As data traffic surges, Malaysian telcos opt to watch costs instead of improving service

Malaysian Insider, 10 December 2013

Mobile operators are looking to reduce their cost structure rather than improve services as network congestion occurs due to Malaysia’s high mobile data demand, said Frost & Sullivan in a report yesterday.

The report by the global consulting firm revealed that demand for internet access surged with 3G subscriptions surpassing 14.5 million in 2012, charting an annual growth of 41%. Subscriptions for 2013 are expected to reach 18.4 million by the end of this month.

“However, the increased data demand and spikes in geographies are leading to network congestion/outage,” said the report.

“To cope with increasing diverging cost and revenue market realities due to surging data traffic, service providers are focusing predominately at reducing cost structure rather than top line improvements,” it added.

Malaysia’s mobile penetration rate reached 146% in the third quarter of 2013, with 3G subscriptions amounting to more than 17.4 million of the total of 43.6 million mobile subscriptions. In 2012, there were only 14.5 million 3G subscriptions out of 41.3 million subscriptions.

Mobile operators are dealing with the surge by sharing facilities, thus cutting operational costs to handle the massive flow of data.

“For example, take Maxis and REDtone’s arrangement to share its 4G (LTE) infrastructure. Infrastructure sharing allows defrayment of cost, risk sharing… enabling parties to meet regulatory obligations with reduced financial burden,” said Ajay Sunder, senior director of telecoms, Frost & Sullivan Asia Pacific.

However, Sunder noted the current mechanism employed by operators is not sustainable when they are forced to consider “lowering the overall cost of network and maintain a scalable network”.

Judging by the rapid growth of mobile subscriptions that is expected to hit 50 million in two years, operators would expect an annual growth rate of 6% even as the market reaches saturation.

The increase is attributed to the current trend of consumers owning a second device, be it a smartphone or a tablet. Another factor is the government’s Youth Communication Package (YCP), a plan that offers a RM200 rebate to those aged 21-30 with a monthly income of RM3,000 and below.

The increasing demand for smart devices in Malaysia saw shipments shoot up to 49.6% out of the total mobile phone shipments made in the first half of 2013, according to International Data Corporation (IDC) Asia/Pacific Quarterly Phone Tracker. The jump was only 31.8% for the same period last year.

IDC credited the increase to vendors bringing in low-cost smartphones that encouraged sales to grow.

“The rebates brought about a surge in shipments of low-cost smartphones during the first half of 2013 as vendors launched more than 25 new sub-RM600 models in Malaysia,” said Ryan Lai of IDC Asia/Pacific in an article by Digital News Asia. 

M'sia CPI seen rising 3% following electricity tariff increase

STAR, 4 December 2013

KUALA LUMPUR: Businesses and households can expect costs to go up, as inflation trends higher in the wake of the new electricity tariffs effective Jan 1 for the peninsula as well as Sabah and Labuan.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said an early estimate showed that there could be a 0.4% increase in the consumer price index (CPI), which measures headline inflation, including volatile food and energy costs, when the new electricity rates become effective.

Sarawak is not affected by the hike as its power supply and distribution are managed by state-owned Sarawak Energy Bhd. The state has a separate enacment on electricity production.

Economists expect inflation to rise above 3% next year after picking up pace in recent months, as the Government consolidates spending with cuts in subsidies such as fuel, where the RON95 petrol and diesel prices were raised by 20 sen each on Sept 2 to RM2.10 and RM2 per litre, respectively.

Data from the Statistics Department showed the CPI rose to 2.8% year-on-year in October from 2.6% in September and 1.9% in August.

“Right now, it would be in the region of 3%, but we don’t know what other adjustments are to take place,” Zeti told reporters at the Leadership Energy Summit Asia 2013.

However, she said the tariff hike’s impact on prices would only be temporary based on the central bank’s assessment of the trend.

“This is something that needs to be done because it is not sustainable when the market price changes, and therefore, it is important that Malaysia makes such adjustments,” said Zeti.

The rise in tariffs, announced by Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili on Monday, would see those in the peninsula paying an average of 14.89% or 4.99 sen more per kilowatt-hour (kWh) to 38.53 sen, while for Sabah and Labuan, the average tariff would rise 16.9% or five sen per kWh to 34.52 sen.

For industry users, the average tariff will be raised by 16.85% to 36.15 sen per kWh, while commercial users will pay 47.92 sen, up from 41.01 sen.

Citigroup Inc economist Kit Wei Zheng said in a report that Bank Negara might not be in a hurry to raise benchmark interest rates, which stands at 3%, as there were few signs of demand-pull inflation or second-round effects after the September fuel price hike.

He pointed out that recent comments from Zeti suggested that the central bank might be prepared to tolerate what it viewed as a “temporary” rise in inflation (of up to 3.3% in the first quarter of next year) due to supply-side cost-push factors, while the growth outlook remains uncertain.

Kit said hikes in the benchmark interest rates had become increasingly contingent over the growth outlook firming up.

He expected a 25-basis point rate hike in May, with another 25-basis point hike in July in anticipation of inflation hitting 3.8% to 3.9% from June/August.

He said considerations that the central bank would have to take into account included the ability of households to service debt, as well as the direct and second-round inflationary impact of the 6% goods and services tax effective April 2015.

“Going forward, our base case is for five sen to 10 sen per litre fuel price hike by year-end and for 20 sen per litre hike before July 1, 2014. As we had argued in our assessment of Budget 2014, we suspect policymakers would probably opt for gradual but somewhat more frequent and frontloaded hikes.

“With the kick up from the tobacco excise hike, inflation may hit Bank Negara’s implicit tolerance threshold of 3% by year-end, with a decisive breach coming in the first-half of 2014,” he noted.

Meanwhile, CIMB Investment Bank Bhd economic research head Lee Heng Guie said the second-round impact of higher power rates depended on the degree of pass-through to end-users.

“If previous episodes of tariff hikes are any guide, then the impact on inflation could be rather muted. Thus, we maintain our CPI growth estimates of 2.2% for this year and 3% for 2014, which continue to factor in some administered price adjustments, especially for fuel,” he said.

Electricity tariff up by average 15% from Jan 1

STAR, 2 December 2013

KUALA LUMPUR: The electricity tariff will be increased by an average of about 14.89% for Peninsular Malaysia, and by about 17% for Sabah and Labuan from next year, said Energy, Green Technology and Water Minister Datuk Dr Maximus Johnity Ongkili.

"The average electricity tariff in Peninsular Malaysia will be up 4.99 sen per kWh or 14.89% from the current average rate of 33.54 sen/kWh to 38.53 sen/kWh.

"For Sabah and Labuan, the average tariff will be up 5.0 sen per kWh or 16.9% from current average rate of 29.52 sen per kWh to 34.52 sen per kWh," he told reporters at a press conference in Parliament on Monday.

Rates in Sarawak will not be affected because the electricity supply in the state is operated by state-run company, Sarawak Energy.

The new rates will take effect from Jan 1, 2014, he added.

However, Dr Ongkili noted that 70.67% of consumers in Peninsular Malaysia and 62% of consumers in Sabah and Labuan will not be affected by the tariff hike.

"There will be no tariff increase imposed on the consumers who use electricity at a rate of, or lower than, 300kWh a month.

"This amounts to 4.56 million consumers in the peninsula and 260,000 consumers in Sabah and Labuan," he said. The group most likely to be affected are those whose electricity usage is between 301 to 400 kWh and 401 to 600 kWh.

The table on implications of the revised rate on domestic users.

The first group (about 720,000 consumers) will be billed between RM77.52 and RM128.60, an increase ranging from 12 cents to RM11.60 per month. (Not including 1.6% feed in tariff).

The second group (about 670,000 consumers) will be billed between RM129.12 to RM231.80, an increase of between RM11.71 to RM33 per month. (not including 1.6% feed in tariff).

Meanwhile in a statement to Bursa Malaysia, Tenaga Nasional said for domestic consumer (with a monthly consumption of up to 200kWh) the tariff would be maintained at a subsidised rate of 21.8 sen/kWh (i.e. no tariff increase).

This rate has not been reviewed during several tariff reviews since 1997.

Also consumers using 300kWh per month and below will not experience any tariff increase, the rate is maintained at 33.4 sen/kWh. Hence, there is no tariff increase to 70.7% of the household consumers (4.6 million consumers).

The domestic tariff band is reduced from current 8 bands to 5 bands for better understanding of tariff structure.

Commercial consumers will experience an average increase of 16.85% (ranging from 1.2% to about 18%). Industrial consumers will experience an average increase of 16.85% (ranging from 0.9% to about 17%). Special Industrial Tariff (“SIT”) consumers will experience an increase of about 19%.

This is in line with the Government’s effort to gradually reduce subsidies to industries. Even with this increase, SIT consumers will continue to enjoy discounted tariff rates, as compared to the rates for normal Industrial consumers.

The 10% discount on electricity bills currently enjoyed by Government schools, Government institutions of higher learning, places of worship and welfare homes registered with the Government and educational institutions partly-funded by the Government is maintained. The 10% discount will also be extended to the Universities teaching hospital under Ministry of Education (USM, UKM, UM).

Special Industrial Tariff (“SIT”) for water and sewerage operators will be given automatically and the electricity rebate by the Government for domestic consumers with a monthly bill of RM20 or lower will be maintained.