7 July 2012
INTENSE competition within the local telecommunication industry is driving the service providers to adopt strategies to increase their share of the market.
Analysts say the industry is exciting as all the mobile service incumbents are gearing up for a possibly “cut-throat” competition.
While competition is healthy for the industry, the ongoing price war among the telcos may hurt profit margins, they say.
“The mobile penetration is already saturated. In order to grow, telcos will likely cut prices and spend more on marketing to regain market share and this could affect their profitability. We are cautious on the company's ARPU (average revenue per user) target and success in the postpaid market segment, where the barriers to entry and subscriber acquisition costs are high,” a local bank-backed analyst says.
Nevertheless, he says the sector is lively as its been and opined that competition in the sector is healthy.
Another analyst says the mobile phone market is mature and saturated with stiff competition amongst the operators.
CIMB Research says Maxis Bhd is “plotting a comeback” to recover its lost market share. “A key surprise from our recent meeting with Maxis is that its margins should remain robust despite its heightened marketing and price aggression. Mandated to recover its market share, Maxis is addressing its weaknesses more decisively, which we view positively,” it says in its report.
The local cellular mobile services landscape is still very much an oligopolistic market although more players have come in to carve their share of the market. Celcom Axiata Bhd, DiGi.Com Bhd and Maxis are the three main players in the cellular industry with Maxis having a subscriber market share of 39% with Celcom and DiGi trailing behind.
Maxis has embarked on a series of marketing and revamped prices. The telco recently launched cheaper prepaid and IDD packages among migrant workers with attractive headline rates.
The telco has also repriced its fibre broadband at a more attractive offer. Maxis' aggressiveness has proven to be fruitful for the telco and continues to gain traction.
Following this, DiGi, which controls some 50% of the migrant worker market, slashed IDD rates for key migrant markets by up to 77% in April.
Celcom is not sitting still as well. The telco has launched the Celcom First Voice Plan to help the group expand its subscriber base.
As at March 31, Maxis had 13.8 million subscriptions, including revenue-generating subscription base of 12.6 million. Celcom and DiGi have 11.95 million customers and 9.94 million subscribers respectively.
All the local telco players posted fairly strong first quarter results that came in within expectations.
An analyst points out that competition now is a different game. The price war is confined to the growing prepaid segment and in areas where demand was relatively more elastic.
“Maxis is addressing its weaknesses by introducing a new prepaid plan which offers lower call rates with a minimum account balance of RM10 and a RM5 bucket plan which offers lower rates; slashing its IDD rates to challenge DiGi's dominance among migrant workers; expanding its coverage in Sabah and Sarawak to challenge Celcom's leadership and to address the large migrant population in Sabah, and cutting its data roaming rates to encourage usage while abroad,” CIMB Research says.
Analysts say one of the issue for operators is that prepaid market segment has a high churn rate, or low brand loyalty and subscribers often have no qualms switching between operators, based primarily on pricing and availability.
To increase the stickiness or loyalty of subscribers, mobile service providers will have to reduce their rates and provide incentives to attract these subscribers.
In addition, most of the current postpaid plans in the market offer very competitive tariffs for same network calls, effectively keeping customers with operators.
The big three mobile operators are increasingly tying subscribers for to long-term contracts and subsidies for handsets, especially for the popular range of smartphones.
“The incentives for pre-paid potentially included offer of free talk-time, SMS or extra top-up value.
“On the other hand, postpaid incentives includes higher subsidies for smartphones resulting in lower device price. All these incentives can potentially erode service providers' margins,” a bank-backed analyst says, adding that those were more or less the cost to acquire a new subscribers.
Analysts say the competition from mobile virtual network operator (MVNO) was not as intense as the big three mobile operators. However, most MVNO players make good margins from their service, thus operators they ride on might benefit from it.
Separately, analysts expect the competition in the broadband segment to intensify. The competition will be tougher when Maxis and Celcom are able to offer a complete products including IPTV. Maxis has already announced its intention to introduce its IPTV service to customers of its Home Fibre Internet service this month.
Going forward, the final allocation of the long-term evolution spectrum is to watch out for. There can also be more infrastructure rationalisation within the industry.
[Source]
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