Broadening Access

Saturday May 7, 2011
By B.K. SIDHU
bksidhu@thestar.com.my


Just about a year since its launch of Unifi, how well is TM faring?

CANNOT stop griping, if you don't have it. Love it, if you do. That aptly sums up the reaction to Telekom Malaysia Bhd's (TM) retail highspeed broadband service (HSBB) called Unifi, launched over a year ago.

Those who reside in the hub of Klang Valley but do not have access to Unifi do not understand why there are still areas without decent HSBB access. On the other hand, if you were to talk to those who have already hopped onto HSBB's super-fast service, their reactions and feedback are surely an envy.

Meanwhile, the much-improved mobile access and smartphones, and the phenomenal popularity of bandwidth intensive applications such as online video, IP-based telephone services to downloads of music/video files are resulting in rapid lifestyle changes.


Mark Dioguardi says Maxis will continue to invest.
Against this backdrop, when Unifi was launched in March 2010, it was a highly-anticipated and glitzy event. Expectations were high largely due to the pent-up demand among data-hungry users.

Upon closer examination though, it may appear as if the numbers don't quite stack up against the total cost of the HSBB's project of RM11.3bil which will span over 10 years. As it stands today, TM, which co-owns and operates the HSBB, has drawn 80,000 users for the service. However, this is only 10% of the 800,000 premises where the services are currently available. This means that the HSBB has catered for 800,000 users in either offices or homes but only 80,000 have subscribed to it.

In its defence, TM is insistent that growth at current levels is commendable. “How can you tell if we are slow or fast within a year? (You should) Benchmark us with others, especially the European players ... you will see that their growth numbers are only 2%-3% for similar rollouts over the first year. Ours is almost 10%,'' says TM group CEO Datuk Seri Zamzamzairani Mohd Isa in an interview.

The Government has forked out RM2.4bil of the total cost of the project, whose main objective is to propel the nation towards a knowledge wealthy one and cater for the massive and ever rising bandwidth demand. The contribution towards economic growth cannot be emphasised enough as well. Based on estimates, for every 10% increase in broadband penetration, GDP could be boosted by an average 1.3%.

Unifi (on it's own) may not be able to meet the demands of all consumers, but together with Streamyx service, TM may be able to do so and the two services could amass a sizeable subscriber population. As at the end of last year the broadband household penetration rates in the country reached 55%. TM contributed to over 50% of that and expects to remain the major contributor in the future, says Zam.

Low speed on implementation?

An analyst who tracks the telco sector opines that TM may be moving too slowly in their pursuit of subscribers, especially given that it has so much capacity ready for retail take-up.

Nomura Research analyst Sachin Gupta from Singapore believes that “it is all about winning customers and Unifi has so many homes passed but the (subscriber numbers) are nothing (great).''


Afzal Abdul Rahim says the second network may not be a viable proposition.

As at the end of last year and six months into its roll out, Unifi had 33,000 users. Net additions over the past four months have been impressive at more than 10,000 subscribers per month. Of the 80,000 users, 70% of users migrated from TM Steamyx to Unifi while the remaining 30% are new customers.

“You must remember that this is a 10-year project and it is to provide premises passed so that the country can have an infrastructure sooner rather than later. It is based on a supply driven model, and the focus is on roll-out. We are doing quite well and trying to get as many take-ups as we can,'' Zam says.

Apart from the 95 areas covered under the public/private partnership between the government and TM for the total 1.3 million premises rollout, TM will expand to other areas where there is demand for Unifi.

“This will also affect our demand and take up projections and all in all we expect the future of HSBB to be bright,'' says Zam.

The targets are intact. By year end, he expects Unifi to have 150,000 subscribers with 1.1 million premises passed. By the end of 2012, it expects to extend its services to 1.3 million premises. Currently, Unifi is available in 63 areas and by year end, this is expected to rise to 78 and by the end of 2012 to 95.

Even so, the perception that the roll out is slower than it ought to be persists.

“People have not warmed up to UniFi and the high speeds it provides due to a combination of reasons. Firstly, the market is a price sensitive one and with that, current users of DSL (direct subscriber line) broadband have not seen the need to pay more for the high speeds. This points to another issue and that is potential subscribers are not able to see the ways in which they can fully utilize the larger pipe. Therefore, access to content that leverages on high speed broadband needs to be strengthened.'' says IDC Malaysia associate market analyst John Cheah.

Tipping Point

Tony Brown, a senior analyst at a UK-based research company Informa Telecoms & Media, says that, “we have seen that fibre-to-the-home (FTTH) take up rate on a regional basis is usually governed by FTTH operators offering prices that are at par with existing DSL and only a few subscribers are actually willing to pay a premium for the higher speeds that FTTH offers.''

On that note, an analyst opines that TM should reduce the entry level packages to below RM100/month.

Naturally, Zam thinks otherwise as “demand is there and so is the value. It is triple play and not just about HSBB ... it's about Internet, video and phone.'' In fact, Zam points out that Unifi's 5Mpbs package is priced lower than that of its rival Time dotCom Bhd (TDC).

Brown points out that Maxis offers a cheaper headline HSBB package than TM. However, that may not necessarily be the case. Maxis offers 4Mbps with 30GB of data for RM128/month whilst TM offers 5Mbps with 60GB of data for RM149/month; that is double the data for only RM21 more per month and TM's offer also includes IPTV and voice.

As such, for consumers hoping that TM would tweak its pricing downwards anytime soon, could be in for a disappointment.

Zam admits that there are challenges in operation and execution of FTTH projects such as logistics and training that continue to bog the company in its quest to roll out faster.


Datuk Seri Shazalli Ramly ... ‘You have to move because of the evolution
Indeed, digging up roads to lay fibre in the ground can be a costly affair, although for new townships, this would naturally be a lot easier to do.

In reality, most parts of the Klang Valley are “brown field'' areas, which means digging and laying of fibre takes up a relatively long time and it is this which Cheah says could be delaying TM's efforts to link users up to the fibre, although 800,000 premises can already tap into the super-fast broadband service.

Zam points out that for areas which do not have Unifi just yet, TM's Streamyx is made available. Besides, there are plenty of wireless options from Maxis Bhd, Celcom Axiata Bhd, DiGi.Com Bhd, Packet One Network (P1), YTL Communications, RedTone International Bhd and TDC.

Zam believes the growth experience over the past four months is “an indication that the take up is ramping up.''

“We want to do more and we will not take years to fill the 1.3 million premises passed. We are building and the demand is there. The inflection point is 200,000 users and then everything goes up. We should hit that inflexion point in 2012,'' he says.

TM's management's guidance to analyst is that its margins will be weaker this year due to higher marketing cost but margins are expected to be higher in the following years at the operating level.

Homing in on consumers

Of late, the hottest buzz in the high speed broadband realm is in the home services sector where reaching out to more users in a single household instead of satisfying the needs of just one user is the order of the day. The development in technology allows for this while the behavioural changes among consumers are driving the need to diversify. With aggregation of content, telcos and celcos are moving to generate better revenues for their fibre.

Consumers need more and better options. For example, a television set which is traditionally there for passive viewing, hence often referred to as the idiot box', is evolving into an interactive and gaming device.

It is the changes in demands which observers say could have led to TM's decision to relax its stranglehold on HSBB services and reconsider its seven-year moratorium which was aimed at fending off competition, to finally open its doors to Maxis late last year. TM is also currently drawing up a similar deal with Celcom.

An analyst says it was also the lukewarm response to Unifi and enterprise business that could have driven TM to capitalise on its asset by opening it up to its competitors.

“A lot of money has been invested into HSBB and a healthy rate of return is more important than other initial strategies. At this point, it is beneficial for TM to have a fibre partner as they can derive revenues from the wholesale business,'' says IDC's Cheah.

Whatever the reason, the move should be lauded as more players can only be a good thing for consumers as it brings about more choices.

Meanwhile, consumers are watching with anticipation what Maxis has planned for the home services products, although like most things that are preceded by high expectation, the offerings since the soft launch has yet to match expectations.


Michael Lai says the future will be driven by content in high definition, bigger bandwidth and multiple screens ...
“The big question really surrounds what kind of growth Maxis will be able to drive with its retail HSBB services since they have a track record of top-notch marketing. If they can replicate their success in the mobile market in HSBB, we could see some really strong growth,'' Tony says.

Yet some observers are curious as to why TM has not teamed up with Astro. Instead, Astro has tied up with TM's rival TDC to offer IPTV and broadband, which is in direct competition with TM.

Cheah says content is key to growth in take up and while TM has an impressive content library, this could be no match to that of Astro's.

Banding together

Brown adds that if Maxis deploys a powerful IPTV that includes some of Astro's exclusive content, that could clearly give it an edge over TM and Celcom. “TM's biggest problem in the HSBB era is clearly content. They just cannot break the grip that Astro holds and would probably want the MCMC to move in and do something about content rights, similar to what regulators have done in Singapore. But it's tough to see that happening,'' says Brown.

On his part, Zam says: “We will look to work with anyone who wants to work with us. We keep our options open. More content will help.''

Most certainly, it's exciting times for Malaysia as high speed Internet is the conduit to accelerate lifestyle changes. The big question is is there enough fibre to take us through the next generation or the next 5-10 years when man-to-man communications will completely shift gear to man-to-machines and machines-to-machines? Now, that's some food for thought.

“A lot of people do not understand the magnitude of the future growth. At this point, regulators around the world are already looking for more spectrum since growth is going to be exponential. Increasingly, the fibre and wireless/mobile players are forming collaborations to work together to meet the demand,'' says P1 CEO Michael Lai.

Globally, there are over 1 billion broadband users and more than half a billion fixed broadband users; the latter are expected to surge to 1 billion by 2013.

Lai adds that the “future will be driven by content in high definition, bigger bandwidth and multiple screens and no one player can handle these alone. So, they will compete and co-operate or what they call in the IT industry co-opetition.''

Celcom CEO Datuk Seri Shazalli Ramly adds that “we saw lots of agreements (between players) being signed and that means there is realisation, it is sinking into all players. If you don't, you get burnt as you no longer can stay at comfortable (levels). You have to move because of the evolution.''

Lai says while HSBB is a good starting point as fibre gives capacity, what is being offered today, such as 5Mbps, 10Mbps or even 20Mbps, is nowhere near future demands where the concept of smart grids and electrical applications being able to work independently come into play.

So, the next logical question could be is it time to plan a second independent superfast speed network to cater for future growth? That may be a welcoming idea for smaller players who currently find it a hassle to ride on the HSBB as TM prefers users who can add value.

To meet the burgeoning and ever-evolving demand, Maxis executive vice-president, network and technology Mark Dioguardi states the obvious when he says that the company will have to continue to invest.

As for the second network, TDC CEO Afzal Abdul Rahim says it may not be a viable proposition. Zam says: “If there is market failure, we would need to do something like that. But we can come to reasonable terms to provide choices, so why re-invent the wheel?''

Nomura's Sachin says there can never be enough fibre given the exponential data traffic growth. However, he says that given Malaysia's (comparatively small) size and population, it would be hard to justify having an alternative competing fixed infrastructure to the existing fibre.

Based on latest subscriber figures, TM has some way to go to bridge the Klang Valley's digital divide, let alone that of the nation, while execution clearly remains the top challenge.

While wireless and cellular players have higher broadband subscriber numbers, they would still have to depend on fibre for their core network and base stations from TM. On the retail side, however, they are competing with Unifi.

There is a school of thought that TM should spin off the wholesale business to an independent party to allow for a single pricing mechanism for all players and focus on retail to enable it to reach far and wide. That is something akin to what British Telecom did many years ago.

Of course, that's an option that TM would clearly not be in favour of.

“Different countries have different approaches. We cannot be compelled to do it just because one country has done it. What are we trying to achieve here dominance? That does not resolve the problem. In any case, there are players out there with more licences than us. They are capable of building their own,” says Zam.

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