Mobile operators up the ante to attract users

WEALTH CREATION

THE Malaysian telecommunications industry should stay vibrant in 2010 as mobile operators up the ante to woo new customers in a saturated market.

There are now more mobile subscribers than Malaysia's population of about 27 million people and mobile operators need to find new ways to grow their customer base as well as earnings.

Besides coming up with new products and services to poach customers from rivals, they would also have to entice their existing customers to spend more.

"There will be greater marketing aggression for both mobile broadband and prepaid next year. Broadband is on the verge of an expansionary growth phase in Malaysia, and the country's prepaid tariff is still one of the highest in the region," said OSK Research analyst Jeffrey Tan told Business Times recently.

Competition in the mobile broadband space is expected to reach a new high this year, as DiGi.Com Bhd, the newest player among the big three to offer the wireless services, will give its rivals a run for their money by showing how broadband is "done right" as it expands its presence.

Not far behind is also YTL e-Solutions Bhd. It has announced a plan to invest RM2.5 billion over five years to roll out a nationwide wireless broadband network.

"It is definitely the space to watch in 2010. Question now is, will the competition end up being irrational, like a price war," said another analyst.

Despite the competition among players getting stiffer, which may result in margin squeezes, analysts believe that telecommunications stocks are still able to offer value for investors.

"In the context of some downside pressure on the market that we anticipate for the second half 2010, telecom stocks offer a safe haven given their resilient earnings and strong cash flows. Dividend and capital management themes will continue to be paramount," explained Tan.

Despite the saturated market, analysts expect the telecommunications sector to register growth, in the range of mid-single-digit to mid-teens percentage revenue growth.

"Revenue growth is likely to be in the mid to high single-digit for DiGi, Maxis and Telekom Malaysia, while low to mid teens for Axiata," added Tan, who has a "neutral" call on DiGi (RM22 target price), TM (RM2.88) and Maxis (RM5.80) and a "buy" call on Axiata (RM5.80).

By the end of this year, IDC expects mobile penetration to hit 108 per cent, or equivalent to at least 750,000 of new subscribers, from about 105 per cent in 2009.

"Mobile broadband subscriptions will be the main contributor for the increase of mobile penetration. In terms of postpaid subscribers, IDC forecast 23.3 per cent of the total mobile subscriptions in 2010 to be postpaid users, with year-on-year growth of 10.9 per cent compared to 2009," said IDC telecommunications research associate analyst Chua Fong Yang.

Besides surging mobile broadband demand, analysts are also expecting growth to come from the conventional voice, especially prepaid voice service, as well as non-text messaging data revenue such as downloads and value-added services with higher interactivity.

The enterprise segment, where telcos offer custom packages for companies and their employees, is also expected to grow.