Slugfest: Malaysia’s Big 3 mobile operators’ FY 2014 performance

• Digi continues to gain market share at the expense of Maxis and Celcom
• Maxis appears to be recovering somewhat, ends Q4 with a bang

2014 was an interesting year for mobile operators in Malaysia. Celcom Axiata Bhd appeared to have lost pole position in terms of subscriber base, Maxis Bhd starting to regain some of its lost ground, and Digi.Com Bhd continued to grow its market share in most, if not all, areas.

Last year, Celcom’s total revenue fell by 4% to RM7.74 billion, while net profit declined 19% to RM1.7 billion. The decline was partly due to the hiccups it suffered when it implemented an IT transformation programme.
 
[RM1 = US$0.28]
 
“The issue was so serious that it resulted in Celcom losing customers and dealers,” said Axiata Group Bhd president and chief executive officer Jamaludin Ibrahim.
 
As for Maxis, its results seem to indicate that the worst is over. At one point, it was losing a substantial portion of its prepaid customer base, which peaked at 10.84 million in the third quarter 2011 but fell to as low as 9.04 million in the second quarter of 2014.
 
Maxis regained some traction after ending the fourth quarter with a staggering 544,000 net additions in its prepaid segment.
 
“We had much to change as we entered 2014 and we have done exactly that. We made good progress in our transition to a high-performing digital company,” said its chief executive officer Morten Lundal.

In most aspects, Digi, a company 49% owned by Norwegian telecommunications group Telenor ASA, can be seen as the winner for 2014.
 
Although it is still behind its rivals in terms of overall revenue, subscribers and other metrics, Digi was the only incumbent mobile operator which managed to register top-line growth in 2014.

The company attributed its growth and performance mainly to its Internet business (excluding value), where it grew by 39%.

Let’s break down the Big 3’s FY 2014 performance to various key areas:
 
The big picture

Looking at the first table above, one can see that the competition amongst the incumbents in terms of subscriber base was intense, and likely to be just as intense in 2015.
 
With Maxis closely behind, Celcom will need to regain its footing quickly if it wants to maintain the lead this year.
 
In terms of mobile revenue share, Maxis still had a comfortable lead with 36.7% of the market, even though its market share declined by 1.1%.
 
It is not surprising that Digi, the only incumbents to grow its revenue for the full year ended 2014, managed to gain the most market share.
 
However, total revenue amongst the big three operators dipped slightly to RM21.43 billion, versus RM21.67 billion in 2013.
 
Prepaid and postpaid

Many years ago, Maxis' Lundal (pic), who was then the chief executive officer of Digi, said that Digi's goal was to have a one-third market share. Some industry observers back then believed that the goal, while achievable, was a stretch target.
 
Fast forward to today, and Digi has garnered a one-third market share in terms of prepaid subscriber base.
 
Despite the fact that it has fewer prepaid customers than Celcom, it was able to capture greater revenue from that market segment, managing to get its prepaid customers to spend more.
 
In 2014, Digi recorded RM4.6 billion revenue in the prepaid segment, while Celcom, which has about 400,000 more prepaid customers than Digi, only managed to record a revenue of RM4.3 billion in that same segment.
 
This is not entirely surprising, as Celcom’s stronghold is rural and suburban areas, where consumers spend less compared with urban folk.
 
Maxis’ prepaid average revenue per user (ARPU) in 2014 was RM34; Celcom had RM35; and Digi had RM41.

Despite the challenges it faced in the prepaid segment, Maxis was still able to maintain its strong footing in the postpaid segment.
 
In 2014, it maintained its subscriber market share of 42.1%, at least six percentage points higher than closest rival Celcom.
 
Although Digi was nowhere near to capturing one-third share of the postpaid or other segments, one thing is certain, industry observers no longer see it as “the smallest mobile operator amongst the incumbents.”
 
Instead, they see the whole industry as a three-horse race in which any party could emerge the winner.

Examining capex (capital expenditure)

In 2014, the incumbents collectively, spent RM2.89 billion in capex, or about 16% more than what they spent in 2013 (RM2.48 billion). As mobile broadband is becoming an essential part of the business, it is not surprising that a big bulk of their capex went to this area.
 
This year, Celcom seems determined to regain its momentum, with a capex allocation of RM1.1 billion. It is believed to be its highest capex allocation in recent years.
 
It will also be interesting to see how Digi is going to grow its mobile broadband business in its aspiration to become the best provider over the next few years, without having to increase its capex.
 
The mobile broadband race

In 2014, the big three mobile operators cumulatively grew their Internet revenue by 16% to RM6.93 billion, versus RM5.9 billion in 2013.
 
Digi registered the biggest growth at 33% to RM1.9 billion, followed by Celcom’s 16% growth to RM2.3 billion and Maxis’ 8% to RM2.7 billion.
 
Although Maxis grew the slowest, it is unlikely that it will lose its leadership position this year, should all the players maintain their pace. Nevertheless, it sure does pave the way for an exciting 2016.
 
Related Stories:
 
A deeper look into Malaysia's Big 3 mobile telcos in 1H2014
 
Big 3 support call to lower broadband charges: MCMC
 
Axiata CEO optimistic despite mobile competition from TM
 
 
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