Business





Saturday May 17, 2008

REDtone pitches its challenge

By ERROL OH


Telco to offer broad range of services

Company Visit

MAYBE it is time to stop using “discounted call provider” as the shorthand description for REDtone International Bhd. The Mesdaq company is close to completing a transformation phase that has seen it venturing beyond the voice business to become a player in data, mobile and content services as well.

It is a necessary step. In recent years, REDtone's status as a voice leader has become less and less meaningful in the face of intense competition, a painful margin squeeze and waning demand. In addition, certain investments abroad and in new business areas have not yielded the expected returns.

Zainal promises superior price performance and service.

This has led to the makeover. The result, as group CEO Zainal Amanshah Zainal Arshad puts it, is a “challenger telco” that offers a broad range of telecommunication solutions, particularly to businesses.

He likens REDtone's new role in the telco industry to those of DiGi.Com Bhd in the mobile market and Green Packet Bhd's Packet One Networks (M) Sdn Bhd in broadband services. “Our positioning now is about bringing fair and better alternatives to the market. We want to be the leading alternative service provider,” he says.

Fair and better, Zainal explains, means superior price performance and service. “This is our brand promise,” he adds. The key attraction, though, may well be REDtone's ability to be a one-stop shop for the enterprise/SME (small and medium enterprise) market because of its presence in voice, data, mobile and content.

(Based on billings, REDtone has an in-house criterion that separates enterprises from SMEs.)

The argument here is that people fancy the idea of dealing with a single vendor for their various telecommunication needs. “We are able to unify all of these services, which are competitive on a separate basis, but when you couple them, it's an even more compelling offering,” says Zainal.

REDtone is zeroing in on the enterprise/SME market because it sees bigger opportunities there. The consumer market for telco services, on the other hand, is crowded.

In a way, it is apt that REDtone is targeting business users because the company had started with corporations as its customer base before going into the consumer market. According to Zainal, this background has helped develop REDtone's capabilities in tailoring solutions to suit the customers' requirements.

He explains, “Enterprise/SME customers are very demanding and their businesses are always changing. Their priorities (when seeking telco services) are to keep costs low and to look for value-add, which often has to be customised. In addition, they expect good service.

“This is our strength because of our ability to innovate. Also, we have developed our business from the enterprise and SME base over the years. So all the best practices are ingrained in us.”

An analyst who tracks REDtone for a local investment bank is positive about the company's current strategy. “It's good that the management is trying to develop the various revenue streams. The direction is much clearer now. However, it will take time for the new initiatives to deliver results.”

Indeed, there is still some work to be done before REDtone is ready to offer its entire range of services. For example, a component of its data business is its WiMAX service for wireless broadband via subsidiary REDtone-CNX Broadband Sdn Bhd (in Sabah and Sarawak) and associate eB Capital Bhd (in Peninsular Malaysia).

The company is conducting trials in Sabah and Sarawak, and plans to roll out the service commercially by the fourth quarter. However, the situation in the peninsula is more complicated.

Zainal says the Government has halted eB Capital's service rollout for unknown reasons. An appeal has been lodged and the company is in talks with the authorities.

In addition, there is a race against time to revamp the ailing eB Capital. It may be delisted should it fail to meet the deadline for regularising its financial position. REDtone is the white knight that has proposed a restructuring scheme for eB Capital, which includes REDtone injecting its data business into the latter.

REDtone is working on making Internet TV as the mainstay of its content division. “We are looking at unique content that you can't get on free-to-air TV, Astro or elsewhere on the Internet. With Internet TV, the viewer dictates the time he watches the programmes.”

Zainal declines to provide more information because the deals are still pending. The REDtone website names the content arm as DETV and describes it as” Malaysia’s first and only Chinese IPTV (Internet Protocol Television) station”.

On the mobile front, REDtone is set to go to market in a week or two as Malaysia's first mobile virtual network operator (MVNO) for post-paid services. On May 9, REDtone Mobile Services Sdn Bhd signed an agreement with Celcom (M) Bhd to pave the way for this.

“We are always asked why we are going into an area that appears to be saturated. We think there is still a lot of upside in the enterprise/SME space. We're looking to differentiate ourselves through the content,” says Zainal.

“Business is increasingly being transacted out in the field as opposed to in the office. So what kind of content can help our customers drive their businesses? This is not a ring tone or wallpaper kind of thing. We're looking at getting essential business information to these people as and when they are on the field.

He adds that REDtone is talking to content providers who have powerful engines that can search and categorise information, and push it out to users. Lifestyle-related content is also being considered.

Zainal says the new REDtone business model can avoid the margin squeeze that has affected the discounted call business because there is more room to manoeuvre in the data and mobile space.

“In data, the only dependency is on the backbone. We own the last mile (infrastructure). Typically, our capex is low. We're not talking about putting in place a huge network and going out there to look for customers. We are building a smaller network that is more targeted at the low-hanging fruit.

“Secondly, we have flexibility in bundling solutions. The ownership of the network and packaging of the services allow us to move away from purely a price game. It's also a value-add game.”

He acknowledges that the main challenges in mobile are to retain customers and to increase average revenue per user (ARPU). “For us, the focus is on content and value-add. If you come up with a unique content that people love, you can do well,” he argues.

Also, REDtone is relying on its overseas ventures – Zainal says its investment in China is growing “slowly but surely” – and projects in the data business to contribute to the bottomline.

“We've really had to work hard in the past two years to move from a discounted call provider to where we were. Just to get the mobile business going, took us two years. To get the data offering off the ground, we have made some acquisitions,” he adds.

“This financial year (the year ending May 2008) is very much a year of transformation and discovery. We've taken a firm decision to address the areas that are non-yielding or non-core. So there's a bit of a cleanup as well. So as we move into the new financial year on June 1, you will see the focus on high-yielding areas.”

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