Management Discussion & Analysis

2017 Outlook

The effect of reducing revenues, coupled with increasing capex spend is presenting operators across the globe with challenges. This has resulted in a shift of value from asset heavy telecom operators to newer asset-light or OTT players. In 2017, Axiata foresees the data interdependence cycle to continue, with traditional telecom operators responding more aggressively to the structural shifts.

Smartphone penetration is expected to continue to rise, likely exceeding 60% in Axiata’s footprint markets driven by sub-USD50 4G LTE devices and demand for video content from mobile-first customers. It is anticipated that the industry will see continued heightened capex intensity due to the need to invest in additional spectrum and data network capacity, as well as coverage.

As data devices and networks continue to proliferate and improve, it is likely that data usage will continue to increase at approximately 50% compound annual growth, which may result in average usage across the Group increasing to approximately 3GB per user per month. The heaviest usage markets of Malaysia and Cambodia is expected to approach 6GB per user per month on mobile.

With the increasing emergence, acceptance and adoption of SVOD services, it is anticipated that fixed and mobile convergence will become a priority, for telecom operators in 2017 as they seek to displace traditional media and Pay TV players, monetise content driving capital investments in the network, and move into the home segment on a lower cost fixed platform.

In 2017, it is expected that the telecoms industry will see further consolidation in three possible dimensions

  • Mobile network sharing/consolidation
  • Mobile mergers to achieve greater scale
  • Mobile and Fixed mergers to achieve Convergence

Challenges in 2017

Moving into 2017, the Group is prepared for the onslaught of several challenges within its operating environment. The unprecedented competition which marked the Indian telco sector in 2016 will continue into the first half of 2017. Ideally, the Indian telco industry’s restructuring and rationalisation through market consolidation into a three player market would allow for more rational and reasonable competition. In Malaysia, currency volatility and increasingly stringent forex control requirements are expected to persist. However, the Group’s aggressive mitigation exercise of forex exposure by hedging US Dollardenominated debts will reduce its vulnerability.

Rapid changes in regulatory and government policies such as spectrum reallocations and auctions, and national taxes, remain at the forefront of challenges. For 2017, these uncertainties include spectrum reallocation in Malaysia, the impact of new taxes announced in the 2017 Sri Lankan Budget and uncertainty over network sharing in Indonesia. As well as that, effective and meaningful customer touchpoints are becoming more essential to generate sustainable business growth and Axiata needs to defend its customer relationships in all its markets of operation.

For 2017, Axiata has strategised a number of initiatives and targets in line with its ambition of becoming a New Generation Digital Champion by 2020.

Axiata is banking on successful recovery at Celcom on the back of its refreshed management and turnaround strategy and will be aggressive in recapturing its leadership position in certain areas in Malaysia in the coming year. In line with this, the Group has allocated capex of RM1.4 billion (USD315 million) for Celcom for 2017, the majority of which will be used to improve its network quality and coverage. This directed approach will enable Celcom to regain its momentum in the prepaid space, dealing with issues such as pricing and packaging to regain its leadership position in 2017.

At XL there has been good traction amongst data savvy customers, with rising smartphone penetration and traffic denoting that it is attracting the right customers. The plan is to expand beyond Jawa to growth areas in Sumatra, Kalimantan and Sulawesi which is bound to contribute to an increase in revenue. To capture real growth in the middle segment of the market, XL will focus on better deals, whilst refreshing the brand and team proposition. Within its vendor base, XL will be offering a different game plan to appeal to its target market segment.

Axiata intends to be a clear number one player in 4G and achieve data leadership within selected areas in all of its markets of operation. In line with this, the Group will be increasing capex from RM6.1 billion in 2016 to RM6.6 billion in 2017 to fund key technology and network projects to achieve the best regional data network. By leveraging on collaborative opportunities available in the marketplace, Axiata will lead the way in product leadership and innovation, especially of data-led products and analytics in areas such as financial services, music, media and entertainment, digital advertising, Enterprise and Internet of Things (IoT), and devices.

Following on from Robi’s merger in Bangladesh and the acquisition of Ncell in Nepal, the focus will be on effecting a quick turnaround on consolidation and integration within these two OpCos and the Group, which will contribute to greater profitability in 2017. At Robi, the focus is to strengthen performance and improve market share by capitalising on synergies with Airtel, and the Group has targeted double-digit revenue growth for the coming year.

A key target slated for 2017 is to achieve a balanced portfolio by improving the Group's balance sheet and continuously reviewing various strategic portfolio options to ensure long-term value enhancement, and optimal deployment of capital and funding for growth strategies.

Within the Group, Axiata has started implementing of a Group-wide Cost Management programme that will improve efficiency and profitability within a better cost structure. Cost optimisation of RM800 million from operational expenditure and capex savings has been built into the Group's 2017 plan. Axiata intends to achieve RM1.5 billion in additional savings in 2018 and 2019, channelling the funds into its long-term business growth strategies.

edotco will be aggressively pursuing expansion opportunities within the region and intends to add at least two more tower companies within the ASEAN and South Asia region to its portfolio of companies within the next one to two years.

To maintain competitiveness within the evolving telco landscape, Axiata has identified four key growth pillars under the Axiata 3.0 strategy:

  • Convergent Networks and Infrastructure to deliver dedicated services into the home via the most efficient technology
  • Enterprise and IoT through Business to Business (B2B) and Business to Business to Consumer (B2B2C) solutions across multiple industries
  • Financial Services (Fintech) such as insurance and micro/nano-credit
  • Media, Entertainment and Advertising via go-to-market partnerships and investments through Axiata Digital

In staying ahead of the curve and capitalising on the benefits of digitisation, Axiata will be focusing on some key initiatives in 2017:

  • Commencing a structured Digitisation benchmarking against global and regional peers
  • Setting and measuring Key Performance Indicators (KPIs) to achieve digitisation across the business at both Group and OpCo levels
  • Customer facing digitisation efforts such as self-care digital application and dealer registration digital application roll outs
  • Digital and social media platform marketing, analytics and customer engagement

For complete details on outlook for each market, please refer here