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Telcos are navigating current market challenges with premium and value play

Mobile subscriptions growth is tapering off for APAC service providers

  • Lately, subscriber additions have been hard to come by as most Asian countries have achieved moderate to high mobile service penetration. Stagnation is particularly significant in developed countries such as Japan, Korea, and Singapore, which have achieved near ubiquitous service penetration.
  • Subscription addition in emerging economies is also experiencing a downtrend with significant industry consolidation driven by mergers and acquisitions. In countries like India, this is impacting multi-SIM usage.
  • Telcos are now focused on prepaid to postpaid migrations (along with migrating subscribers to higher technologies) to build loyalty and reduce customer churn.

Mobile subscriptions growth APAC, 2017 – 2025F

APAC telecom growth outlook
Source: Ericsson Mobility report (June 2020)

Revenues have been sliding, growth outlook remains constrained too

  • Aggressive competition was noted across many markets in the region. Late entrants and MVNOs were leading competitive pricing strategies impacting industry revenue growth
  • In some countries, such as Japan, the industry regulator has taken an initiative to encourage fresh competition by awarding new service licenses and encouraging service providers to reduce the cost of connectivity for their subscribers.
  • New income streams have been slow to offset legacy revenue loss as voice & SMS services are quickly replaced by OTT communications.
  • Operator efforts to build incremental revenue gains through adjacent services have been largely unsuccessful, with only few exceptions.
  • COVID-19 suppressed revenue growth in both emerging and developed markets. Operators are losing revenues from roaming and device sales. In South East Asia, due to the severely constricted tourism, service providers have been impacted from lower subscriber additions.
  • While 2021 is expected to witness modest growth, long term outlook stays at 1%-2% annual increase in revenues.

Mobile services revenue growth in APAC, 2017 – 2025F

APAC telecom growth outlook
Source: GSMA

Fresh competition is disrupting most APAC markets

  • There are several examples of new entrants disrupting existing market monopolies and quickly building their market shares. The most successful example is Reliance Jio in India, which, within three years of its launch, became the country’s largest mobile operator.
  • Other notable examples of such disruptions are MyTel in Myanmar, many MVNOs in Singapore, and Rakuten Mobile in Japan. In China, the China Broadcasting Network and Dito Telecommunications in the Philippines are the most recent additions.
  • While some have experimented with digital-only operating models, late entrants have mainly influenced subscribers through cheaper data and flexible SIM-only service offers. The unsustainable pricing has led to industry consolidation with multiple mergers and acquisitions noted across the region.
  • On the whole, the trend translated to revenue and margin loss for both incumbents as well as the industry.

Late entrants in Asia’s telecommunications markets with competitive service plans

New entrants APAC telecoms challengers
Source: Operator reports, Twimbit Analysis
  • The first nine months of 2020 were tough for service providers. While Telecoms fared better compared to Airlines and Hospitality, service providers noted overall declines in revenue. According to Twimbit analysis, revenue growth in 3Q20 has been better for service providers compared to 2Q20.
  • During the pandemic, significant lifestyle and social changes have already settled in. These changes have impacted consumer behaviour across all customer segments. On the one hand, customers have switched to simpler connectivity services as they faced economic crunches, on the other, some customers have also embraced their new digital lifestyle through multiple services.
  • New customer segments, needs, and service requirements are creating space for service providers to act fast. As a result, some of the service providers embraced disruption to reshape their existing relations with customers and to record above average revenue growth.
Customers pivoting to a digital first experience
  • Consumers shopped online more, carried out more online interactions via phone or video based appointments, and increased on-demand entertainment with a higher consumption of streaming services.
  • Operators across the board continue to record increasing customer interactions across all digital channels. The use of self-help chatbots as well as online sales channels has increased for service providers across all APAC markets.
  • Telcos are evolving their selfcare apps to super apps that can serve all the digital needs of a customer. The idea is to offer a more personalized engagement channel rather than a simple digital platform for bill payments, reward collections, usage monitoring, and service plan information.

Revenue change for key operators in Asia, 9M20 vs 9M19

Telcos are tightening their grip across value and premium segments

In the past, service providers relied rather heavily on subscriber additions to grow topline, but with the severe lockdowns, COVID-19 halted this trend. This is especially true for many South East Asian and emerging markets in the region where operators relied on incremental revenue growth from tourists, the migrant worker population, and multi-SIM usage. COVID-19 broke that chain and today, service providers need to deploy better strategies to tackle this abrupt halt. Additionally, they also must reconsider any plans for the post-pandemic world that has to deal with economic recession, marked shifts in consumer preferences, and evolving perspective on the new normal.

Service differentiation to improve loyalty, ARPU, and churn across customer segments

Source: Twimbit
Differentiation gained importance among high-value customer segments

With increasing competition, service providers have adopted multiple differentiation strategies to build customer life-time value while also strengthening service ARPU. Bundling telco services remained an effective strategy, and the nature of service bundles evolved with the changing customer needs and behaviour. This has been commonly observed with pay-TV services wherein consumers are now shifting towards streaming options. Service bundling has helped telcos attract and retain customers to basic connectivity by adding differentiation through creative packaging and ancillary services.

The following examples highlight effective strategies for telcos to gain differentiation in high-value customer segments:

  • Exceptional rewards and loyalty benefits
Telecom rewards and loyalty programs
  • Increased value though differentiated service bundles (example, service bundles for SMEs are different from service bundles for gamers)
Telco bundles
  • Network differentiation on speed, access technology, coverage, and quality of service
Network differentiation for telcos
Service providers compete rationally in the value segment

A dynamic that emerged with COVID-19 is a change in customers buying patterns and behaviours. The existing customers of the telcos are no longer expected to exhibit previously standardised behaviour in a COVID-19 impacted environment. The economic slowdown has created additional pressure. As a result, subscribers and households are switching to low-cost service plans, reducing spend on non-essential services, opting for less frequent device upgrades, and always looking for competitive deals.

The following are some notable strategies opted by service providers to effectively compete in the value segment:

  • Multiple brands to serve value conscious customers
Multi brand strategy for telcos, sub brands in telecoms
  • Simplified and trimmed services (SIM-only plans)
SIM only plans
  • Digital only offerings mostly through sub-brands
Digital brands from telcos

New digital winners will emerge in a post COVID-19 world

In conclusion, we expect that service providers will re-consider their strategies to emerge successful out of the current crisis. Those capable of supporting customers with their evolving needs will be better placed to navigate the current situation and paradigm shifts noted in the market.

In our next insight, we would provide highlights on some of the exceptional loyalty programmes from service providers.

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