KUALA LUMPUR: International Data Corp (IDC) Malaysia expects voice revenue for mobile telecommunications players to decline for the first time in 2015, while data revenue continues to grow at an accelerated rate.

IDC Market Research (M) Sdn Bhd research manager Alfie Amir told The Edge Financial Daily that the expected decline in voice revenue for mobile telco players such as Maxis Bhd (fundamental: 1.15; valuation: 0.9), Axiata Group Bhd’s (fundamental: 0.85; valuation: 0.9) unit Celcom Axiata Bhd, DiGi.com Bhd (fundamental: 1.55; valuation: 2.1) and U Mobile Sdn Bhd will be driven by over-the-top players and long-term evolution adoption.

“If you look at five years ago, before smartphones were mainstream, voice revenue accounted for about 80% to 90% of total revenue, while data only accounted for 10%.

“After the smartphone era, the mobile telcos saw their voice revenue growing at a diminishing rate. We are predicting that this year, in 2015, voice revenue will start to decline for the first time ever,” he said, noting that mobile voice revenue posted a very slow growth of 2% in 2014.

As at 2014, Alfie said voice and data accounted for 58% and 42% respectively of mobile players’ revenues. Based on the latest figures, he expects revenue contribution from data to surpass voice revenue by 2017.

Meanwhile, with the exponentially increasing demand for data, which in turn drives up costs, coupled with the overall slowdown in profit growth due to the saturated mobile market, profit margins of mobile companies are also diminishing.

He said that mobile players should look at new revenue streams, as he said that there is not much room for telcos to grow their subscriber base due to the saturated market.

“What they can do, however, is to increase their ARPU (average revenue per user), by converting their non-data users to data users, or through offering other services.

“At the same time, retaining their data subscribers is also important, as there is a lot of churning in a saturated market,” Alfie said, adding that companies are now focusing on providing the best customer experience, in a bid to retain their subscribers.

He said that a price war to gain subscribers will be unfavourable for the mobile providers, as it will further drive down margins.

On the other hand, Alfie said that there is more room for growth for fixed-line providers like Telekom Malaysia Bhd (fundamental: 1.1; valuation: 0.9) and Time dotCom Bhd (fundamental: 2.7; valuation: 0.6), as companies are expected to expand their portfolio of services to include ICT solutions.

“Fixed-line providers are now starting to become ICT providers. They are beginning to offer a few IT services, rolling out these services in stages,” he said.

Alfie explained that this is mainly due to a shift in user requirements, as enterprise users now require ICT services such as cloud and data centre services, instead of just connectivity.

Capitalising on their existing network, fixed-line providers can potentially provide end-to-end services, ranging from fixed-line connectivity to ICT solutions such as cloud and data centre services.

With the expansion of their products and services, telco companies are now entering the IT market.

“By going into the IT market, they are going to triple their addressable market to RM15 billion, from their current revenue of around RM5 billion.

“However, it will not be an easy market for the fixed-line telcos, as the IT market is currently being held by established IT players like Hewlett-Packard, IBM and CSC,” he said.

Alfie noted that telco players in countries like Australia and Singapore are already competing with IT players on a level playing field in providing ICT products and solutions, and expects the same for Malaysian companies in the future.

He expects the shift in the focus of telcos to providing ICT services will support the revenue growth of fixed-line companies, forecasting a 7% year-on-year expansion in 2015 to RM9.8 billion.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Financial Daily, on February 23, 2015.