This article first appeared in The Edge Financial Daily on September 13, 2019
KUALA LUMPUR: Despite Axiata Group Bhd and Telenor ASA calling off their proposed merger, Axiata’s mobile arm Celcom Axiata Bhd says a consolidation of Malaysian mobile network operators will eventually take place to keep the telecommunications industry sustainable.
Celcom chief executive officer (CEO) Mohamad Idham Nawawi said the telecommunications market is getting more competitive, and that in the long run, “hyper-competition” may have a negative impact on the market as telecommunication companies (telcos) continuously need large capital to reinvest in their network.
As such, he said market forces will lead to an industry consolidation for the telcos to survive.
“If you look at other markets that are close to home, you will see that the markets have consolidated to about three to a maximum of four operators in each of those markets. That is a trend that is happening globally,” Mohamad Idham said yesterday during a media briefing on Celcom’s business performance.
“[The question is] whether the market will be able to sustain the number of players that we have today.
“Sooner or later, I think that consolidation [of telcos] will happen, or has to happen. Because it is very difficult for this number of players to all remain profitable, or able to make a profit and continue to invest. It’s such a small market,” he added.
Known to be a capital-intensive business to operate in, Mohamad Idham cited a few issues within the current telecommunications industry, such as the need for continuous high investment to maintain its service, competition for the same and limited number of subscribers, as well as the growing demand for new technologies that are difficult to keep up with.
When asked if there should be government intervention to encourage consolidation within the industry, he said: “One way or another, the market will take care of itself.”
Mohamad Idham’s comments on the telecommunications industry came on the heels of the news that Celcom’s parent Axiata and Telenor ASA (the parent company of DiGi.Com Bhd’s largest shareholder Telenor Asia Pte Ltd) have mutually agreed to end discussions on the planned non-cash combination of their telecommunication and infrastructure assets in Asia.
After four months of conducting due diligence on the corporate exercise, Axiata and Telenor decided last Friday to terminate the proposed merger due to “some complexities”. Although both parties acknowledged the strong commercial merit of the merger, they did not provide any further reason why the arrangement failed.
Business as usual
When asked, Mohamad Idham yesterday refused to comment on the failed merger, saying he is not in the position to do so on behalf of Axiata, but maintained that it is “business as usual” for Celcom.
“I think this is something that is between the shareholders. Yes, of course, it involves Celcom if the transaction were to happen but it’s more driven by the shareholders. I don’t think I’m in the position to say more than what has been said by Axiata,” he added.
Celcom chief financial officer Jennifer Wong added that even when the proposed merger was first announced, the company did not stop any of its plans for the year.
“When the due diligence was ongoing, it was business as usual for us. We didn’t stop, we didn’t halt anything. Hence the network rollout continued as it is, the introduction of products went on as it is.
“If you look at the period during which the whole exercise was ongoing, nothing changed. In fact we have probably done more [this year] than what we did for the same period last year,” she said.
Despite increasing competition, Celcom reported a profit after tax and minority interests of RM365 million for the six months ended June 30, 2019, up 11.7% from RM327 million in the same period last year, due to savings from continuous cost optimisation, partly negated by higher costs from network expansion.
Total revenue for the period, however, fell 7.9% to RM3.33 billion from RM3.61 billion previously, attributed to the revision of wholesale rates. Mobile services revenue also dropped 4.1% to RM2.89 billion from RM3.02 billion.
For the full financial year (FY19), Wong said Celcom has allocated about RM1 billion for capital expenditure (capex), from which about RM300 million has been spent during the first half of the year, for rolling out its LTE sites, spectrum refarming, and continuation of network modernisation. This compares to a capex of RM1.06 billion in FY18, RM1.28 billion in FY17, and RM1.33 billion in FY16.
The telco claims to have the strongest and largest network in Malaysia with a 4G population coverage of 93% while 4G LTE-A coverage has increased to 81%. In the second quarter of 2018, Celcom had an LTE coverage of 89% while LTE-A coverage was at 76%.
Currently, Celcom boasts over 11,000 sites across the country, including 9,000 LTE sites. The telco also claims to have over 96% LTE population coverage in 10 states, including Penang, Selangor, Johor and Perak.
Moving forward, Mohamad Idham said Celcom will further intensify its focus on profitability and operational excellence with “smart investments”, which include its continuous pace on enhancing its network infrastructure at lower operational costs and exploring new areas for growth and innovation.
“We have built a very strong network. The question now is where do we invest next, how do we strengthen the network further and where and when do we put up the upgrades, the investments and all that,” he added.