This article first appeared in The Edge Malaysia Weekly on April 1, 2019 - April 7, 2019

MALAYSIA is growing on Gokhan Ogut, who has travelled the world for work and with his family. But he had never been to Malaysia before he was hired to head Maxis Bhd, billionaire Ananda Krishnan’s leading mobile operator. Ogut will officially take the CEO’s chair on May 1. Insiders, however, knew that the former Vodafone Turkey CEO was to fill the position when he was named Maxis’ chief operating officer last September.

Robert Nason — who was already a director on Maxis’ board since March 2016 when he was named interim CEO last April, following the departure of former CEO Morten Lundal — will remain on the board after his contract ends on April 30. That Nason was chairman of Australian pay-TV company Foxtel Pty Ltd from 2012 to 2017 has renewed speculation of Ananda mulling a merger between Maxis and Astro Malaysia Holdings Bhd, the pay-TV provider he controls.

Changes at the helm at both companies have also not gone unnoticed by those reading the tea leaves. The enigmatic billionaire, who sold the idea of building the 88-storey Petronas Twin Towers to Prime Minister Tun Dr Mahathir Mohamad in the early 1990s, continues to keep his cards close to his chest.

That Ananda-controlled Tanjong Plc — which owns 67% of the 49-storey Menara Maxis that sits adjacent to the iconic twin towers — last December sold its Tropical Islands Resort in Krausnick, Germany, for €226 million (RM1.04 billion) has also sparked speculation of corporate exercises and cash injections being mulled at his oil and gas concern, Bumi Armada Bhd, which last year lost 80% of its market value and analysts reckon may need a cash call. Astro also saw its market capitalisation halve last year while Maxis only eased 11% — the least among large locally listed telecommunications companies.

If Ogut is perturbed by the speculation, he does not show it.

“I am excited to be part of this fantastic organisation and it is certainly a proud moment for me to be chosen to lead a company that is moving into its next phase of growth. There are so many opportunities ahead of us and I am really looking forward to the future of Maxis. At Vodafone, I was a member of the team that transformed the biggest mobile company in Europe into the biggest converged operator there. I feel this valuable experience is important and I am glad to be given this opportunity to share my experience with the team in taking Maxis to the next level of growth,” Ogut tells The Edge.

He and the Maxis management have set themselves a RM10 billion target as it embarks on a five-year plan to transform Maxis from a consumer and mobile-centric player into the country’s leading converged communications and digital services company.

“Since September, we have been working on a long-term plan … to make sure Maxis embarks on this journey for growth. It starts with changing the company from a mobile operator to a converged solutions company. This will get us at least RM10 billion [service revenue] by 2023 ... we see many opportunities. The opportunities lie in the strategy actually, and we call it the MaxPlan.

“The number one opportunity that we see is, Maxis should be for everybody in Malaysia, for every home, company and everything. It is not just about individuals but also about companies, homes, government and things,” Ogut says, relating the possibilities surrounding artificial intelligence and the Internet of Things (IoT) that are expected to be pervasive as the world adopts 5G technology.

“We will continue to be the leader in mobile connectivity, both in prepaid and postpaid. We want to be the leading convergence player. We are telling people for all your connectivity needs, your home, yourself or your family, we want to be servicing all of it.”

Maxis chose to grab the first mover advantage when it got access to fibre at affordable wholesale prices with the Mandatory Standard on Access Pricing (MSAP). According to Ogut, Maxis launched FibreNation packages for homes and businesses last September, followed closely by its MaxisOne Prime plan for families to have fibre at home. Maxis is also moving to expand in Sabah and Sarawak, having secured access to Sacofa Sdn Bhd’s fibre assets.

As at end-2018, Maxis had attained 249,000 fibre connections. It added 64,000 connections last year, 30,000 in 4Q2018 alone. It also converted 75% of its existing base to new, faster broadband plans as it was able to entice upgrades, thanks to the MSAP.

In short, Maxis wants to help its customers not only have fun with unlimited data but also succeed and prosper by harnessing the benefits of technology. That, it reckons, will advance Malaysia’s digital future.

Communications and Multimedia Minister Gobind Singh Deo, who is for ubiquitous connectivity at affordable prices, has said the success of the upcoming 5G test bed in Cyberjaya and Putrajaya could be a huge leap forward for Malaysia. The country is taking a practical approach to adoption, with focus on improving yield for industry and enhancing people’s quality of life.

Malaysia needs to pay attention to not fall behind. Some 60% of the world’s economy will be digitised by 2022, with growth in every industry driven by digitally enhanced offerings, operations and relationships, was among top predictions by market intelligence provider International Data Corporation (IDC) this year. IDC also expects worldwide spend on IoT to increase by more than 15% to US$745 billion this year and breach the US$1 trillion mark by 2022.

Maxis’ ambition ties in with the need for businesses to future-proof their revenue streams as multiple industries seek to reinvent themselves to remain relevant in a digitised economy.

“We will double our enterprise business  in three years and triple it in five years,” says Ogut, relating how Maxis is working with various partners to deliver what customers need.

Apart from its usual annual RM1 billion capital expenditure (capex) to enhance network quality, Maxis is setting aside another RM1 billion “growth capex” over the next three years to cater for demand from new growth. It will explore with customers all areas that can help them reduce cost, increase sales, have better stakeholder engagement and improve efficiency.

“We want to be the one-stop provider for enterprise solutions, starting with connectivity, security, e-commerce, managed services, cloud. We offer all these solutions to our customers on top of the connectivity ... we offer them all these different solutions. Internet of Things is a great way for companies to start digitalising their businesses. We want Maxis for all enterprises — small, medium, big, government institutions, NGOs,” he says, noting that Maxis is ready to partner the government and be an enabler in Malaysia’s digital transformation.

Agriculture is among the areas Maxis is looking at to make a real difference for Malaysia, he says. Incidentally, when asked about 5G, Gobind has said boosting plantation yield is a “very important” focus for the country. He has also said the agriculture sector, fisheries, medicine and smart cities were among 5G verticals that the government was giving specific focus to.

Leveraging premium base

Maxis does not currently provide a breakdown of how many of its customers are from the enterprise market, but Ogut helpfully points out that “enterprise is mostly postpaid”.

With an average revenue per user (ARPU) of RM94 a month from its 3.2 million postpaid subscribers as at 4Q2018, Maxis’ premium customer base remains the envy of the industry, including its rivals who are attracting customers with lower prices.

As at 4Q2018, Celcom had just under three million postpaid subscribers with ARPU of RM92 while Digi had 2.8 million postpaid customers with ARPU of RM77. The Big Three players account for 77.5% of the 11.6 million postpaid customers that Malaysia has, according to data from the Malaysian Communications and Multimedia Commission (MCMC). This is down from 96.5% of the market just four years ago.

Still, Maxis’ high postpaid ARPU points to customers with higher spending power and businesses that have the capacity to invest if presented with the right value proposition.

There is no doubt that customers are also getting harder and more expensive to please. According to Ogut, Maxis is working on delivering more personalised products to its customers. At the same time, it needs to continuously invest in its network to keep its 10 million customers happy, some 85% of whom have smartphones.

“Demand for 4G is high. There is massive adoption of 4G along with an increase in 4G device ownership,” Ogut says, noting how data usage is almost doubling every year. Data consumption among Maxis users was 11GB per month on a blended basis, up from 6.7GB in 2017 and 4.1GB in 2016.

Growing pains

Maxis’ network quality was acknowledged as tops by MCMC’s Network Performance Report 2018, but Ogut says the tremendous growth in data usage among its users is the reason Maxis needs more spectrum. One possibility towards the latter half of this year is the 700MHz spectrum tender, which will only happen when analogue TV is switched off. There is also the potential reallocation for the 2600MHz spectrum that Maxis and its peers will need to prepare for.

While Maxis’ RM10 billion service revenue target by 2023 implies an average growth of 4.4% a year over five years from RM8.068 billion in FY2018, its balance sheet will likely first see the impact of costs for its aggressive customer acquisition. That may put pressure on dividends, especially if more money is needed to fund growth and pay for additional spectrum. (See “Will Maxis adjust its dividend policy or raise capital?” on page 55.)

As for service revenue, part of the expected decline this year is due to smaller wholesale revenue following the termination of a 3G RAN network sharing agreement with U Mobile, which largely ended last December and will only have a much smaller contribution from January to June this year before ending altogether.

Going by the guidance for “low single-digit decline” in service revenue and “mid-single-digit decline” in Ebitda for 2019, the catch-up growth will need to be even stronger from 2020 onwards for Maxis to attain its goal. Assuming a 1% to 3% decline this year, service revenue would have to grow 5.8% to 6.3% a year from 2020 to hit RM10 billion by 2023.

Ogut concurs that Maxis’ transformation will not happen overnight, but says the RM10 billion target is attainable if the company can successfully help its enterprise customers move up the value chain.

“We can be 40% of a RM2.5 billion mobile connectivity market, which is RM1 billion, or we can extend our leadership and be 10% of a RM25 billion underpenetrated ICT market (which is mobile and fixed connectivity plus managed services, cloud services and IoT). That’s why we are excited. That is where we see the growth from moving to a converged solutions company. If we can double our enterprise market in three years and triple it in five years, we will have a slice of that [bigger] market,” he says.

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