With the mobile market almost saturated, subscribers now totalling more than 31 million, future growth in subscriber numbers may not be sufficient to offset further pricing pressure — and would damp growth prospects for the sector in the near to medium term.
The post-paid market segment was particularly weak, with the total subscriber base actually falling by some 10,000 in 1Q10. The pre-paid market segment was still growing in absolute terms, adding a fairly robust 673,000 subscribers for the three big operators. But the increase from end-2009 was just about 2.8%. Hence, there is a clear need for a new area of growth and broadband appears to fit the bill.
How the operators fared in mobile broadband
Mobile broadband subscribers (accessing the Internet via 3G networks using a USB dongle) for Maxis, Celcom and DiGi increased by 200,000 in 1Q10 to 1.025 million, or about 24% higher than that at end-2009.
Celcom got the biggest share of the new subscribers during the period, accounting for 62% of the addition. This is in line with its prevailing share of the mobile broadband market. Meanwhile, DiGi added more than its fair share, with an additional 27,000 subscribers, increasing its market share to roughly 7.5%.
Accordingly, Maxis lost some traction, adding just 49,000 new subscribers. This is despite the company offering competitively priced promotional packages that saw its ARPU dropping to RM69 per month in 1Q10, from RM85 in 4Q09 and over RM100 per month at the start of the year. As a result, Maxis’ share of the market segment dipped slightly to 30.5% from 32% at end-2009.
P1 aiming for bigger share of mobile broadband
We expect competition to remain intense. In addition to the three mobile operators, WiMAX service operator, P1 is also hoping to gain a larger share of this market segment.
P1’s charge is spearheaded by the launch of Intel’s WiMAX chipset embedded in several models of laptops including those from Dell, ASUS, Acer and Lenovo. A WiMAX-inside notebook-netbook means that users no longer require a separate USB dongle to access the service provider’s network.
P1 also expects its new strategic partner, SK Telecom — the leading mobile operator in South Korea — to help boost operations, including in the area of customer acquisition. Having said that, P1 does not as yet has sufficient coverage to offer true mobility. This could impact the company’s competitive position vis-à-vis the mobile operators’ wider 3G coverage.
Currently, most of P1’s 175,000 subscribers are in the fixed broadband segment, in select areas covered by the company’s progressive network rollout plan.
Another player, YTL Communications has opted for a different strategy. It plans to launch the WiMAX broadband services later this year, after it has achieved extensive nationwide coverage. YTL Communications could be a formidable competitor with the strong financial backing of its parent company, YTL Power International.
Growth prospects on low broadband penetration
Broadband penetration in Malaysia is still low, estimated at about 34%. In particular, growth is expected to stay in the strong double digits for the mobile broadband segment on the back of increasing need for anytime, anywhere connectivity. The number of notebook-netbook users is estimated to grow to about three million this year, from 2.2 million at end-2009.
Looking further ahead though, the biggest growth potential could come from the mobile Internet segment, through the use of smartphones to access the Internet. Already, sales of smartphones are the fastest growing within the cellular phone market. Plus, ownership of cellular phones far exceed that of PC, notebook and netbooks added together.
DiGi lowers prices for iPhone packages
DiGi, which currently has over 2.7 million mobile Internet users, including casual surfers, recently slashed the monthly subscriptions for the hugely popular iPhone. Its cheapest package now costs only RM60 per month (for specified Internet, voice, SMS and MMS usage), down from RM88 previously.
Although the company also reduced the upfront subsidy for the iPhone, we estimate entry cost (assuming 24-month contract and 36-month instalment for the handset) now starts from less than RM83 per month, down from about RM95 previously. The only other iPhone distributor in the country, Maxis, has responded by reducing prices of the iPhone 3GS handsets.
The move is expected to encourage greater adoption of data plans, including the migration of existing, relatively low-paying pre-paid customers. This would, in turn, boost ARPU — even if growth in terms of absolute subscribers is low.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, July 21, 2010.
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