traits shown by Celcom is providing IoT solutions to a government agency using the fifth-generation (5G) mobile network on trial in Langkawi.

In addition, the telco operator is looking forward to building its AI capabilities, which in return will provide more services to enterprises this year.

The efforts from transforming Celcom have also created new areas of growth for the telco operator.

For instance, commercialising some of its IoT devices constituted around 10% of Celcom’s revenue last year.

In the next two to three years, Idham targets to double its revenue in providing IoT devices for enterprises. Currently, Celcom is powering its IoT solutions to more than 1,500 companies nationwide.

Another source of growth is its expansion of home fibre broadband, offering its services throughout Malaysia from initially only in Sabah.

However, Idham is looking forward to a new source of revenue for Celcom in the next few months after the commercial availability of the 5G cellular network in the second-half of the year.

He says the telco provider will introduce new value-added products and services on the 5G network in the second-half of the year, given that its speed is at least 10 times faster than the present 4G network, with speeds going beyond one gigabit per second.

“First, we will introduce trial services such as cloud gaming and entertainment services that run on the 5G network this year.

“There will also be many exciting product launches such as new packages and services within the first-half of the year, ” points out Idham.

He says the revenue growth from the 5G network will only contribute and materialise in the financial results of 2021 and 2022.

For the six months ended June 30,2019, Celcom reported a profit after tax and minority interest was up 11.7% to RM365mil from RM327mil a year ago due to savings from continuous cost-optimisation, partly negated by higher costs from network expansion.

However, total revenue for the period fell 7.9% to RM3.33bil from RM3.61bil previously, attributed to the revision of wholesale rates.

For the financial year 2020 (FY20), Idham says the company has allocated a capital expenditure (capex) of around RM800mil to RM900mil mainly to strengthen the network, improve the quality of the network and network experience.

“This figure is a general guidance we have given to analysts. This year, we are focusing more on the quality of the network and better customer experience rather than the expansion of the network, ” he adds.

This compares to a capex of RM1bil in FY19, RM1.06bil in FY18, RM1.28bil in FY17 and RM1.33bil in FY16.

Celcom says it has the strongest and largest network in Malaysia with a 4G population coverage of 93%, while 4G LTE-A coverage has increased to 81%.

Currently, the telco claims over 11,000 sites across the country, including 9,000 LTE sites. The telco also claims to have over 96% LTE population coverage in 10 states, including Penang, Selangor, Johor and Perak.

Given the “hyper competition” between telco players, Idham notes that Celcom is focusing on improving its profitability and efficiency while reducing costs and redundancies this year.

One key strategy to compete with the other telco operators is to reduce the operational costs and automate IT tools that will improve efficiency of the company, he says.

However, Idham says Celcom will further intensify its focus on operational excellence, while being more selective in making investments this year.

“We have to be more careful in how we invest. We are only interested in making investments in AI for our internal operations as well as investments in managing network traffic, as we want to make sure everyone gets the best service, ” he adds.

On the industry outlook, most brokerage firms have a neutral stance on the telecommunications sector, given the weak mobile and fixed revenue growth prospects.

Despite the neutral outlook on the telco sector, Ambank Research is keeping a buy call on Axiata Group, given its low earnings before interest, tax, depreciation and amortisation valuations and rising prospects for monetisation of its multiple businesses.

For this year, Idham expects the telco industry to have flat growth due to a lack of new subscribers, coupled with the broadband and mobile service price cuts from the competition of other operators.

“As it is, traditional mobile services are not seeing much growth, and this is why new growth areas including new services and applications for enterprises must be introduced to have better growth in the telco industry, ” he says.

Idham says the challenge for Celcom is to strike a balance between providing high-quality products and services at an affordable price.

And with the 5G network rolling out in the coming months, he points out that telco providers will attract customers based on their products and services rather than the strength of their network.

“One of the biggest transformations that Celcom has to do is to be more competitive in the services we provide, ” Idham says.

As digitisation will touch every aspect of Celcom’s business, the priority of the telco operator has shifted to the quality of its products and services rather than the expansion of its network.

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