Rising Internet demand driving Malaysia’s mobile market: Frost

• Vendors that can support seamless sharing of content and apps across multi-devices have advantage
• Maxis has 32.3% market share in subscriptions; Celcom has 29.1% and DiGi has 24.1%

MOBILE penetration in Malaysia has long surpassed the 100% mark and is currently hovering around 150%. The Malaysian market is expected to reach a mobile subscriber base of over 50 million by 2015, according to Frost & Sullivan.
 
Growth is expected to slow down as the market approaches saturation but is still expected to register a CAGR (Compound Annual Growth Rate) of 6% from 2011-2015, the research and analyst firm said in a statement.

According to Ajay Sunder, senior director of the telecoms practice at Frost & Sullivan Asia Pacific, to sustain subscriber growth momentum, operators are expected to continue with aggressive promotional campaigns, especially in the prepaid market.

“In 2012, Maxis held 32.3% of the mobile subscription market share in Malaysia. This was followed by Celcom at 29.1% and DiGi at 24.1%,” he said.

The rapid increase of mobile penetration has also led to consumers carrying a second connection/ device. Effective ARPU (average revenue per user) monetisation from the second device is a major challenge for service providers.
 
Smartphone and tablet penetration in the Malaysian mobile market currently stands at approximately 35.8% and 12.1% respectively, Frost & Sullivan said.

 “There is a multiscreen trend with the addition of one or more devices as consumers take advantage of different form factors and declining prices,” said Ajay.
 
“Types of content suited for different devices would enable operators to target subscribers better with value-added services such as video streaming, reading and gaming. Vendors that are able support the seamless sharing of content and applications across multi-devices will have an advantage.
 
“Service providers need to re-evaluate the portfolio and introduce new services where they can obtain third party revenues, if not direct consumer revenues, such as mobile advertising, payment, and commerce. The newly operational 4G (Fourth Generation) networks are also expected to bring in additional revenues.”

Increasing demand for Internet

Riding on increasing demand for Internet access, 3G subscriptions reached 14.5 million with an annual growth of 41% in 2012 and are expected to cross 18.4 million by December 2013.

However, the increased data demand and spikes in geographies are leading to network congestion/ outage, Frost & Sullivan warned. Continuous outage is forcing service providers to relook their long term network strategy.

To cope with increasing diverging cost and revenue market realities due to surging data traffic, service providers are focusing predominately at reducing cost structure rather than top-line improvements.

“For example, take Maxis and REDtone’s arrangement to share its 4G (LTE) infrastructure. Infrastructure sharing allows defrayment of cost, risk sharing and enables parties to meet regulatory obligation with reduced financial burden,” said Ajay.
 
“But as the network architecture becomes more complex, operators will be forced to evaluate Network Function Virtualisation and eventually Software Defined Networks to lower the overall cost of network and maintain a scalable network,” he added.

Declining voice revenues, increasing OTT threat

Service providers are also losing traditional voice revenues but are now fighting back to ensure the ‘share of wallet.’ Strategies include bundling voice, launching digital voice and creating innovative services targeting voice revenues.

Operators have leveraged on voice to innovate and pioneer value-added services. For example, in Australia, Telstra launched HD (high definition) voice which suppresses background noise at no additional cost to subscribers. NTT DoCoMo in Japan launched its voice translation over its LTE (Long Term Evolution) to encourage the use of international voice calls.

“Voice service would eventually become a feature rather than a service that could drive growth,” said Ajay.

OTT (over the top) is another clear threat and presents danger to operators that do not have a well-defined strategy to counter the threat of OTT players. OTT messenger and other services are adversely impacting traditional SMS usage, thus driving down core revenues.

The launch of Whatsapp Messenger saw total SMS revenues in Malaysia decline from RM2.9 billion in 2011 to RM2.86 billion in 2012. [RM1 = US$0.31]

“Service providers will need to evaluate new partnership/ business models with non-traditional value chain players. The impact of these new services may be huge depending on the nature of partnership,” said Ajay.

Malaysian operators were the leading operators to use partnership with OTT as a way to mitigate the revenue decline. Some recent examples include the DiGi-Whatsapp and Celcom- Mobiroo partnerships.

“The idea is to ensure that service providers can increase, or at least retain, the same share of wallet from the subscribers,” said Ajay.
 
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