Sustaining
Axiata’s growth in the
new Telco Paradigm
1st December 2012

SHANMUGA PILLAIYAN (010194)
TAN CHEE HOAW (010120)...
Presentation Outline
1.

Problem statement

2. External Analysis
a) The New Telco Paradigm
b) Porter’s 5 Forces

3. Intern...
Problem Statement
Axiata has had an amazing period of growth for the last couple
years, highlighted by the fact that it ha...
The New Telco Paradigm
The mindshare of mobile users is currently dominated by handset
manufacturers, having shifted away ...
New Paradigm Driver: Smartphones
1.

Smartphones reached 30% market share in 2011 with a total of 483
million units shippe...
New Paradigm Driver: Smartphones
Convergence of Telco and Computing Industry
1.

Apple & Google are the two juggernauts fr...
New Paradigm Driver: Smartphones
Control of the customer
1.

Telcos are losing control of the customer to the computing in...
New Paradigm Driver: Commoditization of
Service
As the telecommunication industry approaches maturity, telco offerings
and...
New Paradigm Driver: Commoditization of Telco
Services
1.

Despite overall subscriber growth, telco ARPU (especially for V...
New Paradigm Driver: OTT
The new gold rush
1.

The money is currently in mobile applications.

2. This market is currently...
New Paradigm Driver: OTT
App Stores are being setup by diverse industry players

Nottingham Malaysia

Source:Distimo, 2011...
External Analysis:
Porters Five Forces on the Mobile Telco Industry
1. Capital requirements

Threat of
New Entry

2. Gover...
Internal Analysis : Customer Base
Axiata Group Customer Base
250

With a customer base of
200 million Axiata has
critical ...
Internal Analysis : Group Financial Performance
Revenue Growth rate is slowing
Group Operating Revenue
18,000,000

17.3%

...
Internal Analysis : Axiata Portfolio of companies
Relative Market Share
HIGH

LOW
Question Mark

STAR

HIGH

Hello

Dialog...
Internal Analysis : Analysis of Current Strategy
Geographic diversification strategy is to customise services
based on nee...
Internal Analysis : Analysis of Current Strategy
Axiata is stuck in the middle
Current strategy focussed on:

1.

Customis...
Internal Analysis : SWOT Analysis
Strengths

Weaknesses

I.

Good financial
performance
II. Large overall subscriber
base
...
Conclusion from Analysis

Conclusions from External
Analysis

Conclusions from Internal
Analysis

The business environment...
Strategic Options
Possible strategic options can be categorised into the following.
Category

Explanation

Core services

...
Recommendations
Based on our understanding of Axiata’s capability and firm
characteristics we feel that there are only 2 v...
Sharing Operational Relatedness Between Businesses

Recommendations
Diversification Strategy
3rd Party
Business
Enablers

...
Recommendation A
Own brand Over The Top (OTT) Services
1. Build an Axiata branded, Mobile OS agnostic app-store
that integ...
Recommendations B - 3rd Party Business Enablers

Differentiated Vertical Diversification™
Servicing the “Bottom of the Pyr...
Recommendations
3rd Party Business Enablers
Bottom of the Pyramid – Diversification Strategy
The

Have-It-Alls
The
Have-So...
Takeaways
1.

ICT

Businesses in technology driven industries are facing ever shorter business model cycles,
due to ICT –
...
Thank You

All rights reserved @ 2012
Appendices
Axiata – Financial Performance (Subsidiaries)
Operating
Revenue

Celcom
(Malaysia)

XL (Indonesia)

Robi (Bangladesh)

Dia...
Porter’s 5 Forces
Threat of New Entrants (low)
Capital requirements – very high to start a telco
Government policy – cellu...
Porter’s 5 Forces – cont.
Rivalry among existing competitors (high)

Diversity of competition – the core services offered ...
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  • AT&T Announces HTML5 App Store, Optimization Tool - http://www.pcmag.com/article2/0,2817,2398621,00.aspAmazon's Android Appstore launches in Europe http://www.guardian.co.uk/technology/appsblog/2012/aug/30/amazon-appstore-android-europeMobihand Shuts Down its App Stores  - Sep 2012 http://www.berryreview.com/2012/09/07/mobihand-shuts-down-its-app-stores-backup-your-apps-now/
  • Telco’s already have done app store 1.0 - mobile content downloads such as ring tonesTelco as the platform for Billing
  • A Sustainability Strategy Document - Coffee

    1. 1. Sustaining Axiata’s growth in the new Telco Paradigm 1st December 2012 SHANMUGA PILLAIYAN (010194) TAN CHEE HOAW (010120) KEVIN CHOO (010226)
    2. 2. 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 Nottingham Malaysia December 2012 Slide 2
    3. 3. 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: Can Axiata continue it’s stellar growth performance within the context of the New Telco Paradigm? Nottingham Malaysia December 2012 Slide 3
    4. 4. The New Telco Paradigm 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: 1. Smartphones 2. Commoditization of telco services 3. OTT Services Nottingham Malaysia December 2012 Slide 4
    5. 5. New Paradigm Driver: Smartphones 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. Nottingham Malaysia Source: Mobile Megatrends 2012, visionMobile December 2012 Slide 5
    6. 6. New Paradigm Driver: Smartphones Convergence of Telco and Computing Industry 1. Apple & Google are the two juggernauts from the computing industry which have moved into the telco industry. Nottingham Malaysia Source: Mobile Megatrends 2012, visionMobile December 2012 Slide 6
    7. 7. New Paradigm Driver: Smartphones Control of the customer 1. Telcos are losing control of the customer to the computing industry that controls the mobile operating system (OS). New Internet Titans Traditional Computing Giants Telcos Nottingham Malaysia December 2012 Slide 7
    8. 8. 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 Commoditization occurs as the Service / Product matures Nottingham Malaysia Traditional Telco Services December 2012 Slide 8
    9. 9. 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 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 Nottingham Malaysia ARPU = Average Revenue Per Uer December 2012 Slide 9
    10. 10. New Paradigm Driver: OTT The 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. Nottingham Malaysia Source: Mobile Megatrends 2012, visionMobile December 2012 Slide 10
    11. 11. New Paradigm Driver: OTT App Stores are being setup by diverse industry players Nottingham Malaysia Source:Distimo, 2011 December 2012 Slide 11
    12. 12. External Analysis: Porters Five Forces on the Mobile Telco Industry 1. Capital requirements Threat of New Entry 2. Government policy 1. Presence of substitute Bargaining Power of Suppliers Rivalry Among Existing Competitors Bargaining Power of Customer 1. Diversity of competition 2. Product differences products/services Legend: Low Medium High Nottingham Malaysia 1. Substitute Threat of Substitution 1. Buyer propensity to substitute December 2012 Slide 12
    13. 13. Internal Analysis : Customer Base Axiata Group Customer Base 250 With a customer base of 200 million Axiata has critical mass 200 Million 150 100 50 0 Series1 2007 2008 2009 2010 2011 40 89 120 160 199 Nottingham Malaysia December 2012 Slide 13
    14. 14. Internal Analysis : Group Financial Performance Revenue Growth rate is slowing Group Operating Revenue 18,000,000 17.3% 5.3% 17.3% 16,000,000 13.5% 14,000,000 RM '000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Series1 2007 2008 2009 2010 2011 9,996,879 11,347,711 13,312,187 15,620,674 16,447,937 Axiata appears to be unable to sustain the momentum of growth in New Telco Paradigm, as revenue growth rate seems to be declining. Nottingham Malaysia December 2012 Slide 14
    15. 15. Internal Analysis : Axiata Portfolio of companies Relative Market Share HIGH LOW Question Mark STAR HIGH Hello Dialog Idea XL Celcom LOW Market Growth Rate Robi M1 Multinet MTCE Cash Cow Nottingham Malaysia Relative size of revenue contribution to Axiata group Dog December 2012 Slide 15
    16. 16. Internal Analysis : Analysis of Current Strategy Geographic diversification strategy is to customise services based on needs of each country. Currently different subbrands at each country Nottingham Malaysia December 2012 Slide 16
    17. 17. Internal Analysis : Analysis of Current Strategy Axiata is stuck in the middle Current strategy focussed on: 1. Customised offerings to match country specific demand 2. Focus on Cost Leadership Axiata Nottingham Malaysia December 2012 Slide 17
    18. 18. Internal Analysis : SWOT Analysis Strengths Weaknesses I. Good financial performance II. Large overall subscriber base I. Opportunities Threats I. New verticals II. Well positioned in growing markets I. Nottingham Malaysia De-centralized control over regional operations II. Lack of strong/cohesive differentiation with other operators Exposure to regulatory and foreign exchange risks II. OTT services that are viable substitute for core services December 2012 Slide 18
    19. 19. Conclusion from Analysis Conclusions from External Analysis Conclusions from Internal 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 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-thepyramid market Nottingham Malaysia December 2012 Slide 19
    20. 20. Strategic Options Possible strategic options can be categorised into the following. 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 Nottingham Malaysia December 2012 Slide 20
    21. 21. Recommendations Based on our understanding of Axiata’s capability and firm characteristics we feel that there are only 2 viable strategies: 3rd Party Business Enablers Own-brand OTT services 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. Nottingham Malaysia December 2012 Slide 21
    22. 22. Sharing Operational Relatedness Between Businesses Recommendations Diversification Strategy 3rd Party Business Enablers HIGH Own-brand OTT services LOW Nottingham Malaysia LOW HIGH Corporate Relatedness (Skills) December 2012 Slide 22
    23. 23. Recommendation A Own 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. Nottingham Malaysia December 2012 Slide 23
    24. 24. Recommendations B - 3rd Party Business Enablers Differentiated Vertical Diversification™ Servicing the “Bottom of the Pyramid” 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 Nottingham Malaysia December 2012 Slide 24
    25. 25. Recommendations 3rd Party Business Enablers Bottom of the Pyramid – Diversification Strategy The Have-It-Alls The Have-Somethings (partially unbanked) Telco Billing for popular AppStores The Have-Nots (traditionally unbankable) Nottingham Malaysia Alternative Payment Solutions Micro-financing December 2012 Slide 25
    26. 26. Takeaways 1. ICT Businesses 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. BOP More 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. Nottingham Malaysia December 2012 Slide 26
    27. 27. Thank You All rights reserved @ 2012
    28. 28. Appendices
    29. 29. 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 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 7.63% 41.4 Celcom (Malaysia) XL (Indonesia) Robi (Bangladesh) Dialog (Sri Lanka) Cambodia RM (Billion) EBITDA 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% 2010 3.0 7.14% 9.3 50.00% 8.4 25.37% 15.1 81.93% 2009 2.8 12.00% 6.2 21.57% 6.7 59.52% 8.3 5.06% 2008 2.5 8.70% 5.1 45.71% 4.2 -2.33% 7.9 -43.17% 2007 2.3 3.5 4.3 13.9 1.4 -62.16% 3.7 -67.83% 11.5 -17.86% 14.0 -20.45% 17.6 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. Nottingham Malaysia December 2012 Slide 29
    30. 30. Porter’s 5 Forces Threat 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 Nottingham Malaysia July 2012 Slide 30
    31. 31. 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 Nottingham Malaysia July 2012 Slide 31
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