1. Sustaining
Axiata’s growth in the
new Telco Paradigm
1st December 2012
SHANMUGA PILLAIYAN (010194)
TAN CHEE HOAW (010120)
KEVIN CHOO (010226)

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. 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. 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. 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. 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. 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. 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. 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. 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. New Paradigm Driver: OTT
App Stores are being setup by diverse industry players
Nottingham Malaysia
Source:Distimo, 2011
December 2012
Slide 11

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Thank You
All rights reserved @ 2012

28. Appendices

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. 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. 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