SINGAPORE-After two years of bad debts and line terminations, wireless operators in the economically worst-hit Asian nations of Indonesia, Thailand, the Philippines and Malaysia can finally look forward to better times ahead.
Analysts say economic recovery combined with the growing acceptance of prepaid will help boost subscriber growth in late 1999 or 2000.
In Indonesia, for example, wireless operators predict their subscriber numbers will rise between 8 percent and 10 percent this year, despite consumers’ relatively low buying power. This trend is attributed to the relative strengthening of the Indonesian rupiah against the U.S. dollar and the growing use of prepaid cards produced by cellular operators Satelindo, Telkomsel and Excelcomindo.
In the more developed areas, such as Singapore and Hong Kong, the outlook has never been better.
Morgan Stanley Dean Witter, in the June issue of its “Global Telecommunications Primer,” predicted penetration rates in Hong Kong, Singapore, Japan and Australia will likely exceed 50 percent by 2003. Operators in these countries have managed, for the last two years, to escape the ill effects of the region’s economic turmoil.
Since the end of 1997, South Korea’s wireless penetration rate has doubled to 30 percent, while Hong Kong’s rose from 34 percent to 45 percent, according to the investment banking firm.
In Singapore and Japan, the figures are as impressive, growing from 27 percent to 35 percent, and 30 percent to 37 percent, respectively.
Singapore-based Pyramid Research Analyst Sunil Devmurari said the experience of cellular operators in the region has been “very market-specific.”
While operators in less-developed countries like Indonesia and Thailand have had to grapple with fraud and falling subscriber numbers, those in developed markets like Hong Kong and Singapore have been blessed with strong growth figures, he noted.
Analysts say consumerism as well as falling handset prices have helped cellular carriers in the more-developed Asian economies escape the crisis unscathed. As these countries continue to chalk up higher subscriber figures, analysts predict their wireless industries will soon develop along the lines of those in North America and Europe, where data traffic will soon surpass voice traffic and where fixed-mobile convergence will reshape wireless growth.
Sadly, though, the same trend will not apply to those in the less- developed Asian countries-at least not in the near term. In poorer nations, such as Indonesia and the Philippines, carriers are still struggling with issues like bad debt and cellular fraud.
According to Morgan Stanley Dean Witter, 20 percent to 25 percent of subscribers in the Philippines and Indonesia have either voluntarily or involuntarily terminated their wireless services in the last two years.
In Thailand and Malaysia, net additions flattened in 1998.
“Many Asian telecom markets have now seen the regional economic crisis push smaller operators [to] the verge of bankruptcy,” said Morgan Stanley Dean Witter. “Newer entrants in the Philippines, Malaysia, Thailand and Indonesia face mounting financial burdens as currency devaluation has raised the local equivalent value of their U.S.-denominated debt.
“Combined with weak cash flows from small and economically battered subscriber bases, these carriers require substantial capital infusions, debt restructurings or tariff increases to stay afloat.”
Prepaid
But many of these problems may soon be solved with the growing acceptance of prepaid among Asian wireless, say analysts. Prepaid, they note, will enable cash-strapped operators to cut back on human resources since billing isn’t needed for that customer segment. More importantly, prepaid bypasses the twin problems of fraud and bad debt since money is collected upfront.
Morgan Stanley Dean Witter estimates prepaid customers will account for between 20 percent and 30 percent of total cellular subscribers in Asia by the end of next year.
Already, the service is available in the Philippines, Indonesia, India, Hong Kong, Malaysia, New Zealand and Singapore. In the Philippines and Indonesia, 60 percent to 75 percent of all net additions are prepaid subscribers.
“In our view, prepaid has the potential to solve a number of cellular issues in the region, with the benefits of lower default risk and wider margins,” according to the investment bank’s report.
Overcrowded markets
But prepaid is not going to be the wonder drug for the industry’s ills.
Analysts say the regional crisis has highlighted the inefficiency of Asia’s overcrowded wireless markets. Many of these markets have either over-licensed (Malaysia and the Philippines) or have fallen victim to the free-market mentality (Hong Kong).
In Hong Kong, six cellular operators jockey for position in a relatively small economy. And in the Philippines, only three out of the five service providers are actually growing their market shares.
As a result, operating cash flow margins in the Asia-Pacific wireless market are, on average, 5 percent to 7 percent lower than those in the United States and Europe.
Returns on equity also appear to be low-in some cases, lower than the cost of equity.
It therefore comes as no surprise that Asian executives are brandishing the term “consolidation” these days.
In the Philippines, national carrier Philippine Long Distance Telephone Company (PLDT) has said it will be able to achieve substantial cost and capital expenditure savings by combining its Piltel cellular operations with those of cellular operator Smart Communications.
According to Morgan Stanley Dean Witter, consolidation is likely to accelerate in the immediate future.
Already, the company estimates seven cellular carriers around the region have either been closed, sold or worse-failed to even initiate service. An additional three to five operators are in severe financial straits.
“We expect one or two operators to exit Hong Kong, Malaysia and the Philippines, and new competition is less likely to emerge in Thailand, Indonesia and India, though we do expect to see new operators in Australia, China, Singapore and New Zealand,” the company’s report stated.
Investors moving in
As the region slowly emerges from the veil of uncertainty, investors are now beginning to scour around for opportunities.
One such company is British Telecom (BT), which has pumped more than US$1 billion into the region to date, now boasting footholds in practically every major country in the region, including Japan, South Korea, Malaysia, Singapore, China and India.
According to BT, Asia has always been viewed by the company as one of its “most important and fastest-growing markets.”
Indeed, analysts predict in the coming five to 10 years, the region will account for 60 percent of all worldwide telecom revenue.
The Strategis Group forecasts that continued subscriber growth will likely add nearly US$13 billion in wireless service revenues this year alone.
Over the next five years, subscriber growth will nearly double the annual service revenue within the region, despite an anticipated decline of average revenue per subscriber from US$41 to US$29.
“Clearly, wireless is in tremendous demand,” said Terry Wong, director of The Strategis Group’s Asia-Pacific division. “While we have seen short-term slowing of investment in infrastructure and handset sales, continued subscriber growth at this pace will re-energize these segments of the industry.”
