Maxis gets agile

TWO weeks after Covid-19 hit Malaysia, Maxis Bhd was forced to make a bold decision. It shut down its network operations centre at its headquarters in Kuala Lumpur, forcing its engineers to work from home.

That decision baffled the staff. For two long decades, they have been steadfastly seated in their spacious command centre, eyeballs glued 24/7 to the large screens that mirrored a live version of the major telco’s network operations. Now they had to do all that work, remotely and dispersed at their respective homes.

“The pandemic has pushed people to the max. We have needed to work differently to cater to customer demands,” Gokhan Ogut (pic below) tells StarBizWeek. The Turkish executive who was made CEO of Maxis in 2019, has taken it in his stride that his mandate to lead the telco has coincided with the destructive pandemic. He claims that Maxis’ ability to face the new challenges lies in the fact that the organisation is agile.

“Especially after Covid, we have taken lots of fast decisions. In order to do that, you need to be close to what’s happening on the ground to customers. We’ve been doing a lot of surveys and “virtual regional visits,’’ Ogut said.

To serve its customers’ changing needs, Maxis has quickened the pace to becoming a “converged solutions” provider, a move it first announced three years ago.

Converged solutions providers are those that strive to offer multiple connectivity (wireless-fibre-mobile, etc) opportunities, layering it with content and applications that help create new revenue streams as the internet takes centrestage.

“Everything has become urgent because of Covid-19. We are doing things now that we’re meant to be doing only in three to five years,’’ he enthuses.

In June 2020, Maxis launched something it calls the Maxis Way 2.0. Aimed at strengthening Maxis’ focus on customer needs, it also promises to make its employees more accountable.

“Changing into a converged solutions company is not easy, but we are on the right track,” Ogut adds.

That said, its competitors are also on the same journey. More so, as its biggest rivals are now merging. The on-going merger between Celcom Axiata Bhd and Bhd will create a dominant force with over 51% market share.

That’s not all. Malaysia’s experiment with 5G is another challenge, with state-owned entity Digital Nasional Bhd (DNB) building out and owning the entire infrastructure. They are to provide access to telco operators to the network for the roll out of their respective services.

Not everyone is convinced this model works out well for players like Maxis.

For example research house UOBKayHian noted this in a recent report: “The biggest threat to Maxis is a single 5G special purpose vehicle (DNB) and lease model, which may cause Maxis to lose its competitive edge in providing superior network coverage.’’

The 5G network will also attract newer mobile virtual network operators (MVNOs) and content providers to secure access, thereby pushing competition to new heights.

Ogut remains unfazed as he believes Maxis has a winning strategy, having built the building blocks early on coupled with a strong focus on the customer experience.

“If we were just a mobile operator and just with a 4G network, then we would not have control,’’ he said.

Staying connected: Maxis’ network rollout continues amid the pandemic to ensure uninterrupted connectivity.Staying connected: Maxis’ network rollout continues amid the pandemic to ensure uninterrupted connectivity.

It is no surprise that Maxis is on the convergence theme as the boundaries between fixed, wireless and mobile networks have become blurred. Seamless connectivity in homes, buildings and the outdoors is expected by customers, irrespective of the technology that powers that. Most telco’s understand this so this leaves the differentiating factors down to pricing, variety of offerings and service quality.

“We are lucky we announced our strategy to be a converged solutions provider three years ago. With the pandemic it is fast becoming a reality,’’ Ogut says.

UOB Kay Hian points out that fixed-mobile convergence will remain a key priority for Maxis.

Maxis has been investing in its fibre rollout since 2011. It also has partnerships with other fibre providers such as Allo Technology Sdn Bhd (Allo), a wholly owned subsidiary of Tenaga Nasional Berhad (TNB) which provides fibre optic connectivity. Maxis also partners with Sarawak’s leading ICT infrastructure firm Sacofa Sdn Bhd besides riding on Telekom Malaysia Bhd high speed broadband.

Ogut says that Maxis will continue to spend more on its fibre roll out.

“Especially for our enterprise customers, we use our own fibre network rather than tapping into the wholesale network. This is so that we can have more control over the quality and ensure our innovative solutions reach them,” he says.

Maxis has seen a surge in its fixed line business. It now connects a total of 654,000 premises, out of which 487,000 are on fibre, while 167,000 are on 4G connections. This includes connections with its own fibre as well as through using wholesale partners.

“We have over 100,000 premises passed on our own fibre (the rest of the connections ride on its partner’s network). In the next 18 months, we will add 200,000 more, totalling 300,000 premises by the end of 2022,’’ Ogut said.

Just in the second quarter, Maxis made 50,000 new connections and Ogut said “that is quite an achievement.’’

Even though Telekom Malaysia and TIME Dotcom Bhd are its major competitors in the fibre line space, to boost its home fibre business Maxis has launched Zerolution, offering installment plans for consumers to choose their devices which include TVs, the Sony Playstation, computer screens and laptops. This had proven a success when Maxis gave similar device offerings for its mobile users. “We provide a lot of benefits to customers and that’s why there is continuous growth,’’ he says.

AmInvestment Research points out that Maxis home fibre business average revenue per user (arpu) rose slightly by RM1 per month in the second quarter to RM198 per month.

When fixed number portability (FNP) for fixed line fibre users opens up at the end of next year, this will augur well for Maxis, says Ogut, especially in the enterprise market.

“We are also opening up our own fiber network to be sold as a wholesale service as we want other players such as TM to sell Maxis Fiber too,’’ Ogut adds.

Telco’s will continue to compete for a large slice of customers and their spending. High performance networks will be key.

In the near future when 5G is up and running, Ogut visualises this scenario. “When you wake up in your home, you will be connected to Maxis WiFi. When you get in your car it’s Maxis 5G or 4G depending on your location. And when you’re in the office, it’s Maxis Fiber.

“What we promise is an uninterrupted, high capacity, fast and low latency network for internet connection. Let us worry about how we do it,’’ he says.

With that integrated approach, Maxis earnings are not going to be overly dependent on the mobile business as the “shift will be to the applications and fibre that we provide.’’

Maxis has been working with partners on content, solutions and applications.

“We just acquired another company, Peering One, a cloud service provider and this is the third one we have. This will help our enterprise customers on their cloud computing journey,’’ he says.

Maxis also provides Internet of Things (IoT) solutions to their enterprise customers.

“We are in a very good position to help customers manage their network and content requirements,’’ Ogut says.

A variety of entertainment services are available on the Maxis TV platform.

“We are now consolidating all the gaming into one location, making it easy to choose as well as easy to pay and manage from one location. Even remembering those passwords is a killer, isn’t it?,’’ he says, adding that there is already a gamut of entertainment services such as movie content from different platforms, available on the Maxis TV platform.

Over the last few years, Maxis’ capital expenditure (capex) has surpassed the RM1bil mark every year. The figure was RM1.21bil in 2019 and RM1.25bil for 2020 and this year.

“This year is going to be different because we will be spending Universal Service Provision (USP) capex for coverage and capacity,” he says.

USP fund was set up by the telecoms industry regulator years ago and all telecoms providers are required to contribute 6% of their weighted net revenues towards the fund to support roll out of telecoms infrastructure to sub-rural and rural areas.

The funds are clawback to players to help in the roll out under the Jendela initiative (to increase telecoms coverage in sub-urban and rural areas) and Maxis is a recipient.

Maxis is building 200,000 new fibre home passes with its own capex (2021 and 2022) and also using the clawback monies from the USP funding. More than half of the 200,000 homes passed will be funded via the USP funds.

Ogut declined to indicate what Maxis’ capex figure would be for next year.

“We wish we’re living in more certain times, as then we would be able to have a better idea of what happens in the next few years. But that is not the case, right?,” he quips.

Maxis still needs to invest in its 4G network and expanding fibre network. The capex goes into building new towers and connecting fibre to the towers, homes and enterprises.

For 5G, the investments will be smaller as it is not building the network.

Maxis has been generating enough cash for its capex and the RM1.25bil figure represents 15% of its annual revenue.

“We don’t expect our future capex to be as high as 15% of revenue as it is today. It would be less. So the question is what will we do with this extra capex? We are now looking into other areas that we might choose to invest in,’’ he says.

The question is also, with less capex needed, will it pay out more dividends?

“We try to distribute quite a good dividend percentage to our shareholders,’’ says Ogut, declining to elaborate further but only adding that Maxis pays dividends every quarter.

Maxis paid 20 sen a share in dividends from 2017 to 2019 but reduced it to 19 sen a share last year. For the first two quarters of this year, it declared four sen each, which if annualised works out to 16 sen a share, giving Maxis stock a dividend yield of around 3.6%.

UOB Kay Hian projects that Maxis’ 2021 full-year net dividend per share will be at 15 sen, translating to a dividend yield of 3.5%.

It is a known fact that telcos in Malaysia churn out strong cash flows as reflected in their high earnings before interest, tax, depreciation and amortisation (ebitda) margins that range between 38% and 50%. The Q2’21 ebitda was 50.9%. But will that change soon?

One variable is the pricing that telco’s will need to pay to access the 5G network owned by DNB.

In the past though, telcos also have been criticised for not matching investments with the amount of cash they generate. Recently, even the industry regulator alluded to it, referring to telcos’ high ebitda margins as “....frankly sinful.’’

In response, Ogut says that in order to invest 15% of their revenues into capex, they first need to churn out cash. He adds that telcos also pay out 6% of their weighted net revenues into the USP fund. Another 15% goes out to shareholders in dividends, and that adds up to 36% of total revenues.

“You can look at the ebitda and say, oh!, it’s high but that’s what actually enables us to continue to invest in our network and to continue to pay dividends to our shareholders (some of which are Malaysian funds).

“This industry is a capital-intensive one, that’s why ebitda margins need to be high,’’ he says.

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