DENVER, United States-Market strategy has taken on a new meaning for wireless carriers in the Asia-Pacific, which are picking themselves up, dusting themselves off and looking around to see if the region’s economic storm has left them shipwrecked or simply thrown off course a bit.
As carriers get their bearings, some of them have begun to re-evaluate market strategies on a frequent rather than an occasional basis, according to telecom analyst Piyush Mubayi of Lehman Brothers in Hong Kong. Thailand’s Advanced Info Service plc is reassessing its strategy monthly, he said, looking at all the traditional variables such as advertising, accounts receivables, costs, usage rates, etc. And one carrier in Indonesia, the country hardest hit so far by the economic tumult, is conducting market strategy daily-looking at subscriber adds, said Mubayi.
“The kind of strategy (change) that we’re seeing is companies slashing back their capital expenditures” while focusing on retaining their existing subscriber bases rather than expanding them, Mubayi explained.
Using this approach has allowed carriers generally to maintain their price levels instead of having to reduce them for competitive measures. The exception has been in the ultra-competitive Hong Kong market, where six new personal communications services (PCS) providers came on the market in 1997 and consumers have been reaping the benefits of resulting price competition. However, carriers have realized they can’t make any money in this pricing regime, said Mubayi, and are boosting their monthly charges.
Mandarin Communications Ltd., which launched PCS service in October at a low HK$88 per month for unlimited use, now has raised its rates to HK$138 for 100 minutes, with HK$1 charged every minute thereafter. This compares with cellular operator SmarTone Mobile Communications Ltd., which charges HK$288 a month.
Consolidation
Hong Kong for a while has been showing symptoms of a market with too many carriers. In 1997, consolidation began with Hong Kong Telecom CSL purchasing Pacific Link Communications Ltd.
“Of all the financial studies I’ve been seeing, it turns out that the typical marketplace can’t really support more than four wireless carriers,” said David Roddy, chief telecommunications economist for consultancy Deloitte & Touche in Washington. “In … countries that have allowed more carriers in, it’s somewhat better for the customer … but from a long-term strategy, there’s going to be consolidation” because carriers can’t make money in that situation.
The only situation where a fifth carrier likely can survive is as a wireless local loop provider in a market with waiting lists for landline service, said Roddy.
“What’s clearly going to happen across Asia, but in Indonesia and the Philippines especially in the short term” is operators are going to begin to consolidate before any more new licenses come into the market, said Mubayi. They want to capitalize on the other carriers’ existing subscribers-again focusing on the existing subscriber base rather than expanding it, said Mubayi.
While he wouldn’t mention specifics, Mubayi said Lehman Brothers is seeing definite consolidation activity in Indonesia and the Philippines and that decisions are expected soon.
Possible strategies
Analysts provided a diverse perspective on potential market-strategy tactics carriers in the region could take to deal with the difficult financial situation.
“In terms of trying to have any kind of silver bullet for the crisis, unfortunately I don’t see one,” said Fred McClimans, chief executive officer and director-analytical operations for United States-based consultancy Current Analysis.
But what’s important for carriers concentrating on their existing subscriber base, McClimans said, is a marketing position that establishes wireless services as a core telecommunications need for business users. People still need to conduct business in the midst of an economic downturn, so he advised carriers to make users realize cellular service is a necessity, not a luxury.
Another obvious goal is to increase revenue. This can be done by increasing monthly fees, but McClimans cautioned this needs to occur as part of a value-pricing model where customers perceive they are getting more value for the increased rates.
In Thailand, Mubayi said, carriers are working to boost cash in-flow and reduce bad debt by changing billing cycles from two per month to eight-increasing the number of bill batches sent per month and thereby getting a more consistent flow of payments and being able to detect potential bad debt earlier.
Bad debt is a problem in many countries. Mubayi said the bad-debt rate for cellular subscribers in Indonesia was between 22 percent and 25 percent in 1997; and in the Philippines, 12 percent to 15 percent. He added, however, that the situation has been improving in the Philippines.
Prepaid
Bad debt can be a major problem in regions such as the Asia-Pacific, where carriers for the most part have poor credit-check capabilities. That’s why carriers there already have launched prepaid solutions.
Some analysts say using prepaid to increase market share by targeting lower-end consumers is a key option for Asia-Pacific carriers. It was a strategy used by Mexico’s Telcel after the economic crisis there in 1994-1995.
At January’s Wireless Showcase Asia in Singapore, Jonathan Tarlin, senior vice president-international for The Strategis Group, analyzed the current Asian crisis by presenting a comparison to the Mexican peso devaluation. The stock market there, he said, plunged by 45 percent from September 1994 to March 1995.
One of the tactics nationwide cellular provider Telcel took during the aftermath was to introduce prepaid into the market to keep subscriber-growth levels up. Telcel’s primary competitor, Grupo Iusacell, decided instead to focus initially on high-end users to keep revenue-per-user rates up, while sacrificing some subscriber growth.
Telcel as a result was successful in increasing its marketshare from about 50 percent to 66 percent, but it paid a price on the revenue side, said Tarlin. Since the second quarter of 1996, Iusacell’s revenue per subscriber has been 30-percent higher than Telcel’s, he continued. So it’s a trade-off.
Bill Devey, major account director of the Asia-Pacific region for Brite Voice Systems Inc., which offers a prepaid product, argued that using a prepaid product isn’t necessarily equated with low usage and low revenue. He pointed to the United States, where he said prepaid subscribers provide 10-percent higher usage revenue than traditional cellular subscribers.
Concentrating on higher-end customers is only a short-term solution, claimed Devey. “In the long term you have to find a way of making the [mass-market] consumer base profitable.”
Lehman’s Mubayi said he hasn’t yet seen any evidence of carriers in the Asia-Pacific going after the lower-end market with prepaid. But he said he doesn’t recommend it for countries such as Indonesia, where the economic situation is so bad. “Maybe it would be OK for Thailand because the situation is improving” there.
But prepaid doesn’t have to be targeted just at lower-end, credit-risk customers. While higher-end business customers are not likely to default on payments, another option for prepaid is to target corporate clients that need to tighten their belts, said The Gartner Group analyst Sakina Dhilawala in Singapore.
Dhilawala said she’s seen interest from companies in purchasing prepaid cellular in bulk and divvying it out to their employees to control costs.
