Looking back at Shazalli’s successes at Celcom, challenges for the new CEO

• Shazalli taking on regional leadership role with Celcom’s parent Axiata
• Incoming CEO Michael Kuehner will have his own set of challenges

I RARELY write OpEds, mainly because of my hefty backlog and hectic schedule (and no, it has nothing to do with me catching Pokemons).
 
But as it dawned on me that today (Sept 1) marks a new beginning for a company and an individual that I have been covering for over a decade, I felt compelled to express some of my thoughts.
 
Effective Sept 1, 2016, Celcom Axiata Bhd will be under new leadership, with Michael Kuehner taking on the chief executive officer (CEO) role while former CEO Shazalli Ramly takes on a bigger, regional role within the Axiata Group.
 
The appointments also mark the end of Shazalli’s 11-year tenure at Celcom, during which time he helped grow the company significantly, in almost all aspects.
 
I remember back in 2005 when I was still a young (and somewhat-in-shape) reporter at a local English daily, and was assigned to write an article about Shazalli’s appointment as Celcom CEO.
 
My initial reaction? I didn’t think he would be able to get the job done since this was a totally different ballgame from that of his previous roles. Most of the analysts and fund managers I spoke to for that first story also shared my sentiment.
 
“What the company needs is someone with the industry experience. Not a TV guy.” That was actually a quote from one of the people I spoke to.
 
But quarter after quarter, Shazalli (pic below) and his team consistently proved me wrong. The analysts and fund managers who had been sceptical at first, became believers.
 

 
The numbers don’t lie. In fact, at one point, the company recorded 31 consecutive quarters of growth, both top and bottomline!
 
Furthermore, Shazalli had managed to grow the company at a time when the industry was in transition and still trying to figure out 3G (Third Generation technology) – when some operators thought that video calls would be the 3G killer app!
 
When speaking to him as a business journalist several years ago, he attributed part of Celcom’s success to its segmentation strategy: Break the market into different segments (foreign workers, students, etc.), then focus on winning these small segments. When you add these segments up, it’s a substantial pie.

He also consistently focused on behavioural aspect of customers, and launches products that suits customers' behaviour. 
 
In areas where he felt Celcom would be weak in, he got mobile virtual network operators (MVNOs) on board to compete against the segment incumbents.
 
These strategies worked. In fact, the company saw its prepaid market share jump from about 25% or lower in 2005 to over 33% a few years ago. This elevated Celcom from the third smallest prepaid player to the largest.
 
Of course, Celcom’s lead was not sustainable, but it did change one thing permanently: It made everyone at Celcom a believer – that they were no longer laggards and could compete head-on against rival like Maxis and Digi.
 
So what does incoming CEO Kuehner need to do to take Celcom back to the summit?
 
Kuehner was part of the Axiata Group between 2009 and 2013, during which time he helped its Bangladesh operating company Robi become the second largest player in that country, up from the third spot. He also more than doubled Robi's revenue and quadrupled its net profit.
 
He will also be the first non-Malaysian to helm Celcom. However, that is not surprising in the telco industry, where all the major players have, at some point or the other, been professionally managed by a non-Malaysian. We’ve had plenty in Digi and there’s one now at Maxis.
 
For me, as long as Celcom hires the best person for the job based on his knowledge, skills set and experience, the company should be in good hands. After all, Kuehner’s responsibility would be to its consumers, employees and shareholders, not to political parties with a racial agenda.
 
Personally, I strongly believe Kuehner has what it takes to propel Celcom to pole position.
 
But he would first need to address some key areas.
 
For starters, there is Celcom’s foreign migrant workers market segment. Over the past few quarters, the company took a beating here as its rivals upped the ante.
 
Today, more than 74% of Celcom’s customer base comprises prepaid customers, a substantial number of whom are likely migrant workers. (The company does not reveal how many migrant-worker subscribers it has).
 
The segment is also the bread-and-butter of its MVNO Merchantrade, which has a strong presence amongst Bangladeshi workers, so when competitors started lowering their prices, it affected both Celcom and its MVNO.
 
Kuehner will need to make some tough decisions here. Would he want to engage in a price war with the rest to gain back market share, or would he rather protect Celcom’s margins?
 
The second area he would need to look at is Celcom’s value-added services (VAS) business. The company migrated its VAS platform this year, and as a result of that migration, subscribers to those services (such as Call Me Tones, wallpapers, etc.) needed to opt-in again.
 
In today’s era of smartphones and all sorts of apps, you may be wondering why anyone would want to spend money on seemingly archaic joys such as wallpapers and ringtones.
 
However, according to industry sources, Malaysian mobile operators make rather substantial revenue from such services, ranging from tens of millions to hundreds of million ringgit a quarter.
 
During the second quarter of 2016, Celcom’s revenue dipped by 10.2% to RM3.35 billion, while net profit fell 21.9% to RM550 million. [RM1 = US$0.25]
 
These declines were mainly driven by the market segments above: VAS and foreign migrant workers. Kuehner will need to look into rebuilding traction in these two areas.
 
Finally, there is the prepaid segment, where the company has also taken quite a beating over several quarters. Its  bumpy IT transformation programme hurt dealers’ confidence and, subsequently, sales.
 
Imagine: Customers had to wait several hours for activation after purchasing a prepaid pack from a retail store.
 
Regaining momentum here, while tough, is not impossible. In fact, over the past few years, we have seen changes in prepaid leadership. First, Celcom overtook Maxis, then Maxis regained the lead, and today, Digi rules the roost.
 
Celcom just needs to come up with packages that are relevant to the market.
 
The good news is that Kuehner has one less item to worry about: As at the second quarter of 2016 (Q2 2016), the company’s postpaid business – which was in trouble about a year ago – is showing good growth.
 
For the quarter ended June 30, its postpaid subscriber base rose by 57,000 to hit 2.89 million subscribers, while average revenue per user (ARPU) remained stable at RM76.

With the growing smartphone penetration, and the take-up rate of data packages, Kuehner should also beef up the network to provide the best data experience. Having a good network was once Celcom's stronghold. 
 
Last but not least of Kuehner’s challenges is Celcom’s overall cost structure. In today’s digital world, how many customers still go to a telco’s branch office to pay their bills? How many call the customer service call centre to check on their bills? All these can be easily done with an app.
 
The above challenges and issues are solvable. I believe that the company has the right foundation and the right people, to get things done.
 
But for sure, from today onwards, Celcom’s product launches and press conferences will never be the same.
 
The TV crews will miss Shazalli and his habit of making his closing remarks first in English, then in Bahasa Malaysia, thus making it easier for the production team to edit the clip.
 
As for me, I will miss his nice and catchy quotes, and most of all, the energy he brought to all Celcom events.
 
Nevertheless, this is an interesting time for the telecommunications industry and I am glad to be in a front-row seat to witness all this.
 
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