Post Listing plan: Work cut out for Maxis

Friday November 20, 2009

Work cut out for Maxis

As the hype over Maxis Bhd’s IPO settles (it should after its debut yesterday), the real work begins. In an interview withStarBiz’s ANITA GABRIEL and RISEN JAYASEELAN, Maxis Bhd CEO Sandip Das talks about why Maxis is not just a yield play, and how it plans to fend off intense competition, keep a lid on slipping ARPUs and hold on to its market leader spot.

BEING the dominant player in the country’s mobile industry has its fair share of challenges. Maxis Bhd CEO Sandip Das himself admits: “It’s very difficult to ask a successful company to change. Why change if you are already successful?”

The company found the answer to that question two years ago when it assessed the future of its Malaysian business. “We looked at the penetration of voice, data and broadband. We knew we had to make a step change.”

“We decided that we needed to move away from being a mobile-skewed company. If the last decade was more about Maxis being a mobile operator, the next decade is about us being an integrated player. The next battle will be fought in the households,” he said.

StarBiz: You joined Maxis Group not too long before it was privatised. Now, it’s gone public. How do you expect that to change for you?

Sandip: We’ll get a little more visible. This is good as there were times in the last few years we felt that we should have come out as they were good years.

Sandip Das ... ‘The next battle will be fought in the households.’

2006 was a record year and then, we privatised in mid-2007. In 2007, we exceeded all the numbers of the previous year and around the third quarter of 2008, we had the highest share over the last three to four years in terms of post paid and pre-paid, our EBITDA (earnings before interest, taxes, depreciation and amortisation) margin remained about 50%, our value added service (VAS) especially non-voice revenue started to grow significantly and we hit almost 31% (of revenue) last year.

How do you plan to fend off competition and maintain your ARPUs (average revenue per user) which are under pressure?

We’d have been worried if we had lost market share on account of competition snatching it away from us. There was one particular market plan which we introduced back in December 2008 which actually hurt us more than anything else. The moment we corrected that, we found our shares coming back up again.

Our second quarter was better than the first quarter and third-quarter revenue doubled (quarter-on-quarter) while the fourth quarter is looking good.

We have a formidable share of the youth market. It’s not a published figure but from our research, we almost have half of that market. We may have lost a little bit of that share in the first quarter of this year when we didn’t reduce our prices as much as we should have but the moment we corrected our prices, our share came back up again.

Industry-wise, over the past two years, ARPUs dropped by 25-30%. Despite that, we’ve done reasonably well in keeping our EBITDA margin above 50%. That has not happened by accident. It happened because we had a strong post paid base, strong VAS base, strict rigour on financial control and cost.

We have a few plans to protect our strong post paid base. Our non-voice revenue has worked well for us and it’s possible that over the next couple of years, almost 50% of our revenue will come from non-voice (from 34% currently).

Our growth in 2009 may not come in as strongly as it did in 2008. We had a washout in the first quarter but second half has grown very well. It was a recessionary year, all said and done. But with the expected swing next year, consumption will go up compounded by penetration and data usage.

But it is also during this slowdown that rival Celcom managed to gain ground ...

Celcom gained ground more because we conceded ground as opposed to them taking away ground.

It’s very hard for Maxis leadership to just go away in a quarter, unless you do something really blasphemous.

How do you plan to grow your subscriber base?

A lot of people think Malaysia is saturated. I think it’s more matured than saturated.

Our demographics are very compelling. Look at areas like East Malaysia (Sabah and Sarawak) with penetration level of 40% and 60% in East Coast.

A 150% penetration in Malaysia is not difficult because it has become a multi-sim market.

Data is the other area of growth. In 2004, 14% of market was non-voice. In 2009, it’s expected to go up to 28% and industry revenue is up from RM1.5bil to RM5.2bil. That coupled with 16 million Internet users and our own base of over 5 million subscribers who are on data; that’s very exciting. Data is growing at 31%-35% in terms of our share of revenue (to the group).

The third area is broadband – penetration is not so high with plans to move to 50% by next year.

Traditionally, Maxis is not very strong in the East Coast and Sabah and Sarawak. In the past 18-24 months, we pushed very hard in the East Coast, where for plain voice, we were a distant third. Now, we’ve raised our market share by 14 percentage points in East Malaysia. That’s an area to go forward.

What’s your broadband subscriber base?

Now, 200,000 post paid dongles. We are pushing hard in the next year and a half towards a million subscribers. We’ve got a sizeable footprint.

Broadening the band

This is a competitive landscape for mobile broadband. Won’t margins be affected?

Margins in the short to medium term will be affected. But the key to the success of broadband is user experience. It’s not just price that will lead.

In the short term, everyone is going to claim that they are the best and give low prices but that’s not right. What’s right is to be able to dimension network properly, get the right capacity and throughputs as you can put people off very quickly. It’s not just about price. Anybody will pay RM10 more for consistent and reliable broadband.

But there are limitations to wireless broadband as opposed to wired, correct?

They are two very different classes of users and usages. Mobile broadband will always struggle vis-a-vis fixed broadband in terms of throughputs and capacities which are dynamic. The key is how to constantly dimension the network capacities particularly in busy areas. No one can declare I have the best network as it’s so dynamic – it depends on number of users, etc. Wireless broadband will always have that limitation.

However, wireless broadband is so easy – it’s faster to deploy and you can use it anywhere. Almost 50% of wireless broadband users already have fixed lines at home. Both have their time and place. We too have a fixed line licence which just got extended.

We have wired up the last mile for many of the buildings in KL – 280 buildings so far and another 60-70 soon. We are looking at seeking access from others; we have signed up trial agreement with some parties to carry our broadband over their utilities and are looking forward to HSBB (high-speed broadband).

You’ll see us not relying entirely on wireless broadband, although it is going to be a major thrust, but also looking at a more converged broadband.

Woudn’t that mean you’re going head on with TM?

The Government is keen to see 50% broadband household penetration. That cannot happen with one company alone. We have to join hands to create that.

We are looking forward to HSBB as the Government has said it will allow open access to everybody. Commercial terms need to be fair and equitable.

Critics say you don’t spend enough to build up infrastructure. Comment.

Between 2006 and 2008, we spent RM2.9bil. We completely out invested the competition by about half a billion ringgit in the last three years. This year, we’ll end up spending another RM1.2bil. Next year, we’ll spend just as much.

Can we not rule out injection of overseas business into Maxis Bhd?

At this point of time, this is a Maxis Malaysia property. But if there was any investment that would add strategic value in terms of spectrum play, or media play of some sort which could enhance our existing position within the boundaries of Malaysia, we’ll certainly look at it.