Telco battle heats up

KUALA LUMPUR: Competition in the mobile telecommunications postpaid segment is expected to intensify in light of the implementation of the mobile number portability (MNP) next year, while the prepaid price war will likely taper off, said analysts.

While consumers will cheer as the three major telcos — Celcom (M) Bhd, Maxis Communications Bhd and DiGi.Com Bhd — slog it out for market share, analysts said the precarious situation for the telcos could lead to value destruction.

Analysts have said that the fight would now likely take place in the marketing front and in the quality of service, as well as attentiveness to market needs and demand in order to retain customer loyalty.

CIMB Investment Research expects competition to intensify in the postpaid segment, while the prepaid price war would likely taper off.

It said DiGi and Maxis have been locked in a prepaid price war, with Celcom joining the fray recently.

CIMB Investment said nationwide prepaid tariffs were now mostly between 35 sen and 38 sen per minute, compared to a few months back when local long-distance calls were priced between RM1.20 and RM2.40.

“We do not think it would escalate into all-out combat, given that all the players have fairly similar market shares and stand to lose if prices decline further. Also, Celcom’s latest pricing did not cut very deeply,” it said.

“We do not think the lower prices will impact prepaid revenues significantly in the short term. Prepaid users are price sensitive and normally adjust quite quickly by increasing their usage when prices fall,” it said in a report last Friday.

The research house said DiGi, which has doubled its postpaid market share to 17% over the past two-and-half years, expects to gain more market share in the postpaid segment with Celcom chasing it aggressively.

It added DiGi could afford to be more aggressive in its pricing as postpaid revenue contributed only 15% to its mobile revenue versus an estimated 30%-35% among its rivals.

“Overall, we expect postpaid competition to intensify, especially as we approach the deadline for MNP in 2Q08,” it said.

Nonetheless, CIMB Investment Bank did not expect an irrational price war among the players to materialise.

It said DiGi would enjoy the lowest risk and highest revenue growth potential among the telcos on easing competition in the prepaid segment.

“We think the company will be aggressively challenging its rivals in the postpaid market to gain market share and drive its next phase of growth,” it said.

Meanwhile, OSK Investment Research said telcos in Malaysia would continue to focus on defending and improving their revenue market shares in light of the MNP with customer service and network quality being essential areas.

It said telcos would continue to ramp up acquisition, retention and usage activities with more bundled offerings for data usage for mobile broadband, and increased efforts to widen market share in the lucrative enterprise space.

A research analyst with OSK said in an email reply to The Edge Financial Daily last Friday that there was a huge potential for telcos to create demand as over 95% of Malaysian companies were made up of small and medium enterprises (SMEs).

“Price wars will always benefit consumers. We have always maintained our view of heightened competitive risks for the telecommunications sector from 2H07 leading to number porting in 2008.

“We do not discount the possibility of irrational price competition that may result in greater value destruction over the ensuing months,” he said.