Tech: Higher demand for data may not translate into greater consumer spend

This article first appeared in The Edge Malaysia Weekly, on September 21, 2020 - September 27, 2020.
Zaim: Malaysia’s mobile data revenue will fall 11.7% in both the consumer and enterprise segments in 2020. (Photo by IDC)

Zaim: Malaysia’s mobile data revenue will fall 11.7% in both the consumer and enterprise segments in 2020. (Photo by IDC)

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TELECOMMUNICATIONS services were obviously in higher demand during the Covid-19 movement restrictions, when work, school and exercise routines were turned on their head. Even government services and communication had to be administered differently.

But will the general increase in demand for telecoms services since the start of the Movement Control Order (MCO) be reflected in the bottom line of telcos? It appears that this may not necessarily be the case, as telcos themselves are not immune to the coronavirus.

According to Muhammad Zaim Halilul Rahuman, senior research manager for telcos at International Data Corporation (IDC) Asean, Malaysian telcos are not completely shielded from the impact of Covid-19.

“The dependence of Malaysians on telecoms services during the crisis, especially for working from home (WFH) and studying from home, has somehow reduced the impact of Covid-19 on the telecoms industry, but the crisis will still have repercussions on the business performance of telcos in 2020,” he tells The Edge in an email interview. Zaim, who has more than 13 years’ experience in the telecoms industry, was a key member of the national High Speed Broadband project. Prior to joining IDC, the premier global provider of market intelligence and advisory services for the IT, telecoms and consumer technology markets, he was with Telekom Malaysia Bhd and has vast experience in procurement, tender evaluation, strategy, product development as well as government and enterprise sales.

Based on studies and analyses conducted by IDC, the personal and consumer as well as transport industries will be greatly affected by the pandemic, whereas the telecoms industry will be among the top five least affected.

According to the Malaysian Communications and Multimedia Commission (MCMC), internet usage jumped 23.5% in the first week of the MCO and increased to 32.1% in the second week, driven mainly by users who wanted to stay connected to their families and colleagues, as well as for work, study and entertainment.

Usage does not reflect spending

While the pandemic had caused a spike in internet traffic during the lockdown — not only in Malaysia but globally — Zaim points out that higher usage does not necessarily translate into an increase in spending by consumers and enterprises, as most users were leveraging their home broadband. Moreover, Putrajaya had initiated a scheme for telcos to deliver 1GB of free data daily to telecoms users for a specified period.

As such, IDC projects an 8.2% drop in revenue for telecoms services in 2020 in both the consumer and enterprise segments, compared with the previous year. Fixed line services such as broadband are expected to be minimally affected, as much of the drop is attributed to mobile services in the consumer market. In fact, profits may also be affected as revenues slip in these areas.

Moreover, Zaim points out that telcos are offering better packages to entice subscribers to sign up for a new package. They often come at lower prices and with more data to attract users in a bid to increase the subscriber base.

Apparently, amid the pandemic, major mobile companies have reported a drop in the total number of mobile subscribers, especially in the prepaid segment.

“This attractive package is an effort to retain their existing subscribers from porting out to other service providers. The ongoing promotion and free 1GB daily data have exerted influence on the revenue of telcos and we forecast Malaysia’s mobile data revenue will fall 11.7% in both the consumer and enterprise segments in 2020,” he explains.

Zaim observes that, as the MCO and the Recovery MCO have restricted the movement of people, many are opting to stay at home instead of going out.

As such, subscribers are not fully consuming their subscribed postpaid data plan, as they are using their fixed home or office broadband.

“If [the postpaid plan] is underutilised, subscribers will not think of upgrading their existing plan, but they might consider a downgrade according to the current utilisation to reduce their expenses in the economic downturn. This will have a long-term impact on the future revenue of telcos,” Zaim cautions.

Similarly, prepaid subscribers will be using their home WiFi and reducing their reliance on their mobile data connection. Again, this could affect telco revenue in the mobile prepaid segment.

Zaim observes that Maxis Bhd’s mobile prepaid revenue saw a 3.9% drop quarter on quarter (q-o-q) and 13.1% fall year on year in the second quarter ended June 30, 2020 (2QFY2020).

Decrease in roaming

Meanwhile, the revenue of telcos has also been affected by the drastic decrease in mobile roaming, owing to the border closing in Asean countries, including the travel restriction implemented by Malaysia.

“The second and third waves of infections that are happening around the world will further delay the re-opening of international borders to allow people to travel again, and this will have a prolonged effect on international roaming revenue for the telcos,” says Zaim.

Overall, most of the major telcos have been affected by the pandemic situation and based on the declared first and second quarter reports, they are experiencing decline in their service revenue, especially on the mobile segment from both postpaid and prepaid subscribers.

On a positive note, the fixed line data services segment is showing q-o-q growth for TM, Maxis and TIME dotCom Bhd.

Zaim points out that Maxis has been outperforming the other service operators and that the group is growing stronger in fixed line broadband service with y-o-y growth of 32.6% in 2QFY2020.

“Its converged package, MaxisONE Prime plan, combines both mobile and fixed service in one package, boosting the subscription of Maxis broadband service. Apart from that, the growth in this fixed line service segment subsidises its losses from pure mobile service packages and Maxis could bring balance to its total service revenue,” he says.

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