Malaysia – Mobile market projections 2020

2 futures … - Stagnate or Grow

Saravanan SFreelance Consultant – Telecom Strategy & Changesaravanans80@gmail.com

3 April 2015

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Exec Summary – Malaysian Operators have to decide if they are going to stagnate orgrow their services business going forward.

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• The Malaysian market has 2 possible future directions – one of stagnation around the $7.5 Bn markOR maintain growth to reach close to $10 Bn by 2020,

• Stagnation Drivers :• Excessive navel gazing…. - with more focus on Costs and Margins and not enough on Growth /

Innovation and Solutions• Under-spending on Capex – coverage, quality, technology, products and services partnerships /

innovation – a recurrent theme in Malaysia• Price competition in Data

• Growth Drivers• Focus on market growth – through new products and services• Focus on Innovation – especially in IoT solutions, Regional Mid Size Corporate Mobility solutions• Leverage regional market leadership – especially for Axiata and Telenor to build scale for Eco-

system partnerships.• Widen business scope beyond Core Communication – to Devices Retail / Supply chain• Promote Multi-device / multi-connection ownership and usage• Promote Data – OTT - Content synergetic deal making and sell solutions / experiences rather

than pure data

Malaysia Market - Macro Drivers – Past Trends ..Assumptions for the future : Population growth trends continue to decline to 1.35% p.a. by 2020; while GDP grows at between5-6% (real) and a $ GDP deflation rate of 4 – 4.5% in line with the past trends averaged over last 8 years

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27 27 28 28 29 29 30 30

19

2320

25

2931 31

34

4.8 5.5 5.4 6.4 6.9 7.2 7.2 6.8

2.5%2.4%

2.7%2.6%

2.4% 2.3% 2.3%

2.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2007 2008 2009 2010 2011 2012 2013 2014

Malaysia Macro Trends - GDP, Pop, Mob Rev & Indy % of GDP

Pop Mn GDP $ Tens Bn

Mob Rev $ Bn Mob Rev % GDP

Malaysia Industry Revenue % of GDP – in context of global trends 3 future scenarios..Based on GDP / Capita vs, Mobile Indy Rev % of GDP analysis carried out for top 55 markets..

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y = 0.0211x-0.13

R² = 0.1853y = 0.0249x-0.171

R² = 0.3288y = 0.0257x-0.176

R² = 0.3917

y = 0.0266x-0.187

R² = 0.3999

y = 0.0259x-0.188

R² = 0.4114y = 0.0251x-0.186

R² = 0.4155y = 0.025x-0.193

R² = 0.4263

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

Indy Rev % GDP (Y-axis) vs. GDP per Capita (X-axis) by year

Indy Rev % GDP 06

Indy Rev % GDP 07

Indy Rev % GDP 08

Indy Rev % GDP 09

Indy Rev % GDP 10

Indy Rev % GDP 11

Indy Rev % GDP 12

Power (Indy Rev % GDP 06)

Power (Indy Rev % GDP 07)

Power (Indy Rev % GDP 08)

Power (Indy Rev % GDP 09)

Power (Indy Rev % GDP 10)

Power (Indy Rev % GDP 11)

Power (Indy Rev % GDP 12)

y = 0.0211x-0.13

R² = 0.1853y = 0.0249x-0.171

R² = 0.3288y = 0.0257x-0.176

R² = 0.3917

y = 0.0266x-0.187

R² = 0.3999

y = 0.0259x-0.188

R² = 0.4114y = 0.0251x-0.186

R² = 0.4155y = 0.025x-0.193

R² = 0.4263

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

Indy Rev % GDP (Y-axis) vs. GDP per Capita (X-axis) by year

Indy Rev % GDP 06

Indy Rev % GDP 07

Indy Rev % GDP 08

Indy Rev % GDP 09

Indy Rev % GDP 10

Indy Rev % GDP 11

Indy Rev % GDP 12

Power (Indy Rev % GDP 06)

Power (Indy Rev % GDP 07)

Power (Indy Rev % GDP 08)

Power (Indy Rev % GDP 09)

Power (Indy Rev % GDP 10)

Power (Indy Rev % GDP 11)

Power (Indy Rev % GDP 12)

GDP / Cap =$ 16,500By 2020

Mob Indy % ofGDP = 1.6

Mob Indy % ofGDP = 1.8

Mob Indy % ofGDP = 1.35

7.37.8

8.2

8.8

9.3

9.9

4.8

5.5 5.4

6.4

6.97.2 7.2

6.87.2

7.57.8

8.28.5

8.8

7.1 7.2 7.3 7.4 7.4 7.4

2.0% 2.0% 1.9% 1.9% 1.9% 1.8% 1.8%

2.5%2.4%

2.7%

2.6%

2.4%2.3%

2.3%

2.0%1.9%

1.9%1.8%

1.7%1.7%

1.6%

2.0%

1.9%

1.8%

1.7%

1.6%

1.5%

1.4%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Malaysia - Mobile Revenue Projections $ Bn

Mob Rev Scen 1 Mob Rev Scen 2Mob Rev Scen 3 Mob Rev % GDP Scen 1Mob Rev % GDP Scen 2 Mob Rev % GDP Scen 3

Three Scenarios projected for Malaysian mobile market = based on extent to which theindustry share of GDP will drop over the next 5 years..Range of Industry revenue by 2020 = $7.4 Bn to $9.9 Bn – from the current $6.8 Bn in 2014.

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In terms of product break out, Malaysia is following global trends, with Data share growing,Voice share shrinkage and SMS dropping off the charts

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74%

71%

68%

62%59%

55%53%

55%

79%

76%71%

68%66%

64%63%

61%

80% 81%79%

76%

70%68%

65% 64%

50%

55%

60%

65%

70%

75%

80%

85%

2007 2008 2009 2010 2011 2012 2013 2014

Malaysia - Voice % of Revenues

Maxis Celcom Digi

26%

29%

32%

38%41%

42% 43%44%

21%

24%

29%

32%34% 34% 34%

37%

19%18%

20%

23%

29%31%

34%35%

15%

20%

25%

30%

35%

40%

45%

50%

2007 2008 2009 2010 2011 2012 2013 2014

Malaysia - Non-Voice % of Revenues

Maxis Celcom Digi

21%

25% 25%

29%

34%

18%

21%

23%

25%

30%

15%

20%

25%

30%

35%

40%

2010 2011 2012 2013 2014

Malaysia - Pure Data % of Revenues

Maxis Celcom

17%

16%

17%

14%

10%

14%

13%

11%

9%

7%6%

8%

10%

12%

14%

16%

18%

2010 2011 2012 2013 2014

Malaysia - SMS % of Revenues

Maxis Celcom

Growth Scenario – Data revenue nearly trebles to MYR 18 Bn. Voice Revenue growsmarginally. Only happens if the industry pulls back from price competition and invests inmulti-device ownership; Own OTT service portfolios and drives M2M / IoT revenue streams

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12.8 13.8 13.6 13.8 13.7 13.7 13.6 13.2 13.8 14.0 14.2 14.4 14.5 14.5

0.81.4 2.4

3.5 4.5 5.4 6.6 7.18.7

10.211.8

13.715.6

18.0

3.03.1 3.0

3.13.0

3.12.6 1.9

1.71.5

1.2

0.90.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Malaysia Mobile Indy Rev MYR Bn - Scenario 1 - Product Breakout

Voice Rev Data Rev SMS Rev

Stagnation Scenario – Data revenue doubles while voice falls by 25% and SMS disappears.Total revenue growth is marginal. Most likely outcome in case of continued pricecompetition and a slower economic rebound. This is perhaps the most likely outcome

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12.8 13.8 13.6 13.8 13.7 13.7 13.6 13.2 13.3 12.9 12.5 12.1 11.5 10.9

0.81.4 2.4

3.5 4.5 5.4 6.6 7.18.3 9.4 10.4 11.5 12.4 13.5

3.0

3.13.0

3.13.0

3.12.6 1.9

1.7 1.4 1.0 0.7 0.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Malaysia Mobile Indy Rev MYR Bn - Scenario 3 - Product Breakout

Voice Rev Data Rev SMS Rev

The Malaysian smartphone market currently at ~~$2.5 Bn p.a. and growing each year - Expecta 50-70% rise in volumes and potentially 30-40% by value by 2020. Operators who canleverage their deep knowledge of Subs usage, spend, credit have a huge opportunity

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38%

57%

17%

23%

32%

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014

Smart phone Penetration % of Base - Maxis & Celcom

Maxis Celcom

Despite their high margins and the growth potential of the market and country, Operators areseem chary of spending on Capex and Innovation in the last 4 years, which could adverselyaffect future revenue growth

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14%

16%

12%

9% 9%

14%

12%12%

13% 13%

11%10%

15%

13%

10%

11%

11%

13%

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

2009 2010 2011 2012 2013 2014

Malaysia - Capex % of Rev

Maxis Celcom Digi

Mobile Industry general average of12% Capex / Revenue – typically

going to 15-16% during largetechnology rollouts – eg. LTE