Sustaining Axiata’s growth in the new Telco Paradigm
1st December 2012
SHANMUGA PILLAIYAN (010194)TAN CHEE HOAW (010120)KEVIN CHOO (010226)
Presentation Outline
1. Problem statement
2. External Analysis
a) The New Telco Paradigm
b) Porter’s 5 Forces
3. Internal Analysis
a) Customer base
b) Financial performance
c) Analysis of current strategy
d) SWOT
4. Recommendations
5. Conclusion
Slide 2December 2012Nottingham Malaysia
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Problem Statement
Axiata has had an amazing period of growth for the last couple years, highlighted by the fact that it has clinched Frost & Sullivan's Asia Pacific ICT award for the "Best Telecom Group of the Year" for four consecutive years since 2009.
However, a new technological paradigm has emerged in recent years that could threaten the traditional telco business model. The question is:
December 2012Slide 3
Can Axiata continue it’s stellar growth performance within the
context of the New Telco Paradigm?
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The mindshare of mobile users is currently dominated by handset manufacturers, having shifted away from the mobile network operators.
The 3 main drivers for this paradigm shift are:
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The New Telco Paradigm
1.Smartphones
2.Commoditization of telco services
3.OTT Services
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1. Smartphones reached 30% market share in 2011 with a total of 483 million units shipped worldwide
2. This trend is likely to increase significantly in the coming years as the battle for market share between handset manufacturers intensifies.
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Source: Mobile Megatrends 2012, visionMobile
New Paradigm Driver: Smartphones
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New Paradigm Driver: SmartphonesConvergence of Telco and Computing Industry
December 2012Slide 6
Source: Mobile Megatrends 2012, visionMobile
1. Apple & Google are the two juggernauts from the computing industry which have moved into the telco industry.
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New Paradigm Driver: SmartphonesControl of the customer
1. Telcos are losing control of the customer to the computing industry that controls the mobile operating system (OS).
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New Internet Titans
Traditional Computing
Giants
Telcos
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New Paradigm Driver: Commoditization of Service
As the telecommunication industry approaches maturity, telco offerings and QoS begin to look and feel the same between different competitors, causing:
1. Less room for differentiation in terms of the core services offered
2. Margin erosion from lower prices
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Commoditization occurs as the Service / Product matures
Traditional Telco Services
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New Paradigm Driver: Commoditization of Telco Services
1. Despite overall subscriber growth, telco ARPU (especially for Voice and Messaging) is declining globally.
2. Traditional mobile services (voice, messaging, mobile data) are being threatened by substitutes like Skype, Whatsapp and Wifi Hotspots
December 2012Slide 9
ARPU = Average Revenue Per Uer
Operator Asset OTT Alternative
Distribution & Retail Apple physical retail stores and digital App Stores
Telephony Skype, Viber, TalkBox, Tango
Messaging Whatsapp, KakapTalk, iMessage, Samsung ChatOn
Billing and settlement iTunes, Google Wallet, FB credits, Amazon 1-Click
User Identification & Profile
Facebook, Google, Apple ID
Consumer intelligence Distimo, Flurry, AppAnnie
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New Paradigm Driver: OTTThe new gold rush
1. The money is currently in mobile applications.
2. This market is currently dominated by the mobile handset manufacturers.
3. Handset manufacturers currently have a unprecedented control over the customer.
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Source: Mobile Megatrends 2012, visionMobile
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New Paradigm Driver: OTTApp Stores are being setup by diverse industry players
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Source:Distimo, 2011
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External Analysis: Porters Five Forces on the Mobile Telco Industry
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Bargaining Power of Customer
Bargaining Power of Suppliers
Threat of New Entry
Threat of Substitution
Rivalry Among Existing
Competitors
Legend:
Low
Medium
High
1. Capital requirements
2. Government policy
1. Presence of substitute
1. Substitute products/services
1. Buyer propensity to substitute
1. Diversity of competition
2. Product differences
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Internal Analysis : Customer Base
December 2012Slide 13
With a customer base of 200 million Axiata
has critical mass
2007 2008 2009 2010 2011
Series1 40 89 120 160 199
25
75
125
175
225
Axiata Group Customer Base
Mil
lio
n
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Internal Analysis : Group Financial PerformanceRevenue Growth rate is slowing
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13.5%
17.3%
17.3% 5.3%
Axiata appears to be unable to sustain the momentum of growth in New Telco Paradigm, as revenue growth rate seems to be declining.
2007 2008 2009 2010 2011
Series1 9996879 11347711 13312187 15620674 16447937
1,000,000
3,000,000
5,000,000
7,000,000
9,000,000
11,000,000
13,000,000
15,000,000
17,000,000
Group Operating Revenue
RM
'000
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Internal Analysis : Axiata Portfolio of companies
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Celcom
XL
Dialog
Hello
Robi
Idea
STAR Question Mark
DogCash Cow
HIGH LOW
Relative Market Share
LO
WH
IGH
Mark
et
Gro
wth
Rate
M1Multinet
MTCE
Relative size of revenue contribution to Axiata group
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Internal Analysis : Analysis of Current StrategyGeographic diversification strategy is to customise services based on needs of each country.
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Currently different
sub-brands at each country
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Internal Analysis : Analysis of Current StrategyAxiata is stuck in the middle
Current strategy focussed on:
1.Customised offerings to match country specific demand
2.Focus on Cost Leadership
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Axiata
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Internal Analysis : SWOT Analysis
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Strengths
I. Good financial performance
II. Large overall subscriber base
Weaknesses
I. De-centralized control over regional operations
II. Lack of strong/cohesive differentiation with other operators
Opportunities
I. New verticalsII. Well positioned in
growing markets
Threats
I. Exposure to regulatory and foreign exchange risks
II. OTT services that are viable substitute for core services
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Conclusion from Analysis
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Conclusions from External Analysis
The business environment for telcos is changing rapidly, and Axiata has to change accordingly to stay relevant and vital in the new telco paradigm
Conclusions from Internal Analysis
Axiata's current strategy has been successful so far, but it needs to:
A. Diversify its service offerings
B. Leverage on its large subscriber base
C. Focus more on engaging the under-served bottom-of-the-pyramid market
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Strategic Options
Possible strategic options can be categorised into the following.
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Category Explanation
Core services Redefining customer experience through QoS improvements and core products, enhanced customer interaction, more engaging marketing
Vertical Industry Solutions (SI)
Extending into IT and networking solutions for corporate clients in a “vertical” fashion
Infrastructure Services
Providing infrastructure services such as data centre capabilities, mobile offload to other corporate clients and network operators
Embedded Communications
Integrating voice/messaging/data into 3rd party systems, eg M2M communications
3rd Party Business Enablers
Extending latent telco capabilities to 3rd parties, eg. Identity and authentication, billing and payment, etc
Own brand OTT services
Developing network independent applications and services
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Recommendations
Based on our understanding of Axiata’s capability and firm characteristics we feel that there are only 2 viable strategies:
Because Axiata is operating in different geographical locations with different cultural leanings, market maturity, industry focus, infrastructures, it is imperative to select a strategy that can be rolled out and implemented successfully and uniformly by each entity.
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3rd Party Business Enablers
Own-brand OTT services
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RecommendationsDiversification Strategy
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Sh
ari
ng
Op
era
tion
al
Rela
ted
ness
Betw
een
B
usi
ness
es
LOW
HIGH
Corporate Relatedness (Skills)
HIGHLOW
Own-brand OTT services
3rd Party Business Enablers
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Recommendation AOwn brand Over The Top (OTT) Services
1. Build an Axiata branded, Mobile OS agnostic app-store that integrates with the handset’s native ecosystem, supported by a network specific cloud storage service.
2. Provide enough incentives for developers (both established and aspiring) to develop applications for Axiata’s App Store, with a particular focus on localized applications.
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Recommendations B - 3rd Party Business Enablers
1. Negotiate payment settlement agreements with popular online digital content stores (eg. Apple iTunes, Google Play, Blackberry AppWorld, etc) by leveraging on subscriber base size
2. Develop interfaces with these stores to enable customers to pay for their purchases using their mobile subscriptions (postpaid and prepaid)
3. Develop fraud management policies to cater for the potential for increased bad debts by postpaid subcribers
4. Extend the payment solution to other products and services by working with selected vendors and merchants
5. Develop a framework for the provision of micro-financing services with reputable financial institutions and a network of individual agents
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Differentiated Vertical Diversification™Servicing the “Bottom of the Pyramid”
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Recommendations3rd Party Business Enablers
Bottom of the Pyramid – Diversification Strategy
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Telco Billing for popular AppStores
Alternative Payment Solutions
Micro-financing
The
Have-It-Alls
The
Have-Somethings
(partially unbanked)
The Have-Nots
(traditionally unbankable)
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Takeaways
1.ICTBusinesses in technology driven industries are facing ever shorter business model cycles, due to ICT –
Inevitable Convergence of Technologies.
More consideration must be given to the lifespan of any initiative recommended in the context of a strategic framework. The current frameworks have limitations with regards to how well they can predict the viability of any strategy in the face of this convergence.
2.BOPMore focus should be given towards developing Bottom of the Pyramid strategies that treat that segment as potential viable consumers and a latent economic/entrepreneurial force, especially in developing countries, because
the poor of today could be the middle class of tomorrow.
December 2012Slide 26
Thank You
All rights reserved @ 2012
Appendices
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Axiata – Financial Performance (Subsidiaries)Operating Revenue
Celcom (Malaysia)
XL (Indonesia) Robi (Bangladesh) Dialog (Sri
Lanka)Cambodia
RM (Billion) IDR (Trillion) BDT (Billion) SLR (Billion) USD (Million)
2011 7.2 5.88% 18.9 7.39% 30.7 18.08% 45.6 10.14% 39.5 7.63%
2010 6.8 7.94% 17.6 26.62% 26 30.65% 41.4 14.36% 36.7 -21.08%
2009 6.3 12.50% 13.9 13.93% 19.9 36.30% 36.2 -0.28% 46.5 -14.05%
2008 5.6 7.69% 12.2 45.24% 14.6 1.39% 36.3 6.45% 54.1 30.68%
2007 5.2 8.4 14.4 34.1 41.4
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Recently, revenue growth for Axiata’s mature strongholds of Celcom and XL are currently only in the single digits, while it’s operations in developing markets (except Cambodia) are registering double digit growth.
EBITDACelcom
(Malaysia)XL (Indonesia) Robi (Bangladesh)
Dialog (Sri Lanka)
Cambodia
RM (Billion) IDR (Trillion) BDT (Billion) SLR (Billion) USD (Million)
2011 3.1 3.33% 9.3 0.00% 9.6 14.29% 16.4 8.61% 1.4 -62.16%
2010 3.0 7.14% 9.3 50.00% 8.4 25.37% 15.1 81.93% 3.7 -67.83%
2009 2.8 12.00% 6.2 21.57% 6.7 59.52% 8.3 5.06% 11.5 -17.86%
2008 2.5 8.70% 5.1 45.71% 4.2 -2.33% 7.9 -43.17% 14.0 -20.45%
2007 2.3 3.5 4.3 13.9 17.6
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Porter’s 5 ForcesThreat of New Entrants (low)
Capital requirements – very high to start a telco
Government policy – cellular spectrum in most cases is tightly controlled by governments, and in most cases, only a few licenses to operate a telco are issued in each country
Economies of scale – Incumbent operators in mature or maturing markets are usually more able to stave off challenges from late market entrants because of their existing user base
Bargaining Power of Suppliers (low to medium)
Importance of volume to supplier – traditionally none except for network throughput capacity limitations, but there is a trend that vendors are revenue sharing with the telcos.
Presence of substitute inputs – telco suppliers are facing a trend where networks are choosing to work together to lower capital expenditure on infrastructure spending
Bargaining Power of Buyers (high)
Buyer Information – social networks, blogs, TV ads and information on the internet means that the buyer has access to plenty of information about the companies and their products/services as well as their substitutes
Substitute products/services – The rapid proliferation of app stores and OTT services is proving that buyers are increasingly willing to perform traditional telco-based functions like voice calls and messaging using substitute, internet-based services
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Porter’s 5 Forces – cont.
Rivalry among existing competitors (high)
Diversity of competition – the core services offered by telcos are voice, messaging and data connectivity. Most telcos do not deviate far
Product differences – as the market matures, product differences become commoditized, especially when the top contenders all have access to the same licenses and radio spectrum
Threat of Substitutes (high)
Buyer propensity to substitute – the availability of OTT services via a handset’s native Mobile OS ecosystem makes it highly accessible to the buyer
Relative price performance of substitutes – since many of the substitutes are free, they compare very favourably against telco offerings July 2012
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