By G. Sharmila
Competition is really tough for mobile operators right now, with the three bigwigs (DiGi.Com Bhd, Maxis Bhd and Celcom Axiata Bhd) fighting tooth and nail to pinch subscribers from each other and get ahead in the mobile data and long-term evolution (LTE) races. But while these three have been busy competing with each other, threats outside this exclusive circle have been slowly closing in on them.
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One very possible threat to the bigwigs is Altel Communications Sdn Bhd, owned by business tycoon Syed Mokhtar Albukhary. Altel is one of the mobile virtual network operators (MVNOs) running on Celcom’s network. An MVNO sells mobile phone services, however uses another company’s network infrastructure while doing so. In fact, Altel and Celcom have pooled their blocks of 2.6-gigahertz spectrums to offer LTE services.
In an interview with Business Times in mid-April, Altel chief executive officer Nik Abdul Aziz Nik Yaacob said the company has allocated RM1 billion to roll out network infrastructure for 4G over the next five years. He also said that as an MVNO, it is planning to launch its LTE prepaid products soon and LTE postpaid products by year-end.
Although Altel had yet to give KiniBiz an interview at this point in time, an industry observer feels that it will take some time before Altel becomes a significant threat.
Nik Abdul Aziz Nik Yaacob
“In my opinion, I do not view Altel to be much of a threat to the three big players in the near-term (two to three years). Anyway, Altel will be riding on Celcom’s infrastructure with their tie-up and Celcom will be able to ‘keep Altel in check’ through appropriate wholesale pricing as they have done so with their other MVNO arrangements. Celcom will not want to ‘cannibalise’ its own business and margins. The telco business is not only about pricing but also distribution network and branding which the big three players have a significant advantage,” he told KiniBiz.
“We’re not expecting them (Altel) to be a big threat,” says an analyst with an investment bank. “The big three are too large and entrenched.”
XOX.Com Bhd, the only listed MVNO to date, could also prove to be a formidable opponent to existing mobile operators in the future. Its CEO Ng Kok Heng says that the company is hoping to break even this year with 350,000 SIM subscribers and it is planning to launch the global version of its OTT (over-the-top) service called Voopee. (To recap, OTT applications such as WhatsApp, Skype and Viber are already eating into the voice and SMS revenue streams of the three major telcos.)
“We’re one of the first telcos advocating OTT services. OTT is here to stay, what we have done in response is to develop our own application,” he told KiniBiz in a recent interview.
“The industry is going global, telcos will eventually be Internet-based. There will be organic growth; a person will have two or three devices. Internet growth is exponential and XOX is geared towards that,” enthused Ng.
He adds that the company is banking on its SIM card business to earn the revenues that will finance other areas of the business.
“I don’t think XOX is a threat to any of the big three players. XOX is a niche player,” says the industry observer.
Commenting on competition facing telcos, regional head of telecoms research for RHB Research Jeffrey Tan tells KiniBiz: “Data is the way forward and telcos would have to adapt, embrace and innovate to capitalise on the growth. Customer experience is key and a strategy of market segmentation based on strong customer analytics would help to better position the telcos for data.
With the cannibalisation of data from the over the top (OTT) players, it is imperative that telcos find ways to collaborate with OTT players. Content and rich communication services (RMS) are areas where operators can leverage on.”
The industry observer meanwhile, believes that Vincent Tan-owned U Mobile Sdn Bhd is the real threat to the Big Three. “U Mobile is only current player who is more of a ‘disrupter’ to the big three players but it is more in urban areas,” he said.
This is line with a June 18th report by CIMB analyst Kelvin Goh. In his report, Goh noted that U Mobile is a bigger threat to Maxis rather than to Celcom or DiGi. “The fourth largest operator targets the urban, Chinese and data-centric users, which is a large overlap with Maxis’s base,” he said.
While we received no response from U Mobile upon requesting an interview for this article, previous reports say that the company had 5 million subscribers as of last year and the company is targeting a subscriber growth of 30% to 40% in 2014.
“U Mobile will continue to differentiate with pricing, in our view, and is eyeing a share of the market where the incumbents enjoy a healthy 45-50% EBITDA (earnings before interest, tax, depreciation and amortisation) margin,” said Goh in his report.
In the mobile data space, the traditional mobile operators are up against YTL Communications Sdn Bhd (owned by YTL Power International Bhd) and more recently Telekom Malaysia Bhd, by virtue of its partnership with Packet One Networks (M) Sdn Bhd or P1, which is a subsidiary of Green Packet Bhd.
YTL Communications chief executive officer Wing K. Lee announced in April that he is confident the loss-making wireless broadband service provider will break even soon, although he did not name a date. As of June, the company has a million wireless broadband subscribers excluding the users of 1BestariNet. (1BestariNet is a project that plans to connect the 10,000 schools throughout Malaysia with high-speed Internet using YTL Communications 4G WiMAX network.)
The wholly-owned unit of YTL Power also has its own OTT service under the Yes brand, which allows free calls and text messages to other Yes users over its 4G WiMAX network. “We have been doing OTT since day one. We’ve been running an IP (Internet protocol)-based telephony as an innovation platform since we’ve launched,” said Wing in a recent interview with KiniBiz.
“For the longest time, people took for granted that when you have a new network come out, it will have to be a SIM-card based network. We say “No”. We say the Internet doesn’t work on SIM cards. When you go to YouTube, when you go to Facebook, they would never ask you to insert your SIM card. They just ask you to enter your ID. We say, we’re an Internet company, so we picked the ID camp,” he said of the service.
“Because what we’ve shown to the world, is that you are able to use an identity and enter a mobile network. And even when we launch our LTE service, I can give you a hint – that that principle is not going to change,” he said, adding that the LTE service launch date would be “within the next few quarters”.
Commenting on YTL Communication’s strategy, the analyst from the investment bank said: “They are a bit of a niche player. For now, they are not competing via the usual channels, but rather taking a long-term approach and going through schools.”
The industry observer concurs. “YTL Communications has not been able to compete effectively with the top 3 players – YTL has been focusing on a dongle-based broadband business which has been on a decline in recent times. Small screen is the growth area. So far, YTL Comm has not posed a serious threat to the top three players.”
But perhaps the most ‘dangerous’ competitor to the Big Three is fixed broadband provider Telekom Malaysia Berhad (TM), who will be able to play in the mobile data space once it completes its acquisition of a 57% stake in Packet One Networks (M) Sdn Bhd (P1) by the third quarter of this year. Not only is TM cash-rich, via P1 it will be able to offer WiMAX services and eventually 4G LTE services because of the spectrum bands owed by P1.
The analyst from the investment bank isn’t so sure. “It’s not clear how deep they (TM) want to be within the wireless space. For now it appears a mere extension of their fixed line business,” he said.
“TM’s purchase into P1 is to expand its wireless capabilities. But to effectively compete against the Big Three players, TM still needs the wireless coverage and network. The wireless business is not the same as the fixed-line business.
In the near-term (two to three years), the Big Three players’ management are not so concerned on the TM-P1 tie-up. However, with data convergence, TM-P1 can be an effective competitor in the wireless data space to the current top three mobile players over the long-run if TM can get its wireless network and strategy implemented properly,” said the industry observer.
Only time will tell if the competition is able to truly penetrate the market share held by the top three players. The most likely candidate to do that at this point is TM, but again that is dependent on its long-term strategy and right now the broadband player is holding its cards close to its chest.
The big question for investors now then is, “now that we know who’s out there, where do we put our money?” In our next instalment, we re-examine the Big Three and some of their competitors in the telco space to see which companies are worth investing in.
Yesterday: The mobile captains speak
Tomorrow: The lowdown on telcos to invest in
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