Business

Saturday February 28, 2009

Celcom’s about-turn success

By CECILIA KOK


THE timeless principle of “sowing and reaping” has proven its effectiveness on mobile services provider Celcom (Malaysia) Bhd.

The company’s focus on investing in the basic fundamentals a few years back and setting them right to rebuild a strong foundation has not only propelled the company into the No 2 position in the Malaysian cellular market, but it has also prepared the company to better face the current economic turmoil.

Celcom’s resilience to the increasingly tough macroeconomic environment, intensifying competition in the local cellular market and the uncertainties of mobile number portability (MNP) since last year is proven in its latest financial results which showed double-digit growth for revenue and net profit.

For the financial year ended Dec 31, 2008, Celcom’s revenue grew 10.1% year-on-year (y-o-y) to RM5.6bil, while its net profit grew 23% y-o-y to RM1.3bil.

A fully owned subsidiary of main board listed TM International Bhd, Celcom is also the flagship operation of the former and contributes about 50% to TMI’s group revenue and almost 60% of the group’s earnings.

Yet, it was only three years ago that Celcom was still very much a struggling entity. It was on the verge of decline in terms of revenue and subscriber base. The company was bleeding profusely as it continued to lose ground to its rivals and its profit margin continued to be eroded.

To make matters worse, Celcom’s brand equity then was also losing muscle, Shazalli says.

But it was an about-turn for the company last year when Celcom emerged as the sixth most valuable brand in Malaysia and was named as the country’s No 1 Most Valuable Telco Brand.

Shazalli reveals the tale of the “three waves” that struck down the “walls of Jericho” and paved the way for the company to achieve its success.

Fixing the basics

Towards the end of 2005, the Performance Improvements (PIP) programme kicked in for Celcom, when Shazalli was given the mandate to turnaround the company. A radical approach needed to be taken to move the company into fertile soil, lest it became completely dried up of its lifeblood (that is, ringgit and sens) and lose its relevance.

So, Wave 1 of the PIP slammed in. The aim was to stop the bleeding for the next 100 days. And towards this end, Celcom focused on “fixing the basics” and getting all the board members aligned to the company’s new direction.

According to Shazalli, the company had to turn around all the basic fundamentals that had gone wrong in the first place, and that included its short message service (SMS) delivery system and customer queuing system, which were deemed ineffective and inefficient.

Shazalli says, Celcom already has the best network service in Malaysia, providing the strongest coverage in the country. But the problem is, Celcom was losing its subscribers. So, boasting the best coverage in the country did not help.

Regaining lost ground

So, getting the “basics” right was pertinent as it set the momentum for the company to receive the second wave of the PIP in December 2006. The aim was to move towards regaining lost ground.

The second wave was focused on fixing the “higher level of fundamentals” such as its billing platform, distribution service and programme network, among others. And Celcom began to see positive results, as its subscriber base started growing even without the company introducing any new products, but merely focusing on fixing the fundamentals.

By the strike of the third wave, Shazalli says the company was ready for 2008 with a new marketing strategy. Its segment-focused marketing strategy, particularly with the youth and Malay segments, proved effective as by the end of last year, Celcom registered 1.6 million new subscribers, of which 31% were from the postpaid segment and 69% from prepaid.

Total Celcom subscribers in 2008 represented a gain of 22% y-o-y at 8.76 million. This means Celcom now controls about 32% share of the Malaysian cellular market, just behind Maxis Communications Bhd, which controls about 42% share of the market.

Running the race

Shazalli says the implementation of MNP since last year has not had any significant impact on the company and the industry as a whole.

He confesses to having spent quite a lot on promotional campaigns to protect Celcom’s market share in view of the MNP implementation last year. But then, “it seems Malaysians are actually quite happy holding three phones under three mobile service operators”, he says.

So, the MNP’s effect was just hype, it seems. Analysts agree on this given the somewhat matured mobile market of Malaysia.

According to the Malaysian Communications and Multimedia Commission, the mobile penetration rate in Malaysia as at the end of September last year was 94%. This signifies that the Malaysian mobile market is heading towards saturation.

To this, Shazalli says there are actually many other types of services encompassing the mobile technology. Mobile services are not just about voice, but also data such as Blackberry and mobile e-mails, which remains relatively untapped.

In fact, for Celcom, indicators are showing that data service is becoming the new business driver. Celcom boasts to be the No 1 mobile broadband service provider in Malaysia both in terms of subscriber base and coverage. As at December last year, Celcom had 228,000 broadband subscribers. That was a whopping increase of 300% y-o-y.

Shazalli says there is much potential for Celcom to continue focusing on the mobile broadband segment in order to capitalise on the growth opportunity. This is because broadband penetration in Malaysia is still relatively low at less than 20% per household.

On the current economic onslaught, Shazalli says Celcom’s stance is to remain cautiously optimistic, and it will not invest in technologies that do not guarantee results. Nevertheless, he believes Celcom is well-placed to face the challenges ahead because “we have done what everyone else should have done three years ago”.

When times were good, the company was tightening its belts and prioritising spending on investments that could guarantee returns, he explains. This is expected to provide sufficient buffer for the company to confront the headwind.

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