A miscommunication in the telco industry

FOR years, the Malaysian mobile penetration rate has been on an upward trend as more players are seen entering the industry, thus providing more variety of services to potential consumers.

Unfortunately, the stiff competition leaves little room for substantial subscriber and earnings growth.

In a Jan 17-23, 2015 FocusM article, a local analyst expressed belief that the country’s stretched mobile penetration rate indicates a tapering subscriber growth. However, it was still expected to be buffered as most revenue was dictated by the basic voice-service segment.

The article further noted that a senior telecommunications analyst opined the contraction in subscriber base might not be a one-off event but might have worse consequences for the local mobile telecommunications industry in the long run.

Therefore, in such a highly competitive market, are authorities expected to intervene, perhaps by restricting the entrance of new players?

The answer is definitely no.

Even before the COVID-19 outbreak hit, the usage of smartphones and the number of telecommunication service providers were on the rise, encouraging users to pick up on online shopping via e-commerce and conducting various tasks online.

From online banking and engaging in social media, to taking virtual classes for students and doing work or even fulfilling governmental errands, mobile data has become a necessity for most smartphone users – more so after the pandemic started becoming worse and physical contact was to be avoided whenever possible.

Calling for more subscribers

However, according to International Data Corporation Asean senior research manager (telcos) Muhammad Zaim Halilul Rahuman, Malaysian telcos are not safe from the impacts of COVID-19 either.

“The dependence of Malaysians on telecom services during the crisis somehow reduced the impact of COVID-19 on the telecom industry, but the crisis will still have repercussions on the business performance of telcos in 2020,” he said in an email interview with a local news media.

According to the Malaysian Communications and Multimedia Commission (MCMC), internet usage jumped 23.5% in the first week of the movement control order (MCO) and increased to 32.1% in the second week.

While the pandemic has caused a spike in internet traffic during the lockdown, both locally and globally, Zaim pointed out that higher usage does not necessarily translate into an increase in spending by consumers and enterprises as most users were leveraging their home broadband.

Therefore, IDC projects an 8.2% drop in revenue for telecoms services in 2020 in both the consumer and enterprise segments, compared with the previous year.

Despite that, AmBank Research reported an increase of total subscribers quarter-on-quarter (qoq) after a drop in the April-May period. In 2Q FY20, the research house reported that there was a 121,000 qoq increase of subscribers, reaching to 30.40 million.

Out of that number, Celcom showed that its prepaid subscribers increased by 60,000 while post-paid shrank by 14,000.

However, DiGi showed a drop of both prepaid and post-paid users during the period, leading to a total of 338,000 loss.

“As we had forewarned about weaker upcoming qoq earnings in our sector update on May 29, 2Q 2020’s celco core net profit fell by 11% qoq to RM771 mil due to the impact of the MCO which weighed on service revenue, subscribers and average revenue per user.

“The worst affected was Celcom which registered an 18% decline, followed by Digi at 13%,” AmBank Research said in a note dated Sept 3.

The report also highlighted that as of 2Q 2020, Maxis’ subscriber market share of 38.6% enabled the telco to retain its lead over DiGi’s 35% while Celcom remained a distant third at 26%.

“The declining data yields, the government’s national fiberisation plan, new 5G spectrum fees and capex pressures are likely to drive players to seek consolidation among themselves to reduce costs, secure economies of scale and reduce rivalry,” it said.

The report added: “While the MCMC has shown a preference for maintaining competitive pressures to provide reduced broadband prices for consumers, we view that the industry’s stagnant revenue trajectory will eventually drive the sector towards more merger and acquisition activities.” – Oct 26, 2020

Subscribe and get top news delivered to your Inbox everyday for FREE