Digi capitalises on data market

MOBILE operator Digi.Com Bhd's efforts to focus on the data business and improve the mobile Internet experience appear to be yielding positive results.

The company, which is the third largest mobile operator in Malaysia, saw its Internet subscriber base grow by 31% to 6.4 million last year, in addition to improved smartphone penetration rates.

Today, more than 49% of its subscriber base uses smartphones, versus 38% a year ago. This is mainly driven by the 1.08 million smartphones and devices sold in 2014.

In fact, in the fourth quarter of 2014, it sold 200,000 smartphones and devices, a huge jump compared to the mere 90,000 units sold for the same period a year ago. Digi said that its year-end promotions and the new iPhone launch contributed 76,000 net additions for the fourth quarter.

“Our focused efforts in making the Internet easily available and relevant to every customer has resulted in a healthy increase in Internet adoption and significantly higher data traffic on our network, which grew 86% year-on-year,” Digi chief executive officer Lars-Ake Norling said in a statement on Feb 9.

These achievements did not happen overnight. In fact, it is believed that its heavy focus to improve its customers' mobile Internet experience started some time in 2011 when it initiated its Internet For All mission.

The focus was also timely, as most mobile operators are beginning to feel the pressure to maintain and grow their voice business.

In 2014, as expected, Digi's voice business continued to decline. For the financial year ended 2014, its voice revenue dipped 3.4% to RM3.88 billion (US$1.09 billion).

[RM1 = US$0.28]

Not only was its voice business affected; its once cash cow business, the short messaging service (SMS), was also on a downtrend. In the fourth quarter, its SMS revenue was at RM126 million (US$35.3 million), a 20% decline against the RM158 million (US$44.3 million) in the fourth quarter of 2013.

The good news is, its revenue from its data, device and other businesses were able to offset the decline in its voice revenue. Data revenue jumped by 17% to RM2.45 billion (US$690 million), while revenue from devices and others jumped 14% to RM686 million (US$192 million).

Internet to drive future growth

In 2014, the company grew its total subscriber base to 11.42 million, representing a growth of 3.9%. From the 11.4 million base, 1.72 million were postpaid subscribers while the remaining 9.7 million were prepaid.

In terms of its Internet subscriber mix, the company revealed that it had 6.21 million mobile Internet subscribers, and 241,000 broadband subscribers in 2014. This represents a growth of 32.4% and 6.6%, respectively.

As for data traffic volume, the company has seen quarterly traffic volume almost double over the past year. In the fourth quarter of 2014, the total data traffic volume was at 16.3 terabytes (TB), against 8.7 TB in the fourth quarter of 2013.

“Data traffic continued to grow 86% year-on-year and 11% quarter-on-quarter from increasing adoption and usage, backed by improved network quality and coverage,” the company said.

Its focus on driving the Internet business has also helped maintain its average revenue per user (ARPU) levels. In the fourth quarter, its blended ARPU was at the RM47 levels. Meanwhile, its minutes of usage (MOU) remained stable at 248 minutes, but the company expects the MOU to gradually trend down.

2015 aspirations and 2014 recap

On Feb 9, Digi, 49% owned by Norwegian telecommunications group Telenor ASA, announced that it posted RM2.03 billion (US$570 million) net profit for the full year ended Dec 31, 2014 – about 6% higher than the consensus full year median estimates of RM1.97 billion (US$553 million).

During the period, Digi's revenue jumped 4.2% to RM7.02 billion (US$1.97 billion), while its earnings before interest, tax, depreciation and amortisation (Ebitda) and Ebitda margin were at RM3.16 billion (US$887 million) and 45%.

These numbers were in line with the guidance the management provided last year. (Early last year, Digi guided that its revenue would grow around 4-6% in 2014, with Ebitda margins at similar levels to 2013.)

The company also announced that it is giving 7.2 sen per share as dividend in the fourth quarter. In total, the company has declared a dividend of more than RM2 billion (US$561 million), or 100% of its full year net profit, to its shareholders.

As for 2015, the company will be continuing its focus to drive Internet growth opportunities. It added that it will strengthen infrastructure capabilities so that it is able to offer a good Internet experience, to deliver “service excellence” to customers via its recently announced “Let's Inspire” campaign, as well as focus on operational efficiencies.

In terms of capital expenditure (capex), Digi announced that it plans to spend almost the same amount as it did in 2014.

Last year, it invested RM904 million (US$254 million) in capex. The funds were used to strengthen its infrastructure capabilities which included the delivery of a brand new convergent billing system, the expansion of 3G population to 86%, growth of LTE sites to nine market centres and increase of its fibre network to more than 4.7km.

“The future is all about the Internet. Our focus is to ensure everyone has access to equality, relevant, inspiring and value for money Internet services,” said Norling (pic).

Financially and operationally, it also guided that its service revenue (revenue that excludes sale of devices) would grow at the rate of low to mid single digit percentages.

It also aims to sustain its Ebitda margin of 45% in 2015.

“I believe that the top line guidance the company has provided is rather conservative, and it should be able to achieve it. Last year, its service revenue increased by 3.3% to RM6.33 billion (US$1.78 billion),” said an analyst from a local brokerage when contacted by Digital News Asia.

“However, it will be interesting to see how it maintains its Ebitda margin in the light of increasing competition.”

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