YTL Comms to turn on the heat

The Star Online, November 19, 2010 by Leong Hung Yee

PETALING JAYA: Competition in the mobile and Internet business is expected to heat up with the entry of YTL Communications Sdn Bhd 's Yes service, and some analysts believe that a price war may erupt.

There's a potential (for a price war). With YTL coming into the market, the probability is higher, CLSA Securities Malaysia Sdn Bhd head of research Clare Chin said.

She said the new entrant would also raise competitiveness among telecommunications companies while broadband operators would be worried about their margins.

Expectations surrounding the launch of Yes sent shares in YTL Comms' parent company, YTL Power International Bhd , to their highest level in almost three years in early trade yesterday. The counter ended eight sen, or 3.19%, to RM2.59 but off the intra-day high of RM2.64.

An analyst said the new entrant did not bring in competition automatically. He said telcos would up the ante against each other to woo customers in a saturated market and that was where the competition or price war would kick in.

In crowded markets where penetration (of voice) exceeds 100%, it can be difficult for an operator to distinguish itself from its competitors if it can only offer the same services.

To differentiate, it needs to be able to offer something new and different with better value proposition, the analyst said.

While competition is good for the consumer, it is not so for the local telcos which have spent the last few years battling each other in a price war, where consumers ultimately reaped the benefits in terms of low mobile call and SMS rates.

Every player's nightmare would be a price war, as margins would be pushed lower, hurting revenue, an analyst said.

YTL Comms' Yes 4G wireless broadband service would charge customers nine sen for a minute of call, one SMS or 3MB of data. And that's before our rebates kick in, YTL Comms said in a teaser yesterday.

According to analysts, at nine sen a minute the service could be the cheapest in the market. However, they prefer to await confirmation from YTL on the price. Sources said YTL would also be throwing in a rebate as high as 30% for its subscribers.

The more you use, the more rebate you'll get. For example, if you hit a threshold of 3GB, the price will drop and if you hit another threshold at 5GB, the price will continue to drop, the source said. A simple calculation shows that nine sen per 3MB works out to about RM90 for 3GB, giving users roughly about 2,000 emails.

CLSA Securities' Chin did not discount consumers migrating to the latest network since cellular voice had already reached saturation.She said consumers may want to choose a service provider that could offer them a better value proposition.

Investors are getting too excited, too early, Chin said, adding that today's event was just a launch and the hybrid TV would only be launched by end-2011.

Analysts said the triple play, which offers television, Internet and telephone in a single connection, would be the next wave that could change the traditional consumption pattern among Malaysian users of telecommunications services.

Apart from coming up with new products and services to steal customers from rivals, they would also have to entice their existing customers to spend more.

Yes is expected to cover up to 65% of the peninsula from day one. The other areas would be covered later.The company has spent some RM2.5bil for the Yes 4G infrastructure. The 4G network will be SIM-less with the 018 prefix.

In a report, OSK Research said that YTL Comms would need to capture at least 300,000 subscribers based on the assumption of average revenue per user of RM100 a month, given the steep initial investment outlay and operating expenditure.

Although the prices of WiMAX equipment and devices have fallen by over a third in the last two years, we believe YTL Comms would probably have to provide a steep upfront subsidy to lure subscribers given the stiff market competition as well as high mobile penetration rate, it said.

YTL Comms is also launching its flagship store at Lot 10 in Kuala Lumpur today after the official launch of the new service.