redONE winning the postpaid war against the Big 3

By Goh Thean Eu October 27, 2014

Incumbents seeing flattish or negative growth in postpaid segment
MVNO in talks with Celcom on possible equity participation

redONE winning the postpaid war against the Big 3

MALAYSIAN mobile operators, or at least the incumbents, have been struggling to grow their postpaid customer base.

Between October 2013 and June this year, the country’s top three mobile players Maxis Bhd, Celcom Axiata Bhd and DiGi.Com Bhd either witnessed flattish postpaid customer growth, or an actual decline.

Collectively, the big three players had 7.97 million postpaid users as at end-June 2014, compared with the 8.01 million customers they had in early October 2013.

The decline is not surprising, as Malaysia’s mobile market has been at the saturation point for some time now, with a mobile penetration rate of over 140%.

But there is one company which is beating the odds: Red One Networks Sdn Bhd (redONE).

“During the three quarters [of this year], we accounted for 100% of the net postpaid addition,” said its chief executive officer Farid Yunus, adding that his claim is based on data provided by the big three telcos, without factoring numbers by U Mobile Sdn Bhd.

“We have been consistently growing our (postpaid) customer base every month. The best part is, our monthly net adds are still on the rise,” he told Digital News Asia (DNA) recently.

Net adds is the number of new subscribers after deducting those who churned or unsubscribed.

Early this year, redONE was achieving monthly net adds of approximately 15,000. In August, its monthly net adds passed the 40,000 mark.

“By the end of this year, we hope we can hit the 500,000 mark. We currently have about 350,000 subscribers,” said Farid. “By the end of 2015, we are aiming to hit one million.”

Untapped postpaid potential

Farid attributed the company’s consistent growth in postpaid customers to a few factors, one of which is its low monthly commitment.

Customers can sign up for a redONE postpaid plan for as low as RM8 a month, for which they get unlimited free calls to a fellow redONE user. Calls to other networks will cost 15 sen per minute, while text messages cost five sen (to redONE users) and 10 sen (to other networks). [RM1 = US$0.31]

“We have a strong unique proposition – a very low monthly commitment. A lot of people have been porting to us because they like the low monthly commitment.

“A significant number of them were prepaid users prior to coming on board [redONE],” Farid said.

Its postpaid service also allows customers to “control their cost.”

“Most telcos want you to have a high credit limit. With us, customers can have a credit limit of as low as RM50,” he added.

redONE also has RM58 and RM88 plans, where calls to other network will cost between 12 sen and 10 sen, depending on which plan the customer opts for. On top of that, those on the RM58 and RM88 plans get 200-500MB of free data.

Customers also have the option to buy data bundles. For example, by paying RM5, they get 100MB. The company also has data bundles in the 500MB, 1GB and up to 5GB range.

Redefining sales agent ecosystem

Another key differentiator for the company is the way it rewards its sales agents, according to Farid.

“Instead of giving a big incentive upfront like other telcos, we incentivise our agents by giving them revenue sharing. This helps the agents to build a sustainable income over the long term,” he added.

A redONE agent will get a commission for signing up a new customer, and also gets a revenue share of the customer’s bill.

“In other words, when we grow our revenue, our agents are also in a position to benefit,” Farid said.

Of course, the company’s sales agents, some 2,000 of them, have other functions as well. For example, customers wanting to pay their monthly phone bills can also go through their agents.

Growing pains

redONE, a mobile virtual network operator (MVNO), used to be known as REDtone Mobile, which REDtone International Bhd once had a stake in it.

An MVNO is a telecommunications service provider which does not own any spectrum assets. It offers services by riding on existing/ incumbent mobile operators’ networks. In its case, redONE rides on Celcom’s network.

redONE winning the postpaid war against the Big 3 REDtone Mobile had difficulty gaining momentum, acknowledged Farid (pic), who was Celcom’s chief strategy and business transformation officer before being seconded to redONE.

“REDtone Mobile was really struggling as an MVNO,” he said.

“We (Celcom) wanted to turn REDtone Mobile into a non-performer, but then I suggested to Celcom chief executive officer Shazally Ramli that he give me a chance to turn things around. The rest, like they say, is history,” he added.

One of the first things Farid did was to renegotiate the wholesale terms with Celcom. “The earlier terms were quite tough,” he said.

There was also a change in shareholding which saw REDtone Technology Sdn Bhd, a wholly-owned unit of REDtone International, disposing a 65% stake in the then REDtone Mobile. The stakes were acquired by Ben Teh and Tee Yew Yaw.

Teh and Tee are shareholders of Elepoint Sdn Bhd, the largest Celcom reseller for the corporate segment in the country. Currently, Teh and Tee are redONE’s chief sales officer and chief operating officer, respectively.

Earlier this year, REDtone Technology sold its remaining 35% stake in the company to former Maybank Investment Bank Bhd (then known as Aseambankers) chief executive officer Surachet Chaipatamanont.

Once terms were renegotiated, Farid and his team started to strengthen redONE’s sales channels. Today, besides the 2,000 sales agents, it also has neighbourhood and payment centres located at more than 200 locations nationwide.

Aiming for an IPO

Although Farid declined to reveal redONE’s revenue and profit, a check at the Companies Commission of Malaysia showed that the company registered a net profit of over RM73,000 on the back of RM7.65 million in revenue for the financial year ended May 31, 2013.

It is also in talks with Celcom on the possibility of acquiring a stake in the company.

“Currently, Celcom does not own any stake in the company, but it is something that is being discussed,” said Farid, without revealing what stage these discussions are at.

“Celcom usually will only take a stake when it is high risk, or when it is proving successful,” he added.

He believes that an equity participation by Celcom would augur well for redONE’s plan to go public.

“For the longer-term, we hope that the principal will invest in us, more for investors’ confidence when we go for a listing … and also, for the long-term stability of our wholesale agreement with [Celcom],” said Farid.

“If all goes well, we hope to list in 2016,” he added.

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