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Malaysia-based Axiata has almost doubled its mobile connections base since demerging from parent company Telekom Malaysia in April 2008, according to new Wireless Intelligence data. By the end of the second quarter, total connections across its eight Asia-Pacific mobile markets surpassed 100 million, compared to 51.7 million a year ago. On a proportionate basis – based on the group’s percentage ownership in each market – Axiata’s connections base reached 52.1 million.

This customer growth contributed to Axiata recording arguably its strongest financial quarter in 2Q09 since its demerger last year. Group profit (after tax and minority interests) rose 44 percent over the year to MYR527 million (US$151.4 million), though subsequently adjusted to MYR422 million, while revenues rose 8 percent to MYR3.16 billion. The figures mark a significant recovery from the last quarter of 2008 when the group posted a MYR515 million loss due to weakening currencies and high interest payments. 

Over the last year the group has attempted to reposition itself as a pan-Asian mobile player, dropping the Telekom Malaysia International (TMI) brand in favour of Axiata in May this year and rolling out a new identity (including the new slogan – ‘Advancing Asia’) to support its new pan-regional approach. However, the group’s two main businesses remain its domestic Malaysian operation, Celcom, and PT Excelcomindo Pratama (better known as ‘XL’) in neighbouring Indonesia. These two markets accounted for over 50 percent of Axiata’s proportionate mobile connections and 71 percent of group mobile revenue in 2Q09, according to our data.

Indonesia – Axiata’s largest market in terms of connections – is an under-penetrated, high-growth market but XL’s subscriber base has fallen over the last three quarters, due to the operator refocusing on revenue and profitability rather than connections growth. This strategy – coupled with a reigning in of sales and marketing expenditure – saw 2Q09 profits at XL jump to IDR1,012 billion (US$104 million) following two quarters of losses, but also saw it lose market share to market-leader Telkomsel and a raft of smaller competitors.

Malaysia’s Celcom, meanwhile, has a connections base less than half the size of XL but accounts for almost 50 percent of Axiata’s group mobile revenue. As reported in a recent edition of Snapshot, Celcom outperformed the Malaysian market in 2Q09. The operator grew its connections base by 23 percent over the year (compared to an overall market increase of 13 percent) and captured a 67 percent share of net additions for the quarter. Its success is due in part to its advanced rollout of WCDMA and WCDMA-HSPA, which accounted for 17 percent of connections at Celcom in 2Q09, a higher proportion than any other operator in the Axiata group. Celcom is also a leader in mobile broadband, which it claims accounted for 5 percent of its revenue in the quarter. Profit at the operator rose 14 percent over the year to MYR367 million, while revenues rose 12 percent to MYR1.5 billion. 

Axiata’s other main majority-owned operators are Aktel in Bangladesh and the Sri Lanka market-leader, Dialog Telekom. Aktel showed significant signs of improvement in profitability and revenue in 2Q09 following the implementation of a cost reduction drive. However, it was a less encouraging picture in Sri Lanka, where Axiata was forced to write off MYR159 million (US$45.7 million) at Dialog due to “accelerated depreciation.” Losses at the unit widened to SLR7.7 billion (US$67.1 million) in 2Q09, totalling SLR9.5 billion for the half year, while revenue was also down compared to a year ago. Axiata cited aggressive price and competitive pressures in Sri Lanka for the problems.

Meanwhile, India is poised to become Axiata’s third-largest market when it completes the merger of local operators Idea Cellular and Spice Telecom. Axiata acquired its 14.99 percent stake in Idea in August 2008 and at the same time raised its stake in Spice by almost 10 percent to 49 percent. The merger is scheduled to close before the end of the year and will consolidate Idea’s position as India’s fifth-largest operator with a combined 47.1 million connections (based on 2Q09 data). Spice operates in Punjab and Karnataka, two circles where Idea does not have a presence, which will give the new operator nationwide coverage. Axiata will hold a 20 percent stake in the merged business.

Axiata’s other shareholdings include Cambodia’s Hello, a wholly-owned subsidiary, and stakes in M1 (Singapore) and MTCE, which operates in Iran’s Esfahan province. All three are tier two or three operators with minimal group revenue contribution. The group also has interests in non-cellular telecoms businesses in Pakistan and Thailand, bringing its total Asia-Pacific footprint to ten markets.

Matt Ablott, Analyst, Wireless Intelligence

Axiata faced an extremely tough macro-environment in its first 12 months of operation and the group has performed well against a backdrop of volatile currency fluctuations and weak consumer confidence. It has successfully managed to rein in spending in some of its more profligate markets – most notably Indonesia and Bangladesh – and has focused on improving subscriber profitability and margins rather than pursuing market share. New management teams have also been installed at many of its subsidiaries, which have helped turnaround underperforming operations such as Bangladesh. These were all key factors in the highly-leveraged Axiata emerging from the global financial crisis relatively unscathed, as evidenced by its solid set of 2Q09 financials. However, Axiata remains heavily dependent on Celcom, and its other markets are contributing little more to the group’s bottom line than they did a year ago (Celcom’s share of contribution to both group revenue and EBITDA actually increased in 1H09 compared to the same period in 2008). But as the Malaysian market approaches saturation, Axiata’s other subsidiaries in less highly-penetrated markets will need to perform. As further acquisitions seem unlikely in the short term, Axiata will look to businesses such as the merged Idea Cellular and Spice Telecom in India to fulfil its ambitions of becoming a genuine pan-Asian player.