Reviving sleeping giants Maxis and Celcom

Its business was sliding and the board made a decision to bring in one Morten Lundal, the man who had engineered the turnaround of Digi.Com Bhd some years earlier.
At that time, Lundal had described Maxis as a company that had “lost its way ... it had drifted”. Maxis was a typical organisation that had grown to become the biggest in terms of subscribers but feasted on its own success, rendering its dynamics sluggish.
As of September-end 2013, its earnings before interest, tax, depreciation and amortisation (Ebitda) margins were down to 47.4 per cent from 50 per cent, and many analysts had a “sell” call on the stock. They preferred the leaner and more aggressive Digi.
One of the first things Lundal did when he took control of the company was to give a 150-slide presentation telling the board what was wrong with Maxis and what was needed to be done to regain its lustre.
Maxis had seen its margins come under pressure from intense competition. Customer complaints were at an all-time high because of service disruptions and it had lost nearly 1 million subscribers, especially in the prepaid segment.
Compounding matters was, apart from a bloated workforce, the fact that its network was not fully equipped to address the data business explosion.
He tore down walls, cut the workforce from 3,500 to 3,000 people, compressed layers of decision-making, made the customer the central focus of the company and changed the way it distributed its products.
The decision to hire this Norwegian and the changes he has made seem to have paid off.
Three years later, Lundal says, “We are at the ‘peak of ‘happiness’. We will always have issues. Things go up and down, but we feel we have done well in 2016 and are happy with the momentum going into 2017”.
As of end-2016, Maxis reported Ebitda margins of 53 per cent, added more subscribers and net profit was 15 per cent higher at 2.01 billion ringgit (Bt16 billion) from 1.74 billion ringgit a year ago. Its blended average revenue per user (Arpu) improved to 56 ringgit as of end-2016. Revenue, however, was flat at 8.61 billion ringgit from 8.60 billion ringgit a year ago. Ebitda improved 1.3 per cent to 4.48 billion ringgit from 4.43 billion ringgit.
“Yes, there is improvement at Maxis. Its Hotlink is gaining traction, but revenue stability, in our view, is still an issue. We have not seen the aggressive push and feel Maxis needs to respond faster to the market,” says a telco analyst who requested anonymity.
But Lundal says “financial stability isn’t easy to achieve because there are ongoing downward pressures, driven by voice and SMS being on the decline. That’s a significant hundreds of millions in revenue going down every year, but we have growth drivers in data and fibre, and we think that the combination of the decline and growth will make us more or less stable also for this year”.
Lundal says this is what Maxis is working to improve upon.

Enter Michael Kuehner
The success Lundal has brought to Maxis is not lost on Celcom Axiata Bhd.
Celcom too is undergoing the problems Maxis had faced some years back. With Celcom being a major contributor to Axiata Group Bhd’s earnings, problems at Celcom have a greater effect on the performance of Axiata’s share price and outlook.
That is apparent in recent times as Axiata’s net profit for the July-to-September quarter of 2016 plunged a whopping 71.2 per cent to 256.5 million ringgit from 891 million ringgit a year ago. This is despite higher revenues and the sharp drop was because its two largest units, Celcom and XL Axiata of Indonesia, continued to lose subscribers and experience declines in revenues.
Axiata’s board had to act and brought in Michael Kuehner as CEO to address the rot. He joined on September 5 last year.
His appointment as CEO comes after Celcom’s famous 31 straight quarters of growth, when it claimed to have the widest network during that time and once the highest number of subscribers.
Kuehner was selected because he had the track record, having worked in the local market for many years. Also, Kuehner had successfully turned around Robi Axiata Ltd in Bangladesh some years back. Axiata has a 68.7 per cent stake in Robi. Kuehner was CEO of Robi from 2009 to 2013.
What he had done at Robi would not be very different from the task for him at Celcom. Both have the same symptoms of network issues, sluggish distribution, weak sales, too many layers of hierarchy and a focus that is inward rather than the consumer, competition and trends.
Today, even the once smallish Digi has overtaken Celcom in terms of number of subscribers. Still, Digi is seen to be disruptive and yet innovative just like U Mobile to shake up the two big players every so often.

The task at Celcom
“Celcom needs a revamp, as it has issues and has lost in terms of perception value,” says an analyst.
Ebitda margins are one of the lowest among the big three, but that is based on its nine-month results since it is yet to announce its full-year 2016 financial results.
Kuehner knows the problem at Celcom and has rolled up his sleeves to take the bull by its horns.
While at it, he is targeting the low-hanging fruit first to regain some stability. There was one too many Celcom packages and they were too complex. He streamlined some and relaunched the Xpax, which to him, “has gained some traction”.
While tweaking its product, some say Celcom needs to also work harder on improving on its network so that the user experience is better.
“Celcom has a big job ahead to regain market share. It has lost about a million subscribers in one year. We believe it will fight back aggressively, as its KPIs are most aggressive,” the analyst says.
“Our mission is to grow as much as the market or more. This is a long-distance run and not a short sprint. We are looking at stabilising in the first half and regaining market share in the second half of the year. Our focus is on the topline growth to increase Arpu. It may be difficult but stabilising it is important,” says Kuehner.

Implications on the industry
Having two “Mr Fixits” to manage two big telcos is a big move in the market place.
Lundal has brought Maxis back to reporting better earnings from the time he came on board. The hope of the board of Celcom is that Kuehner will be able to do the same.
But whatever changes both Maxis and Celcom make will put pressure on other players.
The market is very competitive and players like Digi and U Mobile will continue to disrupt and shake the market with their offerings. Telekom Malaysia Bhd has also re-entered the mobile space with webe (formerly P1), but it is still trying to make its presence felt. Yes by YTL Communi-cations is chugging along and there are numerous mobile virtual network operators also after the same market.
Growth has stagnated, although in niche areas there is some room for manoeuvring. The churn rate is high within the industry, with nearly a million users moving to networks that offer the best deals. The mobile penetration rate per 100 population reached 141.6 per cent with 43.9 million mobile users as of end-September 2016. Of that number, 9.3 million are postpaid users and 34.6 million belong to the prepaid segment. But the fight is in data, where growth is explosive.
Cisco in a recent report says global mobile data traffic should increase seven-fold from 2016 to 2021, with continued growth in the number of mobile phone users, mobile video, 4G networks and the Internet of Things.
Mobile video is driving traffic and by 2021, will account for 78 per cent of all mobile traffic and the Asia-Pacific region will see a seven-fold growth in mobile data traffic, the report says.
A big component of this growth is reliable networks with wide coverage, and the availability of spectrum.
The three – Celcom, Digi and Maxis – spend anything from 800 million ringgit to 1.3 billion ringgit a year on upgrades and that trend will continue. Soon enough, they will have to think of migrating to 5G as demand increases further and also improve on indoor coverage.
But apart from the daily fight for more subscribers and improving revenues from subscribers, the bigger challenge for celcos is how to monetise data.
Average blended Arpu is falling and for Digi, it was 42 ringgit for 2016, 56 ringgit for Maxis and 40 ringgit for Celcom (January-September).
AmBank Research says Digi’s subscriber growth and Arpu is to remain under pressure, as both Maxis and Celcom are already aggressively improving 4G coverage and service quality.