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This week, Japan’s NTT Docomo announced it was exiting Malaysia’s mobile market after just 18 months by selling its 16.5 percent stake in local 3G start-up U-Mobile back to its parent, U Television. Its original partner in the business – South Korea’s KT Freetel (KTF) – announced six months ago it is to sell its separate 16.5 percent stake in U-Mobile. In both cases the international operators intend to sell back their respective stakes for US$100 million, the same price at which they acquired them. 
 
U-Mobile launched services in March 2008 on a proposition based around its advanced WCDMA/HSPA network. At the time, it was thought that the backing of two international operators with vast experience of advanced mobile services in their respective domestic markets would quickly establish U-Mobile as a serious rival to Malaysia’s incumbent mobile players. However, as the latest Wireless Intelligence data shows, U-Mobile had signed up just 320,000 customers by the end of 2Q09, representing a mere 1.2 percent of the market. The operator fares better in terms of net additions, adding 50,000 customers in 2Q09. This accounts for a 6.4 percent market share of net additions for the quarter, but is still the lowest among the four operators.
 
U-Mobile’s struggle to make an impact with its advanced mobile services model is partly due to the success its larger rivals are already enjoying in WCDMA and HSPA. According to our data, Malaysia is one of the most advanced mobile markets in the Southeast Asia region with over 15 percent of its connections base migrated to high-speed networks by 2Q09 (by comparison, neighbouring Thailand has still yet to issue 3G licenses). Market-leader Maxis and second-placed Celcom both launched WCDMA services back in July 2005 and remain fierce rivals in both 2G and 3G services. Third-placed DiGi – which is majority-owned (49 percent) by Norway’s Telenor – soft launched its WCDMA network in December 2008.
 
The market is highly-penetrated (97 percent by 2Q09) and competition has intensified following the introduction of mobile number portability in October 2008. There is also competition from the WiMAX camp. Packet One Networks (P1), a local firm, became the first to launch commercial WiMAX services in Malaysia in August 2008 and a further three firms have been awarded WiMAX licenses and are at various stages of launch.
 
According to our data, number-two player Celcom is currently the best performer in the market. The operator grew its connections base by 23 percent over the year to 2Q09 (compared to an overall market increase of 13 percent) and captured a 67 percent share of net additions for the quarter. On the financial side, Celcom increased its EBITDA by 10 percent over the year to MYR682 million (US$196 million) and saw revenue increase by 14 percent to MYR1,544 million (US$444 milllion). However, the operator’s aggressive pricing over the year has led to a decline in ARPU. Postpaid ARPU dropped to MYR94 (US$27) in 2Q09 compared to MYR106 (US$31) a year ago, while prepaid ARPU fell to MYR42 (US$12) from MYR47 (US$14). Celcom also claims to be a leader in mobile broadband. It added 114,000 mobile broadband customers (net) in 2Q09 to bring its total to 420,000, a 236 percent rise over the year. Mobile broadband accounted for 5 percent of Celcom’s revenues in 2Q09, up from 4 percent in 1Q09. Celcom was demerged from Telekom Malaysia in 2007 and is currently part of the Axiata Group, which has numerous other mobile assets in the Southeast Asia region.
 
Despite Celcom’s challenge, Maxis continues to lead the market, though the operator grew its connections base by just 6 percent in the year to 2Q09, the lowest growth among Malaysia’s four mobile players. Maxis is the default distributor of Apple’s iPhone in the country and launched Malaysia’s first NFC-based mobile payments service – known as ‘FastTap’ – in April this year. Maxis was taken private in 2007 and is currently controlled by businessman Ananda Krishnan (75 percent) and state-owned Saudi Telecom (25 percent). However, it is thought that at least part of the company could be floated on the Bursa Malaysia as early as year-end.
 
Meanwhile, DiGi, which trails its two larger rivals in 3G network rollout and services, has been struggling in the face of growing competition and the slowdown in consumer spending caused by the weak macro-economic environment. EBITDA declined 6 percent over the year to MYR522 million (US$150 million), while revenue rose just 1 percent to MYR1,205 million (US$347 million). Both usage and ARPU have been affected by the slowdown. Average minutes per user (AMPU) in the year to 2Q09 dropped by 6 percent (prepaid) and 7 percent (postpaid), while ARPU (blended) fell 8 percent to MYR54 (US$15.5).

Joss Gillet, Senior Analyst, Wireless Intelligence

Docomo and KTF’s interests in Malaysia’s U-Mobile were very much based on a ‘quick win’ perspective. Both operators – world leaders in high-speed networks and services – invested US$100 million each in U-Mobile thinking it would generate quick cash returns not only from 3G data usage but also from international roaming services. However, U-Mobile’s core business – despite the focus on data services – is very much voice-centric and it is struggling to differentiate itself from competitors that have been heavily investing in 3G network rollouts. It has also had to contend with fierce price competition, cautious consumer spending in price sensitive segments and currency fluctuations that have impacted operator profits. To improve U-Mobile’s position and target a hypothetical 5 percent market share in the medium term, Docomo and KTF would have been forced to inject huge sums of money and expect returns in the longer term. This scenario would be in conflict with investor demands to reduce expenditure and secure cash flows to address short term challenges, especially in saturated domestic markets.