By G. Sharmila
Celcom introduced a new-entry level postpaid plan which not only undercut the competition, it also became the first telco in the country to allow unused data to be carried forward. The three other major telcos responded, in what has resulted in a full-blown price war. KINIBIZ delves into the details.
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Celcom Axiata Bhd (Celcom) unwittingly kicked off a price war with its entry-level RM38 postpaid plan in April, which spurred the other three major telcos to respond with competitively-priced packages of their own. (For a better look at these packages and their features, see the table below.)
Entry-level postpaid plans by the four major telcos (Per Month)
According to the individual telco customer service representatives, U Mobile’s promotion period for its plan will end on August 31, Celcom’s promotion July 16, DiGi’s RM36 promotion until July 15 and Maxis’ additional 2GB data (for six months) promotion will end July 31.
In a nutshell, competition is heating up in the telco space and it looks like it is now becoming a consumer’s market, unlike recent years where the telcos have been dictating the prices.
“We believe the current price war will eventually lead to reduction in other mobile plan rates as well, given that these aggressively-priced entry-level postpaid plans are much more attractive than any prepaid or high-end postpaid plans currently in the market,” AllianceDBS Research said in a report dated July 1.
“While overall mobile operators’ revenue might still be sustained due to higher usage despite the lower rates, margins are likely to be affected by higher operating costs, particularly network and marketing expenses,” AllianceDBS added.
Another analyst with a local bank-backed research house concurred. “We’ve seen a lot of telcos responding to Celcom’s plan, it is just a matter of time before the prices stabilise. I think now the telcos have moved on to the prepaid side of things as well, offering data at attractive prices. The question is how they will start monetising data.
“The environment is pretty tricky now because of the goods and services tax (GST), reload prices have come off in the last couple of months and put a strain on telcos,” the analyst said, adding that that the telcos will see margin compressions and possibly some average revenue per user (ARPU) dilution as well. ( ARPU is a measure of revenue generated per mobile phone user. This helps investors determine which product generates high or low revenues.)
The analyst noted that new markets may open up as some of the telcos are offering cheap smartphones to accompany these entry-level packages, citing Celcom’s RM38 package as an example. “This could appeal to people outside to Klang Valley who don’t have access to mobile data yet,” the analyst said.
The price wars are likely to have a downside bias to earnings and capital expenditure (capex), according to AllianceDBS. It noted that the telcos will be reporting their 2Q15 results later this month, with DiGi on the 13th and Maxis on the 15th.
“We think mobile operators’ 2Q15 results would disappoint, given weak prepaid reload sales following the confusion in GST implementation, while forward guidance could be trimmed due to intensified competition. With data usage likely to trend higher than expected, there are also downside risks to FCF (free cash flow) as a result of potentially higher capex spending to maintain network quality,” the research house opined.
So, is AllianceDBS right in inferring that there will be no winners in this postpaid price war? Or are there clear winners and losers in this war? Our next article discusses this issue in greater depth.
Tomorrow: The winners and losers
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