By G. Sharmila
In our previous article, we looked at the causes of the postpaid price war and what the battlefield is like out there for both telcos and consumers. Today, we explore some of the consequences of the price war and the possibility of winners and losers.
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It has not been the best year for the mobile service providers so far, with their first quarter of financial year 2015 (1Q15) results labelled as “uninspiring” by CIMB Research in a June 19 report. In the report, CIMB Research mentioned that industry mobile service revenue fell 1.7% quarter-on-quarter (q-o-q) and was largely flat at 0.3% year-on-year (y-o-y) for the first quarter of this year.
“Mobile Internet revenue rose 3.4% q-o-q (+35.4% y-o-y), but was more than offset by 5.4%/14.2% q-o-q (-9.0%/-26.9% y-o-y) decline in voice/SMS,” the research house noted. CIMB maintained its “underweight” rating on the telco sector, saying that 2Q15-3Q15 results are likely to disappoint the market due to stiffer competition and that valuations are still above the regional average.
The ongoing postpaid price wars could not have occurred at a better time for the four major telcos, namely DiGi, Maxis, U Mobile, and Celcom. Together, the four control the lion’s share of the mobile services market. (See pie chart for a market share breakdown of the Big Three telcos.)
It also looks like a prepaid price war is also brewing. As MIDF Research noted in a report yesterday, the mobile service providers continue to roll out new packages with data as a draw.
“For instance, Celcom recently launched a new Xpax prepaid plan called Magic SIM. This entails a RM5 starter pack that comes with free basic Internet that could be used for unlimited messaging. On another note, U Mobile introduced a similar product which is the new UMI 25 prepaid plan with 1GB of data.
“Moving forward, we expect other mobile service providers to follow suit to remain competitive. The move could lead to lower average revenue per user (ARPU). However, falling ARPU could be mitigated by the increase in usage volume,” the research house said.
However, the real question is, who will be the winners and losers of the ongoing price wars?
An analyst at a local bank-backed research house said “it is hard to say at this point”. But he believes that in the long run, the winners may be smaller telcos like U Mobile.
“U Mobile has been stealing market share from others and it has been aggressively pricing its prepaid and postpaid packages. Celcom also lost some market share earlier and is aggressively acting to regain it,” he noted.
What’s clear is, the data race is here to stay. As CIMB pointed out in its June 19 report, mobile Internet made up 30.2% of mobile service revenue in 1Q15 versus 22% a year ago.
MIDF Research noted that due to increase in data usage, effective data monetisation is the main contributing factor to maintain a leading position as compared to the competitors.
“Despite intense competition, telecommunication service providers are being favoured by investors for their stable and attractive dividend payments. In addition, valuations appear to be more attractive due to the weakness in 2Q15 share price performance.
“We note that share prices of telecommunication counters under our coverage have fallen by between 9.3% q-o-q and 14.8% q-o-q. As such, we view that this represents an opportunity for investors to increase exposure,” it opined. (See table for the Big Three’s one-year share price performance.)
Indeed, share price weakness may be an opportunity for investors who want to break into telco investing. However, which telcos are likely to win investors’ hearts (and wallets)?
An analyst with another bank-backed research house said that time will tell which telcos will win the price wars, if any.
“At the moment, the industry is quite mature and saturated. Prices will eventually normalise, but some of the telcos may have tricks up their sleeves yet to get ahead of the competition,” he said without stating specifics.
In the meantime, it is a consumer’s market out there for the telcos to battle it out and get ahead of each other. The Malaysian telco sector is getting more interesting and certainly one to keep an eye on in the coming months.
If there is one telco to look out for, it has to be unlisted U Mobile because it is a new entrant and therefore can charge lower rates more easily. Among the three main telcos, Celcom has been rather aggressive but it remains to be seen if this will be translated to profits.
The one clear winner though is the consumer who can look forward to attractive packages for data and voice.
Yesterday: The telco battlefield today
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