Competition within Malaysia’s telco industry is heating up as players embark on an aggressive drive to launch new packages, woo more subscribers and gain market share as well as grow their average revenue per user (ARPU).
The level of intensity has climbed to a point whereby a telco went to the extent of offering substantial amount of data for internet to its subscribers as a move to retain its subscriber base.
While the telco player has pledged to offer more internet data to its subscribers, others have opted for a re-pricing of their products and service offerings.
Analysts believed that competition is going to intensify especially when Telekom Malaysia Bhd (TM) relaunches its Packet One Networks (M) Sdn Bhd (P1) service – rebranded as webe – in the first half of 2016 (1H16) as part of the group’s convergence drive to bundle its mobile, wireless, broadband and fixed lines services together.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in an April 8 report said TM and P1 are scheduled to launch a new 4G Long Term Evolution (LTE) mobile service called webe.
The plan, it said, is expected to offer a promotional postpaid plan at RM10 per month which could possibly come with 20 gigabytes (GB) data, 1,000 voice minutes and 1,000 short message service (sms).
In terms of network coverage, MIDF Research believed that the coverage should mimic Celcom’s 3G coverage due to domestic roaming network agreement signed in Jan 2016 between Celcom Axiata Bhd (Celcom) and TM for its mobile telecommunications subsidiary, P1.
MIDF Research analyst Martin Foo said, “The new mobile service is expected to initially target TM’s existing customers. According to TM’s management, the rollout of the new mobile service is primarily to complement its ‘quad-play’ ambitions – the fourth offering being Internet mobility.
“Currently, it offers ‘triple-play’ services with its UniFi high speed broadband service which comprises of Internet, voice and IPTV.
“As such, we believe that the new mobile service would first be made available to TM’s existing broadband customers which stand at 2.34 million customers as at end of fourth quarter of 2015 (4Q15).
“The potential offering of the RM10 postpaid plan would further increase competition among the existing mobile network operators.
“We view that the plan is much more competitive as compared to the offerings made by the incumbents.
“The move would entice TM’s existing customers to port away from their existing mobile services,” Foo said.
Additionally, Foo believed that the offer is viable as TM is the provider of bandwidth connectivity via TM Next-Gen Backhaul services.
He recalled that previously, Digi Telecommunications Sdn Bhd (DTSB), a wholly-owned subsidiary of Digi.com Bhd (Digi) and Celcom have inked a wholesale bandwidth agreement with TM back in 2013 to provide extensive backhaul infrastructure for broadband rollout in the country.
Foo opined that the offering of the new mobile service, webe would complement TM’s existing triple play proposition.
“We viewed that the ‘quad-play’ offering would further strengthened TM’s position in the telecommunication industry.
“Telecommunication users will be more inclined to subscribe to TM’s telecommunication services which are made available through the subscription of an umbrella package,” Foo added.
With the entry of another player, webe through TM into the mobile services space in the industry, existing telcos have been busy upgrading their services and extending their network coverages to a wider areas across the country to stay ahead of the competition.
Expanding 4G LTE coverage in East M’sia
For Digi, the telecommunication service provider continued its efforts to provide more coverage of its 4G LTE data technology services, making it available at major towns especially in East Malaysia.
Digi through DTSB had in March rolled out its 4G LTE coverage to Papar and Tenom in Sabah after people from the two districts tweeted the most in a campaign known as #DigiWeWant4G Twitter campaign and voted into last year’s top 10 #DigiWeWant4G areas.
To recap, Digi had in November 2015 organised a campaign to its customers ‘You Tweet, we Build’ and put customers in the drivers’ seat to help rollout its network by nominating their towns to be the next in line to get 4G LTE with its #DigiWeWant4G twitter campaign which ended in December 2015.
DTSB’s Sabah Region head Anthony Ho was quoted as saying, “The campaign was a great way for us to listen to our customers and it helps us to understand their needs and roll out our network strategically and efficiently while strengthening our coverage position.
“We’re pleased to be unveiling the people’s tower and powering up 4G LTE here in Papar as well as Tenom.
“In Sabah, we have increased our 4G LTE coverage to 60 per cent of populated areas which covers 20 cities and major towns,” Ho disclosed.
“We are looking to expand to other areas in East Malaysia in the coming weeks and we will bring 4G LTE to all top 10 areas soon,” Ho added.
He observed that Digi’s past coverage efforts had seen almost a complete extension of its 2G network in Sabah, whilst the 3G network had reached 80 per cent of the population coverage.
Ho noted Digi’s 4G LTE netowork had also reached 93 per cent coverage in Labuan.
He pointed out that Digi is focusing on expanding its 4G LTE network reach as a move to maintain its reputation as Malaysia’s widest 4G LTE network throughout the nation.
Digi’s chief executive officer (CEO) Albern Murty who shared the same commitment said, “We’ve aggressively expanded our 4G LTE reach in 28 major cities and secondary towns nationwide, with key market centres enjoying a steady average of 80 per cent population coverage, making the benefits of Digi’s 4G LTE services easily accessible to half the Malaysian population.”
Likewise, Digi recently revealed that its 4G LTE customers grew to 2.9 million, reflecting its customers’ steady experience of quality, high speed Internet services in more areas nationwide.
Its 4G LTE network reached 73 per cent of the population as at end of March 2016 with 33 per cent of Malaysians enjoying Digi’s 4G LTE-Advanced services.
Meanwhile, in conjunction with the launch of Digi’s 4G LTE in Papar and Tenom, the telecommunication service provider had also launched its special promotional Internet plans specifically for customers in East Malaysia – the Digi Postpaid RM68 plan.
The company explained that the plan came with 5 GB of monthly Internet quota Internet rollover, unlimited calls and sms, unlimited music streaming, free cloud storage and a slew of other goodies including a 12-month subscription to Internet TV service, iflix.
Moreover, subsequent to the launch in Papar and Tenom in Sabah, Digi had in early April moved on to launch its 4G LTE services to more towns for instance in Sarawak.
Digi’s chief network officer Kesavan Sivabalan said, “Bau and Limbang in Sarawak now join the list of towns in Digi’s rollout of 4G LTE after coming in the top 10 of our Twitter campaign.
“The campaign was a great way for us to listen to our customers and is crucial to us as it helps us understand their needs and roll out our network strategically and efficiently while strengthening our coverage position.
“In Sarawak, we have increased our 4G LTE coverage to 58.5 per cent of populated areas which covers 19 cities and major towns.
“In Kuching, our 4G LTE coverage currently stands at 88.14 per cent of the population,” he added.
Celcom
Otherthan that, another telco player, Celcom said it will allocate between RM1.8 billion and RM2.2 billion in capital expenditure (capex) over the next five years to deploy and manage its 4G LTE network across Malaysia.
Its CEO Datuk Seri Shazalli Ramly said the network would be developed through its collaboration with Ericsson Malaysia Sdn Bhd (Ericsson) and Huawei Technologies (M) Sdn Bhd (Huawei) as its main network infrastructure partners.
“We want to ensure the best network quality as demanded by our customers,” he said during a partnership signing ceremony with Ericsson and Huawei in Kuala Lumpur recently.
He believed both partners would be responsible for the full turnkey supply and delivery of product, equipment, system, works and services for Celcom’s Radio Access Network.
“We are certain that through our solid leadership in data, we will meet the government’s goal of achieving 95 per cent LTE population penetration nationwide by 2020,” he added.
Apart from that, jumping on the bandwagon soon for 4G LTE rollout is webe, formerly known as P1 and is 72.9 per cent owned by TM.
webe’s CEO Puan Chan Cheong was reported as saying that the company was focusing on the 4G LTE rollout and the upgrading of its network prior to the service’s launch.
TM’s CEO Tan Sri Zamzamzairani Mohd Isa said the launching of webe was progressing as scheduled and that it was currently in a testing phase.
It is being done in a closed user group so we can test the service end-to-end. It is proceeding as planned and we intend to introduce the service in several phases,” he pointed out.
U Mobile
In the mobile service segment, U Mobile Sdn Bhd (U Mobile), the fourth largest mobile network operator in Malaysia also joined the fray of competing with other telcos by offering free data access to Waze for its customers until Dec 2016 while awaiting for its spectrum allocation.
U Mobile’s chief marketing officer Jasmine Lee during an official partnership announcement with social navigation app provider Waze recently said, “By partnering with Waze, we are able to reward our customers by giving them free data access to the app.
“Our customers will be encouraged to play a more active role in updating traffic situations in Malaysia via Waze as their data quota will not be utilised,” she believed.
During the event, Waze’s head of Malaysia Sales Edward Ling said, “Waze has more than 2 million monthly active users in Kuala Lumpur, driving nearly 263 million kilometres with the app each month.
By eliminating cost barriers, U Mobile’s free data partnership entices more drivers to join the Waze community to outsmart traffic together, whether on a daily commute or around major traffic events like Hari Raya and Chinese New Year.”
“Malaysian drivers won’t have to worry about going over data limits, providing further peace of mind on daily commutes.
“We look forward to seeing how our community grows through this partnership,” Ling said.
Maxis
Feeling the heat of the competition for 4G LTE rollout, Maxis Bhd has also been busy extending its network to more locations beyond key towns in Sabah recently after making its 4G LTE footprint in the state last year.
Maxis’ chief technology officer (CTO) Morten Bangsgaard said, “It was implemented more than a year ago but in the last 12 months we have significantly invested more in Sabah, which means we have taken 4G to many more towns and many more people,” he said.
On top of that, he said Maxis also has its eye on further expanding its 3G network in the state.
On 4G LTE network, Maxis Sabah Region’s head Ng Chak Khin said the on-going expansion plans have already been laid out and Bongawan as well as Kota Marudu will be next in Maxis’ Sabah 4G LTE network books.
The plans are now in place to be ready by the third quarter of this year.
“Now Kota Marudu itself already has 4G for Maxis, but we are expanding the coverage further.
“Obviously we also want to be present in all areas, possibly to have 4G,” Ng said.
Bangsgaard added Maxis has 4G coverage of more than 90 per cent in Kota Kinabalu and Kuching, and more than 80 per cent in secondary and tertiary towns to date.
He observed that 36 towns in Sabah and Sarawak are covered with its 4G LTE network.
He revealed that Maxis had spent more than any other telco operator in Malaysia in upgrading its network where the majority of it went into upgrading and making 4G LTE available in more places.
Concurring with that, Maxis CEO Morten Lundal said, “We are proud of our expanding and industry leading LTE network which has reached over 74 per cent of the country, driven by significant increase of more than 100 per cent in 4G device penetration in our customer base.
“We are also progressing well in our transformation towards an all-digital environment, in particular welcoming a high increase in customers using our apps as their primary channel for interaction,” he said.
Spectrum reallocation a game changer?
Moving on to another development, the government had earlier this year during the Budget 2016 recalibration on Jan 27 announced that spectrum for the telecommunication industry will be reallocated in a move to optimise revenue through a redistribution and bidding process.
In response to the announcement, telco stocks took a beating and nosedived on the next trading day before gradually recovering.
The plunge in telco stocks on Jan 28 has caused more than RM12 billion in market capitalisation to be erased from the stock market in a single trading day.
A few days later, the Malaysian Communication and Multimedia Commission (MCMC) revealed that the 900 megahertz (MHz) and 1,800MHz bands will be reallocated among four players, which are Celcom, Digi, Maxis and U Mobile.
MCMC added those two bands of spectrum will be assigned for a fee to them for a period of 15 years.
It explained that the selection of the four players was because they already have sufficient infrastructure to expand and increase competition in the industry.
At the same time, Digi in a filing to Bursa Malaysia on Feb 2 confirmed that DTSB has been allocated 2×5 MHz of 900 MHz and 2×20 MHz of 1,800MHz for 15 years, with full implementation starting July 1, 2017.
Digi explained that the certainty on allocation and tenure of those two bands will allow for better investment planning and optimal network design.
With the improved spectrum portfolio for the 900 MHz band, Digi looks forward to continue bringing quality high-speed Internet to its 11.7 million customers and more nationwide.
The company notes the importance of taking a holistic view on spectrum and welcomes the timely review of 700 MHz, 2,300 MHz and 2,600 MHz bands by the end of 2016 as having a fair and balanced portfolio is crucial to delivering affordable and quality Internet services to meet growing demands,” Digi said.
Similarly, Maxis also told Bursa Malaysia on Feb 2 that the company had received a notice of spectrum reallocation of 900 MHz and 1,800 MHz bands, which would reduce the spectrum available to 2×10 MHz and 2×20 MHz respectively.
The research arm of Public Investment Bank Bhd (PublicInvest Research) in a report dated Feb 3 said Digi was given additional spectrum under 900 MHz but lower spectrum band for the 1,800 MHz.
PublicInvest Research analyst Eltricia Foong said, “Digi received additional spectrum under the 900 MHz (band).
It was allocated 2×5 MHz, an upward revision from the current 2×2 MHz.
However, its allocation was cut under the 1,800 MHz band from 2×25 MHz to 2×20 MHz.
With an improvement in allocation under the lower spectrum band, Digi would benefit as it could widen its network coverage with lower capex investment on additional sites and equipment.
Also, its network quality should improve as the lower spectrum is ideal for indoor coverage, “Foong said.
Foong observed that the allocation for Maxis was reduced under the 900 MHz and 1,800 MHz as it was cut to 2×10 MHz and 2×20 MHz respectively.
The research firm noted Maxis currently has 2×16 MHz and 2×25 MHz spectrum bands.
This is negative for Maxis as it means that the telco would need to invest more on capex in order to maintain its LTE rollout plan in the future.
However, with the anticipation of a release of 700 MHz band to telco operators beyond 2017, it could offset some of the additional required,” Foong believed.
While noting that Celcom has yet to announce its spectrum allocation, PublicInvest Research opined that the telco could receive a lower bands of 2×15 MHz and 2×20 MHz under 900 MHz and 1,800 MHz respectively (currently 2×17 MHz and 2×25 MHz).
It believed that the potential lower bands for Celcom could meant that U Mobile could be receiving 2×5 MHz and 2×15 MHz for the respective bands.
U Mobile will benefit as it is currently not represented under both bands. U Mobile is the fourth largest mobile operator in Malaysia with an estimated market share of approximately five per cent (based on subscriber base) and is 49 per cent-owned by Singapore Technologies Telemedia (ST Telemedia) and founder of Berjaya Corporation group of companies Tan Sri Vincent Tan,” Foong noted.
Operating environment remains competitive in 2016
In the meantime, the operating landscape for the telco industry remains challenging this year due to heightened competition and increased spending by telco players for LTE expansion and investment for spectrum reallocation.
With competition getting more intensified, telco players’ profit margin or earnings could be affected.
PublicInvest Research in a report dated March 22 said Malaysia’s mobile penetration looked saturated at 150 per cent and therefore it was projecting a low single-digit growth rate going forward.
Foong of PublicInvest Research said, “With little room for mobile players to expand their customer base, future growth would have to come from capturing market share from competitors and growing data consumption.
As such, we believe competition would intensify with players offering more innovative products at competitive rates.
Industry subscriber growth is expected to remain unexciting at low single-digit while margin compression is inevitable considering rising competition and heavy investment cost going forward.
Despite a lacklustre outlook on the Malaysian telco industry, we believe that the sector will continue to be heavily owned by government-inked funds and hence, the downside valuations would be limited,” Foong opined.
Similarly, Kenanga Investment Bank Bhd (Kenanga Research) a report dated April 5 said 2016 is expected to be another landscaping changing year for all telcos with on-going spectrum re-farming exercises in the mobile space coupled with TM’s High Speed Broadband project Phase 2 (HSBB2) and the Sub Urban Broadband (SUBB) projects rollout.
The research firm noted the rollout of HSBB2 and SUBB projects are expected to keep TM busy until 2019.
Elaborating further, Kenanga Research added HSBB2 will be rolled out over a period of 10 years with the authority investing RM500 million and TM investing RM1.3 billion to provide high-speed broadband access to over 390,000 premises by 2017.
SUBB, the research firm observed that the project will be rolled over a period of 10 years and cost RM1.6 billion of which the government will bear RM600 million to provide broadband access to over 420,000 premises by 2019.
On the prospects of the telecommunication industry, the research firm believed broadband penetration, network coverage or quality, foreign exchange rate and competition will continue to remain as the game factors for the year 2016.
Its analyst Cheow Ming Liang said, “While prices offered by telcos are already at a very competitive level, the key differentiating factors are likely to come from the value-added services and consumer experience.
The Internet of Things (IoT) and big data analytics are expected to get more acceptance and drive the data demand moving forward.
All these suggested that the incumbents need to continue their hefty capital expenditure plan to maintain competitiveness,” he opined.
Cheow estimated that telco players’ earnings in the near-term could be muted as opportunity to generate higher revenue could be largely offset by costly customer acquisition and weak consumer sentiment.
He believed data segment remained the key growth are where cellular companies (celcos) continued to spend heavily and strengthen their network coverage to capture opportunities from the growing Internet demand.
Cheow foresees that competitions among the prepaid and postpaid segments are expected to be intense with players exploring ways to stay competitive by closing their products’ pricing and contents gap against its peers.
Moreover, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) in a report said it viewed the competition in the telco industry as rather rational.
Interestingly, it believed the industry could witness a gradual recovery, albeit service revenue is expected to grow at a marginal rate of less than five per cent.
The research firm pointed out that fundamentally, telcos continued to enjoy stable recurring revenues strongly supported by resilient domestic demand which is perceived to be recession-proof.