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KUALA LUMPUR: The telecommunications (telco) industry is expected to see tougher competition but it will still record overall revenue growth this year, according to industry players and analysts.

“Usually, industry revenue is closely correlated to GDP [gross domestic product] growth, but last year seems to be an anomaly ... I think that is going to be challenging [going forward] because each one of us has to show growth and it means that there will be higher competition in the market,” U Mobile Sdn Bhd chief executive officer (CEO) Wong Heang Tuck told The Edge Financial Daily.

He also termed 2014 a challenging year for all telco providers, with the industry by and large posting relatively flat revenue. Nevertheless, he said U Mobile has shown good growth in 2014 and said customers can expect “more innovative services and ideas” from the group next year.

“The impact of the goods and services tax [GST] that will come in on April 1 remains to be seen. Hopefully, the knee-jerk reaction won’t last too long and that in terms of telco consumption, it will come back to normal,” he said.

As one of the smaller telco players in the country, U Mobile wants to bring its services on par with the three industry giants — Axiata Group Bhd (Celcom brand), Maxis Bhd and DiGi.Com Bhd — with an aggressive rollout of 2,000 new 3G and 4G LTE network sites by end-2015, costing a total of RM1.5 billion.

U Mobile also aims to improve its bottom line performance next year, having narrowed its losses by 18.27% to RM363.2 million for financial year 2014 ended Dec 31, from a net loss of RM444.4 million a year before.

Wong also said once the company has completed its site rollout, it will look into expanding its coverage and services in Sabah and Sarawak, where it already has two service centres in Kuching and Kota Kinabalu.

Relative newcomer Altel Communications Sdn Bhd foresees a significant impact on the company’s performance from the GST, but is unsure if it will be positive or negative.

“We are gearing up to face all possibilities with regards to the upcoming implementation of the GST. We have engaged a consultant to put together the best possible plan for our business,” said Altel CEO Nik Abdul Aziz Nik Yaacob in a recent interview.

Operating since July 2012, Altel is a subsidiary of Puncak Semangat Sdn Bhd, which is controlled by tycoon Tan Sri Syed Mokhtar Al-Bukhary. The company has about 279,000 active subscribers and plans to launch postpaid services by the end of the first quarter of this year.

DiGi.Com CEO Lars Norling expects the industry to grow on positive momentum of data, but concurred that there would be increased competition and the continued tapering of revenue from voice and messaging (SMS) services.

“More Malaysians are gaining access to the Internet every day. There is also a rising number of smartphone users spending more time online and owning multiple devices. These trends have proliferated demand for Internet services and increased smartphone penetration in recent quarters,” he said in an email.

Moving forward, Norling said DiGi.Com plans to reach out to more customers and drive consumption by making Internet services a part of its core offering.

“We have placed significant emphasis on ensuring a wide range of smart device bundles are made easily available to all segments of customers,” he said.

“The robust demand for Internet services will fuel continued growth this year. We believe our stronger subscriber base ... will set a favourable trajectory and boost future service revenue,” he said.

PublicInvest Research analyst Lee Wee Sieng opined that the telco industry had a good year in 2014, with DiGi.Com the top performer.

“That is to be expected, since they are now reaping the benefits of their network modernisation exercise, which was completed in late 2013,” he said.

Lee said U Mobile had also performed well in 2014 due to the lower prices of its products and services, but raised the question of how long the company could sustain that strategy.

More intense competition notwithstanding, Lee does not see the possibility of a heightened price war erupting among telcos this year in their effort to expand the customer base.

“The big three have always been quite rational. I believe they wouldn’t want to rock the boat,” he said.

As for 2015, Lee said his stock pick is Axiata, as two of the group’s subsidiaries, XL Axiata and Celcom Axiata, are expected to post better performances, having weighed on the overall group performance last year.

As at Sept 30, Celcom’s gross revenue had decreased 3.8% year-on-year (y-o-y) while profit after tax declined 14.6% to RM1.33 billion. XL meanwhile, posted a 2.2% decline y-o-y in gross revenue and a loss after tax of RM251.1 million.

In March last year, XL acquired another Indonesian telco provider, PT Axis Telekom Indonesia, for US$865 million (RM3.08 billion), which is expected to help XL gain extra spectrum capacity, enhance its asset utilisation, and give it a larger subscriber base.

 

This article first appeared in The Edge Financial Daily, on January 14, 2015.

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