Can YTL keep promise to be cheapest mobile phone service and survive?

 

Raison D'etre - Risen Jayaseelan

AS expected, the mobile Internet service from YTL Communications Sdn Bhd, Yes, was launched last Friday with much fanfare. Some consumers are excited and rightly so.

YTL is promising the cheapest communication rates in the country with a simple integrated plan that combines voice, SMS and mobile data. There is also talk that YTL could offer Internet protocol TV soon.

YTL's Yes launch, however, is reminiscent of a couple of other launches of telecommunications-related services in the past by newcomers attempting to break into the scene.

Those following the telco or broadband scene will remember that in the last 10 years or so, there have been many players who have come into the wireless broadband scene.

Alas, despite their ambitious and sometimes colourful ad campaigns, many have not been able to sustain their businesses.

Here are some examples:

EB Capital Bhd launched its wireless broadband service in 2001, got listed in 2005 and went into major financial difficulties by 2008, when it was de-listed. At one point, had more than 1,500 corporate and retail customers for its wireless broadband service and had even done trials on WiMAX.

AtlasOne Sdn Bhd, started by a bunch of former Celcom employees around 2000. It was hailed as the new broadband player in town when it announced that it had garnered a significant amount of funding. At one point, it was said to have raised RM370mil partly from the Islamic Development Bank in Jeddah and partly from Bank Pembangunan Malaysia Bhd. But AtlasOne fizzled out and little has been reported about whether its funders had got their money back.

Time dotCom Bhd (TdC) in 2004 launched its wireless broadband service called Webbit in certain areas of Petaling Jaya. It is believed that TdC had not even managed to move beyond its pilot phase for various reasons, the bulk of them being technical in nature.

MiTV Corp Sdn Bhd, launched in 2005 as the country's second pay-TV operator, had expected to sign up 100,000 subscribers for the first year. It failed to gain a foothold in the pay-TV market and suspended its new subscription activities in late 2006, only to morph its business model into a cellphone service provider in the country

It changed its name to U Mobile Sdn Bhd, and operates the 018 prefix service and is now running trials on a wireless broadband service. Singapore's STT Communications Ltd and Multi-Purpose Holdings Bhd have bought stakes in U Mobile.

Green Packet Bhd, the most significant licensed WiMAX player in Malaysia (considering its widest coverage), has so far reported losses over the last few years due to its high capital expenditure in rolling out its network. It promises profitability, at least from an Ebitda (earnings before interest, tax, depreciation and amortisation) calculation, by next year.

No doubt, many players are driven to the industry by the attractive Ebitda margins achieved by the entrenched players, such DiGi.Com, Celcom and Maxis. But those starting afresh face major challenges and this is why many have failed.

First, you are up against some serious competition the incumbents are not about to give up a customer easily and these players have to some extent, sunken costs that put them in a better position to fight on price.

Then there are the huge costs involved in rolling services, on multiple fronts actually. Firstly, there is the network itself, which includes not only the equipment costs but also having pay real estate owners a rental for using their area to put up base stations and other equipment.

Then you have to continuously ensure your service is up and running and of a certain quality. It can cost a lot of money to deploy a sufficient number of technically competent staff.

Then there are the other fixed costs such as paying for billing systems, the call centres to handle customer queries and complaints and in some instances, having to pay what is called a device subsidy.

This is where players absorb some of the cost of devices sold that use their network so as to entice customers.
One of the world's leading WiMAX players, US-based Clearwire, is still reporting losses.

Still, perhaps a time will come when WiMAX players will achieve healthy Ebitda margins. And perhaps then they will enjoy the kind of investor interest that DiGi.Com and Maxis have today, due to their massive cash flows. Time will tell.

Deputy news editor Risen Jayaseelan says that despite the lack of visibility of profits of WiMAX players, the entry of new service providers can only mean good news to consumers, who should enjoy better rates for their telecommuncation needs.