IPTV market in Malaysia

The more the merrier in the IPTV market

Hopefully the battle gets fierce so that quality and content will improve to offer more choices to consumers.

IT has taken two companies - Astro and Maxis - within the same stable a long time to come out with their Internet Protocol TV (IPTV) offering.

The Maxis/Astro IPTV/broadband services were originally expected to be launched by end-2012 but were postponed to the end of the first quarter in 2013.

Astro and Maxis entered into partnership for IPTV/broadband collaboration in September 2012.

The good news is that both companies launched the Astro B.yond IPTV offering this week, riding on Telekom Malaysia Bhd's (TM) high speed broadband (HSBB) network.

Now there is another choice in the market place and Astro/Maxis will compete head-on with TM for market dominance in the IPTV segment. There are several other smaller players offering IPTV but not on the scale of these two.

A report said the continuous improvement on the speed of broadband and the availability of interactive applications would play a crucial role in the expansion of IPTV market around the globe.

Broadcasters and telecoms players globally have a new way to increase customer average revenue per user with the expansion of broadband and IPTV. The forecast is that the global IPTV market will rise to about US$106mil (RM323mil) in 2014. European countries are the biggest markets for IPTV, with France, the UK, and Germany leading the growth.

Asia is also responding strongly to this new phenomenon. This week, South Korea's SK Telecom saw its earnings rise, with its media business securing 600,000 paid subscribers for its mobile IPTV service in the first quarter. Astro claims to have a subscriber base of 3.5 million households representing 52% of Malaysia's total households of 6.7 million.

It is entrenched in the market place and TM's UniFi subscribers are readily accessible market for the Astro B.yond IPTV product as both are carried on the same HSBB network.

The caveat is that TM UniFi residential subscribers are locked in a two-year contract.

TM has to date activated more than 548,000 UniFi subscribers on the back of 1.39 million premises passed, covering 102 exchanges nationwide which translates to a 38% take-up rate. TM offers IPTV via HyppTV.

The choice is out there today, hopefully the battle gets fierce so that quality and content will improve to offer more choices to the consumers. As for pricing, it is still steep despite the value propositions and for a wider mass market appeal, the rates need a review.

And while Astro/Maxis claim they have a value proposition, TM may want to look to getting a bigger content library, and certainly, a cellular tie-up is recommended to counter the bundling that Astro/Maxis is offering.

Celcom Axiata is waiting on the sidelines. It also needs to get into the IPTV game and both TM/Axiata should begin talking seriously.

Friday Reflections - By B.K. Sidhu  
Deputy news editor B.K. Sidhu is still thinking about how and when the digital cable TV operator will enter the fray.


Astro upgraded on IPTV potential 

Target price: RM3.38 

ASTRO Malaysia Holdings Bhd has finally launched its Astro B.yond Internet protocol TV (IPTV) with Maxis Bhd, which could complement its services to subscribers with more value proposition and significant savings.

Although the Maxis-Astro IPTV offering enjoys lower earnings before interest, tax, depreciation, and amortisation (EBITDA) margin compared to Time-Astro IPTV, synergistic benefits to be reaped from this collaboration should be more than enough to offset the shortfall.

It was reported that Astro Malaysia Holdings has officially launched its Astro B.yond IPTV with Maxis Bhd as an alternative for consumers to have access to home fibre broadband internet and home voice services.

On this Maxis-Astro IPTV offering, we understand that the fibre broadband packages provided by Maxis will range from 10Mbps to 30Mbps.

The B.yond IPTV content packages provided by Astro will be on SuperPack, Value Pack and Family Pack with prices ranging from RM37.95 to RM100 per month with an optional Home Voice Package of RM20 per month.

We understand that Astro will recognise 100% of the average revenue per user (ARPU) from this IPTV collaboration.

For instance, assuming customer A subscribes to the basic 10Mbps broadband package with a SuperPack1 content selection, the total ARPU will be RM248 per month (RM148 from the broadband package and RM100 from the content package) and Astro will recognise 100% of this total ARPU of RM248

Subsequently, in the cost of sales component, Astro will recognise 75% of the broadband ARPU (which is equivalent to RM111 in this case) as the cost to be distributed back to Maxis.

Based on our back-of-the-envelope calculation, the EBITDA margin of the Maxis-Astro IPTV collaboration will be circa 29% versus the circa 38% of the Time-Astro IPTV's EBITDA margin.

This implies that with a likely increasingly higher take-up for the Maxis-Astro IPTV offerings, the EBITDA margin of the group on the overall will be diluted on a percentage basis.

As this Maxis-Astro IPTV will be complemented by Maxis' extensive reach of 1.3 million homes compared to Time's reach of 100,000 homes, we believe that it could immediately give a boost to its revenue.

This should increase its absolute profit despite the EBITDA margin dilution should the product be well taken up.

We also understand that 1.1 million (or 85%) of the current high-speed broadband (HSBB) home premises are on Astro's subscribership.

That said, for current Astro subscribers who are also having the TM Unifi package, they could achieve better value propositions and cost savings by subscribing to this new IPTV packages.

We are sanguine on this collaboration as it has bundles of win-win benefits for the subscribers and synergistic benefits for Astro and Maxis.

In conjunction with that, we are assuming circa 65,000 and circa 175,000 subscribers to take up this IPTV offering (mainly on SuperPack packages), taking cues from the management's guidance of circa 60,000 to 70,000 and 170,000 to 180,000 subscribers in 2014 and 2015 respectively.

Consequently, our net profit has been increased by 2.4% to 9.9% in 2014 and 2015 despite a lower EBITDA margin of 32.4% (from 32.7%) and 33.4% (from 34.2%) for the two years.

Consequently, our DCF-derived target price has now been increased to RM3.38 from RM3.10.

As the target price offers a decent capital upside of circa 15%, we are upgrading our “market perform” call on Astro to an “outperform.”

By Kenanga Research

Related post:

Which player can steal more eyeballs in pay-TV market?

MBA today is disrupting the competition?

The in word in business school today is disruption

AFTER seven weeks of cool spring weather, our Malaysian sun finally arrived in Boston. As I basked in the warm sunshine in the courtyard of McArthurs Hall, Harvard Business School (HBS), a gentle breeze reminded me of Awana Genting back to 2004, where I last enrolled in a two-week HBS management programme organised by our Malaysian HBS Alumni Club. Four HBS professors taught us then.

Here I am, eight years later, being taught by no less than 15 senior Harvard professors covering almost 120 case studies and numerous lectures. To justify their hefty fees, HBS threw their full arsenal of specialist professors at us. From basic strategy, finance, marketing subjects to deal making negotiation to social media to entrepreneurship. We have had the presence of former and current CEOs of Merck, Cisco, Carl Zeiss and many others attending our discussions on their company followed by their explanation and defence on their course of actions/decision making as per their case study.

Today, we covered the Facebook case study to coincide with its listing. And we had the director of FBI giving us a lecture after attending the case study on FBI reorganisation after Sept 11. To say that I am impressed would be an understatement.

It was like a Hollywood movie. There must be at least 10 FBI agents with their standard issued earpiece and dark suits staring at us at the entrance and exit. And then a standing ovation at the end of the speech to send off The Director. Captain America has saved the universe again.

HBS is the post graduate business school of the Harvard University. It has arguably the most revered MBA programme in the world. With a fixed annual enrolment of 900 students, an applicant has a 7% success rate and he or she will be at least 27 years old with an average of four years working experience. It is a two-year programme with full residential accommodation provided in campus. Depending on ones preferred living standards, the expected investment should be between US$160,000 and US$200,000 (RM480,000 and RM600,000) over two years.

It is in the executive education that HBS has amazed me the most. They have built a business model that is difficult to replicate when in the world, all kinds of education business is being commoditised. They have differentiated themselves in terms of positioning, reputation and school fees. High, higher, highest.

HBS is a money making machine. They have built an organisation that is always evolving, very sensitive to the external environment. If necessary, they are not afraid to modify their strategy, realign people, structure, processes and their unique culture to face the new environment. All the time, staying close to their core strategy of providing a unique learning experience to their target market. They practise what they preach.

Sensitive to change

So are you sensitive to the changing environment' When do you think is a good time for your organisation to adjust your strategy and realign your organisation to face new challenges' Is it during the good times or only when your organisation is in intensive care'

On hindsight, just look at Malaysia Airlines over the last 15 years. What do you think the management should have done then' When Southwest Airlines and Ryanair in the United States and Europe respectively have successfully taken their markets by storm, they should not have ignored the threat set by AirAsia. When you see air ticket prices being commoditised, you will be flying into a smaller gross margin zone. Which means you need a leaner and lower cost structured organisation to face a new challenging environment. So what do you think happened' And is their current organisational cost structure lean enough to face even tougher challenges today' We will find out within 15 months.

In the current world where many products and services are moving towards commoditisation, how are you differentiating your products and services from the competition' More importantly, how do you continue to differentiate to stay ahead of your competition' Look at Astro. From a virtual stranglehold grip on cable TV market, their monopoly status has been threatened by new entrants offering lower cost options straight to your homes. Astros response must be swift and decisive. As a true market leader, Astro should pre-empt and disrupt the competition. With new technology and smart devices like iPad and smartphones, Astro will deliver contents to their consumers anywhere their consumers find it convenient to consume. Just like The Stars ePaper.

Then from the competitors viewpoint, just imagine Malay Mail relaunched as an ePaper. Massive savings on newsprint and delivery costs. Does that mean that this is the beginning of the end of free physical newspaper' Absolutely intriguing. Technological advances have disrupted businesses all over the world. And HBS is actually reviewing amongst themselves whether e-learning will disrupt their current successful executive education model' Will your business be disrupted by new technologies' If it is, be afraid. Be very afraid.

High margin 

I have always emphasised that entrepreneur wannabes should go into high margin business. Which means avoid businesses that is being commoditised and having the ability to differentiate your products or services from your competition. The in word in business school today is disruption. Disrupt others before they disrupt you. Disrupt yourself to stay ahead. Stay ahead of technology disruption. Be the disruptor not the disruptee. There are no such words. I just disrupted the dictionary.

So is the HBS executive education programme as good as they claimed' Does it justify the high positioning and high cost charged' Honestly, I have no idea. They have kept us so busy from day one to stop us from thinking about it. And they have piled a tonne of case studies and notes onto us. Plus many free books written by the professors. So much so that this bunch of senior executives with an average age of 47 years face information fatigue, CPU overload and degrading eyesights.

Case studies still piling in until the last day. John Kotter still to speak next week. But spirits are high as we look forward to the close of the programme. This programme has been a major disruption to my life. Miss my country, my sunshine, my food, my friends and colleagues. And most of all my family.

Have a happy weekend.

ON YOUR OWN By TAN THIAM HOCK

The writer is an entrepreneur who hopes to share his experience and insights with readers who want to take that giant leap into business but are not sure if they should. Email him at thtan@alliancecosmetics.com 

Astro Astro to revise rates despite being urged to review price hike; Boycott threat looms!

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Astro to go ahead with plans to revise rates from Monday

By RISEN JAYASEELAN and EUGENE MAHALINGAM starbiz@thestar.com.my  Friday July 8, 2011

PETALING JAYA: Despite all the brouhaha that has arisen following Astro's planned revision of its rates, indications are it will take effect this Monday as planned.

This is according to industry sources. Astro has yet to reply to e-mail questions on this at the time of writing.

Industry experts also said the Communications and Multimedia Act 1998 (CMA) did not prevent Astro from carrying out its price revisions.

Corporate lawyers familiar with the CMA pointed out that companies operating under the Act did not need the prior approval of the Malaysian Communications and Multimedia Commission (MCMC) for price revisions.
 

“The same applies to all broadcasters and telecommunications operators. The Act doesn't require them to seek approval for any price changes.

“Telco's change their rates all the time as it is a dynamic industry. It would also not be feasible for these operators to seek the commission's approval for price changes every time,” a lawyer explained.

Another lawyer said that while the minister in charge had the right to intervene in the determination of rates of companies licensed under the CMA, as provided for by section 199 of the Act, that section should be read in the full context of the CMA.

“In particular, reference must be made to section 198, which determines the general guidelines for licensees to determine rates,” he said.

Section 198 of the CMA states among other things that rates must be fair and not unreasonably discriminatory and should be based on costs of the operator. It also states that rates should be structured at levels “set to attract” investment into the communications and multimedia industry.

In an advertorial published in major newspapers yesterday, Astro clarified that its price adjustment was in essence “a rationalisation of its existing packages, with the specific intention of creating more value for the customer.”

“Under the previous structure, prices were based on an add-on rate. Under the revised price structure, the more packs purchased, the greater the discount.

“Depending on the choice of package, customers could either save, experience a price increase or remain unaffected by the new price revision,” Astro said.

Astro also said the rationale for the new price structure was due to escalating global and local content costs.

“In 2007, our total content cost was at RM760mil and this figure escalated to a staggering RM1.3bil this year. Where premium content is concerned, the increase has been as high as 300% with every renewal of content rights.

“While Astro has absorbed escalating content costs over the years, it can no longer do so without compromising on the quality of its services,” it said.

Meanwhile, an analyst who used to cover the stock when Astro was listed said the rate increase was justified to cover its rising content cost.

“With rising content cost, it makes sense to raise prices. Of course, passing it on to customers is not the best way to do it, but it's the only way,” she said.

The analyst said Astro had been trying to “re-jig” the cost of its packages over the years to ensure that it was not a burden on the lower-income group of customers.

“The prices of its basic packages have not changed for many years.” She said it made business sense to raise rates or it would be difficult to sustain profitability.

“Content cost has been going up over the years and the only way to combat it is by increasing rates.”
Another analyst said Astro had been investing a lot in upgrading its facilities, adding that a price hike was necessary.

“When they started offering their packages in high-definition, content cost naturally went up.”

He also said from his understanding, in the past, Astro only needed to inform the MCMC about potential rate hikes and that no approval was necessary.

Astro urged to review price hike 

By Karen Arukesamy , newsdesk@thesundaily.com July 1, 2011

KUALA LUMPUR: Domestic Trade and Consumer Affairs Minister Datuk Seri Ismail Sabri Yaakob urged local pay-television giant Astro to be sensitive to consumers' needs and review its price increase.

Saying that the price increase will indeed burden the people, especially middle and low-income subscribers, he said Astro's price revision should be in line with the government's initiative to reduce prices.

"Astro should rethink about increasing the price for its service channels. "Not just Astro but all other corporate companies should be more sensitive to the needs and burdens of the people," Ismail told a press conference today after launching the National Consumers Month 2011 at KL Sentral here.

Noting that Astro is under the purview of the Information, Communication and Culture Ministry, Ismail Sabri said he will engage with Minister Datuk Seri Dr Rais Yatim to ensure that the people are not burderned by the price hike.

"It is not under my jurisdiction and my ministry cannot take action against it but I have advised Astro about my concern and the concerns of the people on the price revision," he added.

He stressed that it is "inappropriate and wrong" for Astro to state that its price hike is "inevitable" despite Rais's reminder that it has to first get the approval of the Malaysian Communications and Multimedia Commission (MCMC) before increasing the subscription fee.

He said the consumers have the right to demand for a reasonable price for the goods and services they purchase.

Reiterating the theme of the programme "Consumers Rights Are Your Responsibility", Ismail Sabri said consumers can lodge reports on any unsatisfactory service or products with the Consumer Tribunal.

On recent calls by various consumer associations to boycott Astro by freezing payment for three consecutive months due to its price hike, he said: "It is their right to boycott."



Ismail said consumers have a choice and they can choose to boycott satelite pay-television and revert to the local television channels which are free.

On June 15, Rais said the ministry would discuss with Astro on the issue and the notice issued by Astro that from July 11, Astro customers may experience increases ranging from RM1 to RM15 per month was considered invalid as it did not obtain the approval from the MCMC.

However, Astro chief operating officer Henry Tan had in a statement on June 22 said that the hike was imminent and inevitable because the content costs had increased to RM1.3 billion in 2011 from RM760 million in 2007.

The company, however, will maintain the price of its Family Pack at RM37.95 per month with access to 38 channels.

The price adjustment effective July 11 is based on the subscribers' package selection. Some subscribers may be charged an increase of between RM1 and RM15 per month, while some would enjoy a reduction of between RM4 and RM14.95 per month.

Boycott threat looms over Astro

KUALA LUMPUR (June 27, 2011): Consumer associations urged Astro subscribers to boycott the pay-television giant for its decision to increase prices from July despite the government’s pending review.

The Malaysian Islamic Consumers Association (PPIM), along with over 70 NGOs including the Consumers Association of Penang and Federation of Malaysian Consumers Associations, have urged all Astro subscribers to stop payments for three months.

PPIM chairman Tunku Azwil Tunku Abdul Razak said that this is in view of Astro chief operations officer Henry Tan’s statement that the price hike is “imminent and inevitable”.

“Since Astro did not take heed of consumers’ demands made in a statement on June 17, PPIM urges all subscribers to boycott its services until it fulfils consumer demands to reduce the price and enhance its quality,” he said at The Mall here today.

He said the NGOs will also be calling for a boycott of all products that are advertised on Astro in order to demonstrate consumer power.

He said PPIM has set up a secretariat to monitor complaints on Astro’s price increase and services, and to take note of companies advertising with it.

He said that the NGOs are not against Astro but want the company to be more responsible and adhere to customers demands.

“We regret that Astro is not being considerate with the public’s complaints, and dissatisfaction over its price hike and deteriorating service quality that is not in line with the government’s motto of People First; Performance Now.”

He said thousands of complaints have been received from consumers via an online survey and more was coming in through Twitter, Facebook and phone calls.

Tunku Azwil was disappointed to note that Astro had denied that the public was against the increase when the association had submitted its customer demands on June 17.

He said that the 70 NGOs comprising consumer groups and non-consumer groups have three million supporters.

Tunku Azwil urged the government to pay heed to this boycott by ensuring that consumer demands are fulfilled.

“We call on the Domestic Trade and Consumer Affairs Ministry and Information, Communications and Culture Ministry, to protect consumer rights.”

He said the government should stop monopolies.

From July 11, Astro customers may experience increases ranging from RM1 to RM15 a month but this will be balanced by savings of RM4 to RM14.95 a month in subscriptions.

The company, however, will maintain the price of its Family Pack which gives access to 38 channels at RM37.95 a month.

Sundaily