Maxis CEO: Home Services biz model just not good enough

• Maxis in talks with Telekom and Astro to ‘change certain elements in the current business model’
• Lundal expects prepaid business to underperform for a few quarters before regaining momentum

MAXIS Bhd, Malaysia’s largest mobile operator by revenue, believes there’s still hope in its loss-making and under-performing Home Services business and has no plans to give it up until all possible ideas to turn the business around has been tested.
 
The Home Services business, which involves offering fixed broadband and Internet Protocol television (IPTV) services to residential users, has been suffering losses over the past several quarters.
 
For Maxis’ financial year ended Dec 31, 2013, the Home Services business more than doubled its revenue to RM71 million, versus RM31 million in 2012. However, the segment registered a loss from operations of RM307 million compared with an operational loss of RM187 million in 2012.
 
[RM1 = US$0.30]
 
The decline was partly due to the network cost it pays to Telekom Malaysia Bhd (TM), as Maxis rides on the latter’s high speed broadband backhaul infrastructure to offer its Home Services.
 
According to Maxis chief executive officer Morten Lundal (pic above), in an interview with Digital News Asia (DNA), demand for its Home Services is there. However, the current business model just “isn’t good enough strategically, operationally and financially,” he admitted.
 
“I think the Home Services [business] is strategically well founded. It is obvious that broadband is a big market and everybody wants broadband wireless or fixed. It is also proven that if you have customers using many products, the churn rates are going to be lower, and that is fine.
 
“The problem is that the idea is ‘operationally challenged.’ It is challenging to work with TM operationally. I think [TM] has its own challenges – but also, it is challenging to be its customer,” he said, adding that Maxis hasn’t prioritised the business enough internally.
 
“So, we could have done a better job,” said Lundal.
 
For now, Maxis is giving itself a few more months to solve issues. These include negotiating with both TM and Astro on the possibility to “change certain elements in the current business model.”
 
“We have given ourselves the task to solve those things – we haven’t solved them yet, we don’t have clear information on what’s going to go forward. But we are working on it. We are giving ourselves a few more months, [and] in one to three months, these should be solved.
 
“Then we will have a clear path forward,” he said. “Divesting is one of the several options, but it is not our default option.”
 
Nevertheless, there are a few analysts who feel that Maxis should quit its Home Services business.
 
“We maintain our view that Maxis should exit the home/ fibre broadband business because it has been sapping resources and the wholesale of TM’s HSBB (high-speed broadband) network lacks strict regulatory oversight,” said CIMB Investment Bank analyst Kelvin Goh in a recent research report.
 
Mission to improve ‘laggard’ prepaid business
 
While Maxis is focusing on improving its Home Services segment, another business that requires a lot of its attention is the prepaid segment. The company, once a clear market leader in the prepaid segment with its Hotlink brand, is now a laggard.
 
Lundal however stressed that reviving the prepaid business can’t be done merely by slashing rates.
 
“In this game, momentum, up or down, is hard to change. If we are a premium brand, which we are by perception, and if we underprice the market by 20%, people would still think that we are expensive,” he claimed.
 
Lundal said that the “premium positioning” is something that the company has to live with it. Instead of trying to change consumers’ perception that its products are priced at high rates, it will thrive to deliver excellent services to consumers.
 
In order to deliver “excellent services,” it would need a series of transformations, in areas like processes, effectiveness and prepaid distribution – which Lundal admitted is where Maxis is lagging behind its rivals.
 
“We know exactly where we are weak. So, we know what to do, it is just going to take some time. Change doesn’t happen overnight,” he said.
 
Lundal said that 2014 will be a year of transformation for Maxis, when the company would allow itself a few quarters of ‘underperformance.’
 
“By 2015, we will be performing again; and in 2016, we would like get to what we call the ‘state of excellence’,” he said.
 
Lundal, who was once the chief executive officer of Maxis rival DiGi.Com, also said that he is not too concerned about which company leads the prepaid subscriber market.
 
“I’m not obsessed about who leads what. I was before, but that’s because we were small and we needed to get to a place in the industry. The least I am concerned about is subscriber market share, because it is such a mix of reality and fiction.
 
“Now, I am more genuinely focusing on creating a great customer experience and creating a great employee experience – and I think [these] will translate into good results,” he said.
 
Lundal also sees strong potential in the enterprise segment, which currently contributes only 10% to the group’s business, but which he believes could contribute up to 20% in the long-term.
 
To achieve this goal, Maxis, which is currently focusing on selling products to enterprise users, will be increasing its focus on selling solutions to customers. It also plans to have parallel priorities on handing both enterprise and consumer segments.
 
This means, 50% of management’s attention will be on the enterprise segment, he said.
 
Too much IoT hype?
 
In terms of new technologies, Lundal believes that trends like the Internet of Things (IoT) or machine to machine (M2M) communications may take a while more it becomes a huge hit in Malaysia, or even globally.
 
He said that industry players were already talking about IoT when he was with the Telenor Group over 10 years ago.
 
“They are still saying the same things. So, will there be a lot of things getting connected in the next 20 years? Absolutely. But it is going to be slower than you think. It’s going to take time. The technology has been here for more than 10 years – if it hasn’t been big until now, there is a reason for it.
 
“You can’t really just create the market, you have to join the evolution, M2M doesn’t create itself. It is a business system with a lot of vendors that need to be in place. It is going to come, it is going to be massive, it’s going to happen – but not that fast,” he said.
 
Lundal also said he was open to the idea of sharing telecommunication towers, but added that “complete sharing” may not be as easy as it looks.
 
“In general, tower sharing makes sense, especially when building new towers. Instead of building three towers, you build one, that’s obvious.
 
“However, if you have three towers on the hill, it costs a lot and it is very complicated to get to one. That would actually require a long payback to do that.
 
“By the way, a lot of it is already shared. One-third of our network is shared. The rest is on rooftops, which is hard to share, so there isn’t that much left to share,” he said.
 
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