Telecommunication

Research – Malaysia Mobile forecast IQ 2012 Maxis has been the leading mobile communication service provider in the past decade but in the last 5 years theirs dominance has been gradually decreasing mainly due to its competitor rapid growth in the industry. Figure 2 shows the no. Of subscribers recorded by all three service provider for the past 5 years. Dig has been the most consistent in terms of growth in no of subscribers whereby they have posted an average growth of 10% between 2007 and 2011 . Whereas Maxim’s growth in no. Of subscribers have been inconsistent and in year 2011 they have posted lost of bout 10% of their subscribers.

The variable growth level of Maxis and its competitor has been mainly due to factors such as service pricing, emergence of supplementary goods such as Smartened, increase in coverage area, and government regulations. Figure 2: No of Subscribers for respective mobile service provider. Sources: Cellos, Dig and Maxis Annual report from 2008 to IQ 2012. 3. 0 Demand The ever growing demand for Maxim’s mobile services can be contributed to its competitive price and non price factors such as price of related goods, and consumer’s income level. 3. 1 pence

Telecommunication companies provide customers with varies type of price packages for their services and goods throughout the year and constantly changing their pricing to attract customers. As such, it is difficult to compare the price of respective service providers. Maxim’s average pricing for its services such as postpaid, data. Revenue per minute is not an exact pricing figure but rather a reflection of the pricing trend. As service price increase, revenue per minute increase and as price decrease revenue per minute also decreases. Further explanation of RPM is available in appendix l.

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Figure 3: Correlation between no. Of subscribers and revenue per minute. Source: IEEE Market Research – Malaysia Mobile forecast IQ 2012 From 2007 to 2012, Maxim’s revenue per minute has shown a downward trend. Between 2007 and 2010, Maxis have recorded drop in revenue per minute but had a significant increase in its no. Of subscribers. Figure 3 shows the correlation between no. Of subscribers and revenue per minute. In 2010 Maxis had the largest drop in revenue per minute which is 22% and recorded the highest no. Of subscribers which is 13. 95 million in the last five years.

Maxis had a 10% lost in its no. F subscribers in 2011 even though it had lower revenue per minute compared to the year before. This decrease in subscribers was influenced by other non price factors. Drop in revenue per minute can be related to the lower price offered by Maxis to attract subscribers and stay competitive in the market. Figure 4 illustrate how drop in price will increase demand or no. Of subscribers, all else held constant. As price drop from Pl to UP, no. Of subscribers increases from IQ to SQ. Figure 4: A change in quantity demanded occurs due to change in price, all else held constant. . 2 Price of related Goods Maxim’s variable growth level in the last 5 years can be related to its competitors or substitute goods and the emergence of Smartened which are complementary goods. 3. 2. 1 Substitute Goods Maxim’s main competitors in Malaysia’s mobile communication industry are Cellos years and this can be related to ability of its competitors to attract customers with lower price. From 2007 to 2011 both Cellos and Dig have posted lower revenue per minute compared to Maxis. Table 1 shows Comparison of Revenue per Minute between Cellos, Dig and Maxis from 2007 to 2011.

The lower price offered by Dig an be reflected on its consistent growth in no. Of subscribers (see figure 2). In 2011 Maxis lost about 10% of its subscribers compared to previous year. The biggest winner in 2011 was Dig with a 12% growth in it no. Of subscribers. This can be related to the fact that Dig offered a lower price compared to both Maxis and Cellos. Figure 5 illustrate how price of substitute goods or services affect the demand curve of Maxis. Decrease in price of substitute services caused a change in demand or no. Of subscriber for Maxis, all else held constant. The demand curve is shifted to left or inward for IQ to SQ.

Table 1 : Comparison of Revenue per Minute between Cellos, Dig and Maxis from 2007 to 2011. Source: IEEE Market Research – Malaysia Mobile forecast IQ 2012 Figure 5: A change in demand occurs due to lower price of substitute service, all else held constant. 3. 2. 2 Complementary Goods The emergence of smart phone in the recent years has made a big impact on telecommunication industry in Malaysia. Although the penetration of smart phone in Malaysia which is about 19% is still lower compared to other Asian countries such as Hong Kong and Singapore, mobile service providers in Malaysia have realize the f securing smart phone deals.

Maxis were the first service provider in Malaysia to offer blackberry in 2004. In March 2009 Maxis secured the rights to be the first communication company in Malaysia to sell Apple phone and by the end of 2009 Maxis has sold more than 91 000 units of phone. High sells of phone and other smart phone such as Samsung galaxy in 2009 and 2010 directly contributed to significant growth of Maxim’s no. Of subscribers in 2009 and 2010 (See figure 3). Figure 6 illustrate the effect of complementary goods on demand, all else held constant.

As ells of phone and other smart phone increased, Maxim’s no of subscriber also increased. The demand graph is shifted to right or outward for IQ to SQ. Figure 6: A change in demand occurs due to increase in demand of complementary good, all else held constant. In 2011 Maxis experienced a 10% decrease in its no. Of subscribers. The lost was mainly in both the postpaid and prepaid sector. Dig and Cellos have recorded 12% and 7% growth in no. Of subscribers respectively in 2011. One of the factors that contributed to Maxim’s lost was due to its reducing market dominance.

Dig secured he rights to distribute Apple phone in April 2010 and this leveled the playing field which was dominated by Maxis for more than a year. Dig’s deals with Apple phone subsequently ignited a much publicized pricing war between Maxis and Dig. With both Maxis and Dig dividing the market, Maxim’s no. Of subscribers reduced in 2011 even though Maxis posted slightly lower revenue per minute compared to the year before (See Figure 3). Figure 7 illustrate how Maxim’s demand dropped in 2011. As Dig and Cellos gained for sells of smart phone, Maxim’s no. F subscribers reduced from IQ to SQ. 3. 3 Consumer’s Income Consumer’s income level also contributed to the growth of Maxim’s demand. The mean household income for Malaysia was recorded at RAM, 025 per month in 2009, an increase of 9. 2 per cent as compared to RAM, 686 in 2007. The increasing growth rate of household income in Malaysia has increased the affordability of Malaysian to own mobile phones and subscribe the services. Maxim’s services are Normal good or service because as consumer’s income increases, the demand for Maxim’s services also increases, all else held constant.

Figure 8 illustrate how change in demand occurs as consumer’s income level increase. The demand graph is shifted to right or outward for IQ to SQ. Else held constant. 4. 0 Supply Rapid increase in demand for mobile services has driven service providers to further improve their coverage areas to cater the needs of their customers. In 2008, Maxis invested RAM 400 million to expand its network in Malaysia. Between 2007 and 2009, Maxis have invested over RAM 1 billion yearly to expand coverage, research new technologies, wireless broadband, and improve service quality. The growth of Maxim’s no. Bickerers from 2007 to 2010 can also be attributed to their increase in supply. In the past 5 years, the price for Maxis services is in a downward trend. Yet Maxis continually increase their supply or coverage areas. As such, it can be said that in a service industry like mobile communication, supply are not driven by high price but rather to achieve sustainability by producing better coverage and quality. 4. 1 Future Expectation The fast growing market for technologically advance gadgets such as smart phones, PDA, laptops and pad reflects on consumer’s need to have mobility and connectivity at all time.

Demands for internet connectivity as in data usage are getting higher with nonusers making greater adoption to smart phones. Future expectation on demand for third generation services (36) are high and Maxis has been rigorously expanding and improving its 36 coverage. Maxis launched its 36 services in 2005 and by the end of 2007 registered impressive growth in the number of subscribers for its 36 services, with user surpassing half-million mark. In 2009, Maxis unveiled plans to invest RMI . 2 billion (IIS$mom) in improving the quality and coverage of its 36 services.

As of 2012 Maxis has the largest 36 coverage in Malaysia with 81% coverage in more than 5000 sites. Figure 8 illustrate how increase in future expectation affects the supply, all else held constant. The supply curve shift outward to the right from IQ to SQ. 4. 2 Government Regulations The number of internet users in Malaysia has grown rapidly in recent years, in part due to Government initiatives to encourage Malaysian to adopt and develop information technology to stimulate demand for retail internet services.

The Government has promoted public awareness of technology and encouraged the purchasing of personal computers by eliminating import duties on computers and providing various retail incentives. Also, in the 10th Malaysia Plan (2011-2015), Communications Content and Infrastructure (CLC which encompass a wide ecosystem from content generation to networks, services and devices) is one of the 12 National Key Economic Areas (KNEE) next to electrical and electronics, oil gas and energy, palm oil, agriculture, business services, financial services, private investment, wholesale and retail, tourism and education.

These incentives and reduced tariffs will subsequently reduce the Telecoms operating cost. This is referred as production efficiency or ‘economies of scale’ where as reduction processes become more efficient, producers can make goods for a lower cost. With respect to the above, the model assumes that suppliers increase the supply. This will shift the supply curve to the right; assuming no change in price.

Figure 9 illustrate how government’s incentive affects the supply, all else held constant. The supply curve shift outward to the right from IQ to SQ. 5. 0 Consumer’s Sensitivity and Reaction to Price Changes Overall, there is a negative correlation between the price and demand. Based on the analysis on Figure 4, when the price decrease, the demand increases, and in this ease, there is an increase in the number of subscribers as the price fall.

From the period of 2007 till 2010, Maxis revenue per minute dropped, however, the number of subscribers increased. The reason for drop in revenue was mainly due to Maxis strategy to reduce the price to attract large number of subscribers. However, price is not the only factor that contributes to the increase in the number of subscribers. There are other factors that contributes to the increase of number of Maxis subscribers such as the introduction of smart phones, Maxis G services, and