Monday December 20, 2010

DiGi to spend RM700mil to improve services next year


SHAH ALAM: The robust growth in data/broadband/Internet is forcing telcos and celcos to invest more to upgrade and expand their networks and DiGi.Com Bhd says it will invest RM700mil in 2011 in capital expenditure.

Although the amount is similar to what it has spent this year, a lot more will go towards enhancing data and Internet rather than voice services next year.

“We are in the new era of data and Internet. We know where our growth is going to come from and we will invest RM700mil to grow our coverage and capacity,'' DiGi chief executive officer Henrik Clausen told StarBiz in an interview.

“We can still grow our voice (business) but it would not be as big; the potential is limited for we see a turning point in voice,'' he said.

Interview with CEO of DiGi Henrik Clausen. - M. Azhar Arif/The Star.

Last week, DiGi awarded a RM139mil contract to Time dotCom Bhd to plug the holes in its data network. The contract is for a 10-year period and also covers support and maintenance works.

Voice coverage for DiGi has reached 95% in populated areas and 50% for data.

“We are well on track to increase it next year and the capex will be internally funded,'' Clausen said.

Revenue growth in 2011 is expected to be in the “high single digit to 10%''. Contribution from the data and Internet business was expanding, he said.

For the nine months ended Sept 30, 2010, DiGi earned RM3.9bil in revenue and reported net profit of RM846mil which was a 12.2% increase year-on-year (y-o-y). Earnings before interest, taxes, depreciation and mortisation (EBITDA) margins stood at 44%, up from 43.5% a year earlier.

Data (including SMS) revenue for the period rose 16% to RM838mil from RM721mil a year ago.

DiGi had 8.2 million users as at end-September, which is a 10% jump from 7.4 million reported a year earlier. DiGi's rivals Maxis Bhd and Celcom Axiata Bhd have 13.5 million and 11.09 million users respectively.

Maxis controls with 45% market share, followed by Celcom at about 29%, DiGi at over 25% and the rest is held by other players.

“We have been good at taking our fair share of growth in the market and this year we added 1% market share. In the telecoms industry, size matters,'' Clausen said.

He said that over 30% of its users were on some data packages and he expected all DiGi users to be data/Internet users in a few years.

DiGi is a latecomer in the data business compared with Maxis and Celcom but the former's strategy of being transparent about broadband speeds on top of its reasonable pricing will see it through the year with about 5.7% market share of broadband subscribers from 1.9% in 2009, according to an analyst.

For next year, the analyst expects DiGi's share to rise to 7.2%. Maxis and Celcom's market share of broadband subscribers should be about 19.5% and 24.5% for 2010 and 21.5% and 24.4% in 2011 respectively.

The analyst said the broadband industry revenue should double in three years and the key driver would be wireless broadband, which would also triple in three years' time.

The data and broadband market may be booming but it is not without challenges and intense competition. With customers also more demanding, wanting quality service at more affordable prices, can DiGi fight its rivals?

“We want data to be an integral part of DiGi and (to do that) we will leverage on our distribution network, innovate and enhance the product offering. We will ride on our branding as that is where our stronghold is,'' he said. Clausen is fully aware of the need for the company to be more customer centric.

“We want to grow, and grow faster than the industry. We also want to be part of the growth story in Malaysia. The market is maturing and so is our company. We believe we need to stay smart all the time. We have managed thus far and will do that again in 2011,'' he said.

Plans are also in place to cut cost, set new targets, re-invent and equip the team so that they can better serve customers and be ready for the challenges ahead. Clausen is working for the organisation to be far more efficient, effective and leaner.

With the industry maturing, he foresees a lot more sharing and partnerships between the players to reduce costs. DiGi is gearing to sign a collaborative agreement with Celcom in that respect in January.

On Friday, DiGi shares fell 26 sen or 1% to RM24.60. The company has been actively paying out dividends the past few years and an analyst in his report said that even though DiGi and Maxis were high-yield telco picks, Maxis' net dividend yields are slightly higher at 7.4% versus DiGi's 7.2%.

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