1.

0 Introduction

The saturated and competitive Malaysian mobile communications market has

been dominated by the top 3 players, known as Maxis, Celcom and Digi (Goh 2015a).

U mobile (UM), founded in 1998 and launched in 2007, spotted opportunities and

became the fourth player after a successful marketing campaign in 2014. UM has

introduced many new services and telecommunication products to the market such as

Unlimited Mobile Internet proposition with voice, Data and SMS package for prepaid

users and free internet roaming in selected countries. Its active subscribers grew from

540,000 to over 4 million in the span of 4 years; while the top 3 players had only 2

million growth of customers collectively during the same period (Goh 2015a; U Mobile

2016a).

UM did not plan to remain as the 4th player in the industry and it wants to

become the leading mobile operator in Malaysia. To achieve the goal, Mr Wong Heang

Tuck (CEO of UM) revealed that the company will focus on its four-pillar strategy: (1)

fast and robust network, (2) innovative product and value-added services, (3) wide

distribution channels, and (4) intelligent bank-end system (Goh 2015a; Zhang 2015).

He also acknowledged that the competition within the telecommunication industry is

fierce and becoming challenging over years (Goh 2014). The objectives of this report

are to identify the strengths and market position of UM, as well as formulating

recommendations for UM to continue thriving in the challenging environment.

2.0 Macro and Micro Environment Analysis

2.1 PEST Analysis

PEST (Political, Economic, Social and Technological) analysis was carried out

to understand the factors influencing the industry (Ennew & Waite 2013). Figure 1

demonstrated the analysis of macro-environment for telecommunication industry in

Malaysia. Political factors refer to the range of issues including party politics,

government policies, legal and regulatory system (Ennew & Waite 2013). According

to Malaysian Communication and Multimedia Commission (MCMC), radio spectrum

is government regulated and governed by MCMC to ensure compliances in accordance

to the Communications and Multimedia Act 1998. Assignment of spectrum is governed

by MCMC and it is allowed to grant rights to company with an operating license in

operating telecommunication apparatus within a specifically assigned frequency band

(Malaysian Communication and Multimedia Commision 2016). As the

telecommunication companies (Telcos) continue to expand their customer base,

government’s agreement with foreign countries in recruiting foreign workforces might

contribute positively to the customer base expansions. For instance, the Malaysian

government has signed a Memorandum of Understanding (MoU) with Bangladesh in

early 2016 to recruit 1.5 million workers over the next 3 years and these foreign workers

are expected to subscribe to mobile services (The Straits Times 2016). In addition, the

Malaysian government is also investing in enhancing the basic infrastructures,

including telecommunication towers, to improve connectivity and accessibility in the

rural areas and east Malaysia (Economic Planning Unit 2015).

The economic environment covers all range of economic behaviour and

includes consideration of influencing factors such as growth of income, unemployment,

investment, and government policy. In the 11th Malaysian Plan, the Malaysian
government intends to provide supports to Small and Medium Enterprises (SMEs) by

upgrading the telecommunication infrastructures to allow business expansion by

adopting e-commerce and cloud computing. International Telecommunication Unit

(ITU) also reported that a 10% increase in broadband & network penetration will

contribute 0.7 percentage point of increase in Malaysia’s GDP. Therefore, the

Malaysian government has increased its efforts in ICT infrastructures building, which

is beneficial to the telecommunication industry (Economic Planning Unit 2015).

Implementation of Goods and Services tax (GST) has caused hiccups to the

industry while affecting the industry growth, revenue and subscribers. “The impact is

quite dramatic”, said by Mr Wong, CEO of UM in an interview with Digital News Asia.

Some dealers unable to sustain and closed their businesses due to the impact of GST

(Goh 2015a). It may be attributed to the multiplying effects of GST. According to the

Royal Malaysian Customs (2014), the tax payment is made in stages by the

intermediary processes, such as distribution and production, but ultimately passed on

to the customers. Therefore, subscribers are more cautious about usage, especially the

prepaid subscribers who come from the low income group or students (B. Sidhu 2015;

Royal Malaysian Customs 2014).

Multiple articles reported that the competition in telecommunication industry

will remain intense over the next few years, compete to gain higher market share and

translate greater data usage into higher average revenue per user (ARPU). They also

repositioned themselves to be data centric rather than offering data as add-on service to

voice call and short message service (SMS) bundles, as response to users’ consuming

patterns (T. H. Goh 2016; B. K. Sidhu 2015). Customer dissatisfaction can be disastrous

to Telcos when they failed to manage in an appropriate way. Maxis suffered massive

loss of subscribers in early 2016 due to failure to respond to customers’ dissatisfactions

and benefitted its competitors. According to data revealed in May 2016, Digi led the

market and had 12.34 million subscribers, followed by Maxis’s 12.31 million

subscribers and Celcom’s 12.25 million subscribers (T. H. Goh 2016). However, a loss

of approximately 500,000 subscribers was observed when comparing the total

subscribers of top 3 players with the Q1 2015 statistics. This could suggest a gain of

subscribers in other Telcos such as U Mobile and TuneTalk (T. E. Goh 2016). The

Telcos were also repackaging their products at a faster pace in 2016 as a result of

increased competition (T. H. Goh 2016). Subscribers are often exposed to heavy

marketing messages and advertisements, and offered to switch service provider with

lucrative incentives (Awang & Jusoff 2009).

Hand Phone User Survey 2014 published by MCMC in year 2015 revealed that

hand phone users were dominated by the young adults (year 20-29), accounted for 35.1%

of the total market share (Malaysian Communications and Multimedia Commission

2015). This group of users are normally price conscious do not concern much about

brand loyalty (Liew 2016). The report also revealed a slight increase of non-Malaysian

hand phone users who were also contributing to the mobile subscriptions (Malaysian

Communications and Multimedia Commission 2015). The Telcos observed change of

user behaviours and becoming more data centric. (T. H. Goh 2016; Goh 2015a).

Technology advancement has impacted the telecommunication industry

significantly and fuelled the competitions among Telcos. MCMC showed the evidence

of significant increase of smartphone users in the report. Smartphone ownership has

recorded almost a 4-fold increment in year 2014 as compared to 2010. The increase of

smartphone ownership could be associated to penetration of Chinese smartphone

(Malaysian Communications and Multimedia Commission 2015). The Malaysian

government also encouraged businesses and personnel to adopt innovative approaches

in conducting businesses, such as smart manufacturing, e-commerce and smart building.

Malaysian government also intends to invest in infrastructure to promote connected

healthcare to increase personnel wellbeing, as a result of development of Internet of

Things (IoTs) (Economic Planning Unit 2015).

Figure 1 PEST Analysis for Telecommunication Industry (Macro analysis)

2.2 SWOT Analysis
SWOT analysis (Strength, Weakness, Opportunity and Threat) was carried out

to identify and organise both external and internal factors that U-Mobile is facing.

Figure 2SWOT Analysis for U Mobile

Strength
UM attracts its customers by offering competitive packages at lower price.

Taking an example of the post-paid plan offered by the 4 major Telcos (Maxis, Celcom,

Digi and UM) in 2016, UM is charging RM70 for 15 GB of data; Digi and Celcom are

offering 10GB package at the price of RM80 while Maxis is priced at RM128. All

packages come with unlimited bundled calls, but only Maxis and Celcom offer

unlimited bundled SMS (Digi 2016b; Maxis 2016a; Celcom 2016b; U Mobile 2016c).

As a growing company, UM has strong and committed shareholders to support the

growth of the company. It has successfully raised more than RM2 billion from the

shareholders to invest in the company (Goh 2014). Besides, it does not only rely on its

dealer to expand market share but also utilising multiple channels to distribute its

products. These distribution channels are mainly leveraging on the Berjaya

conglomerate (such as 7-11 and Cosway) and partnerships with other

hypermarkets/supermarkets, convenient stores and electrical chains (Tesco, Giant, 99

Speedmart and Sen Heng) (U Mobile 2016a). UM does not have “legacy” products to

maintain and it constantly introducing new products to the market. For instance, it

offered U-MicroCredit Instalment plan, International Airtime Transfer and free internet

roaming in 9 Asia Pacific regions for its subscribers (Goh 2015a; U Mobile 2014).

Weakness

Although UM has been investing to enhance its network coverage and network

quality, it has the narrowest coverage in comparison with other 3 Telcos as shown in

appendix 1 (Digi 2016a; Celcom 2016a; U Mobile 2016b; Maxis 2016b). The company

positioned itself as a data-centric Telcos but customer dissatisfaction could build up

and caused negative impacts to the company if the product qualities do not keep up with

expectations (Goh 2015a). Moreover, U Mobile is still experiencing financial loss (net

loss of RM363.24 million) despite a 95% growth of revenue (RM 919.17 million) in

2013. In comparison, its competitors each have RM6.7 billion turnover which is

significantly higher than UM (Goh 2014). In first quarter of 2016, Maxis has made a

net profit of RM520 million, followed by Digi’s RM399 million and Celcom’s RM288

million. This showed that the top 3 players have massive cash flow to invest in future

development, such as product research and development while UM is struggling with

cash flow (T. E. Goh 2016; Goh 2014).

Opportunity

The government’s decision on allocating larger coveted 900MHz spectrum has

benefited UM as it is more cost efficient for 4G development using the lower frequency

band due to its characteristics: better penetration within buildings and wider coverage.

This government decision may enable UM to challenge the industry leaders, especially
Celcom and Maxis, as their allocations for 900MHz to 1800MHz are reduced

effectively July 2017. The market leaders are expected to allocate more resources in

capex for constructing new sites to avoid disruption of service quality (The Star Online

2016b; The Star Online 2016a).

Increased smartphone users has caused significant increase in mobile data usage,

this will trigger Telcos to repackage their offerings in order to capture higher market

share (Malaysian Communications and Multimedia Commission 2015). The emergence

of smartphones has changed the usage patterns as the users are consuming high volume

of data to communicate via mobile applications or content streaming. UM also managed

to form collaborations with local and international partners in distributing its products

and building infrastructures to enhance service quality. With these strategic alliances,

UM can continue its “light capex, lean opex” model and continue to grow at a faster

pace (Goh 2014).

Threat

Since UM is sharing Maxis’s 3G radio and LTE access, as part of the 10-years

agreement deal signed in 2011, it may be facing difficulties to continue providing

service if Maxis did not intend to renew or extend the service sharing as a result of

intensified competition (Malaysian Wireless 2011). The Telcos competition is expected

to be intensified with the latest allocation of spectrum (The Star Online 2016a).

Competitive advantage

UM can rely on its shareholders’ strong financial background and innovative

culture to enhance its service coverage and quality, and form strategic alliances with

international and domestic telecommunication players to have wider penetrations in

other markets while remaining its competitive pricing.

3.0 Market Segmentation

Market segmentation is performed to identify the characteristics of subscribers

and their purchasing behaviours. Table 1 shown the market segmentation based on

mobile network services while table 2 described the characteristics of subscribers’

behaviours in using the call service. It is clearly shown that UM was adopting a focused

and targeting strategy, mainly targeting the group comprises of students, young adults,

young subscribers, migrants, travellers and lower income group (Goh 2015a; Liew

2016). In order to expand its customer base, UM has to change its strategy and start to

focus different market segments by adopting product specialisation.

It is understandable for UM to offer affordable products to gain market share

since it is a relatively new telco company in Malaysia without much differentiated

products. UM has been creating engaging and interactive content in social media to

attraction young audiences, especially in the college student markets who are price

conscious. They also engaged influencers and celebrities to widen their market

penetration. UM must improve its service quality and change people’s brand perception

to access to new segments (Liew 2016). Currently, Maxis and Celcom are providing

wider and better quality network but both have been reportedly losing subscribers due

to poor customer services and expensive pricing (T. E. Goh 2016).

Table 1 Market segmentation based on mobile network services

Table 2 Market segmentation based on call services

4.0 Perceptual Map and Positioning Approach

6
Network Coverage

5 Celcom Maxis

3 Digi
0 1 2 3 4 5 6

U-Mobile 2
Price

Digi Celcom Maxis U-Mobile

Figure 3 Perceptual map of Telco network coverage against price

UM has been offering affordable plans to target young adults, students and

foreign migrants. The competitive pricing allows UM to achieve exponential growth

even without wide network coverage in Malaysia. UM is mainly serving its customers

base in Klang Valley and Johor Bahru. As shown in figure 3, Celcom and Maxis are

offering wider network coverage however their pricings do not seem encouraging to

the new and low income subscribers. Digi is positioned between Celcom and UM,

offering affordable plans while providing wider network coverage than UM (Goh

2015b; Goh 2015a; Maxis 2016b; Digi 2016a; Celcom 2016a; U Mobile 2016b).

UM’s marketing effort has been reflected in the growth of customer base and

growth of revenue. However, the company will need to reposisiton itself in order to

capture higher market share. Based on its competitive advantage: (1) commited share

holder, (2) competitive product pricing and (3) innovative products to enhance service

flexibilities, UM can reposition itself to widen its network coverage but not only

focusing Klang Valley and Johor Bahru. It is recommended for UM to adopt the
Intangible repositioning strategy to expand its customer base in other states (Goh 2014).

As shown in Table 1 and 2, rural users, young adults, students are within the segment

which is price sensitive. UM should form strategic alliance with other service providers

to ride on their infrastructures and extending its service to the same market segment in

different states. Once UM has achieved the repositioning, it can close the gap between

itself and Digi or replacing Digi’s as the top 3 Telcos in Malaysia by creating its points-

of-difference (PODS) (Goh 2015b; Ennew & Waite 2013).

In addition, formation of strategic alliance can also allow UM to create new

perception within the same market with its scarce resources. UM can own less

teleccommunication tower and reallocate its resources in necessary infrastructure

developments and offer better service qualities. When the service qualities are

improved, people will start to change their brand perception and attempt to accept the

offered products (Liew 2016). For instances, Digi was perceived to have bad signal

coverage in early years however it managed to recover by improving its service quality

and creating a successful marketing campaign known as “Yellow Coverage Fellow”.

The marketing campaign resulted a massive increase of brand score and succesfully

changed the perception of “bad coverage” (Campaign 2010).

5.0 Recommendations

UM can choose to implement market-challenger strategies to attack the market

leaders aggressively to gain future market share. As a challenger, UM can set high

aspirations while leaving the market leaders to fall prey and run business as usual.

Although UM aspired to be the top telco in Malaysia but realistically it should target its

market challenger strategies towards Digi, which also offering affordable products to

subscribers (Kotler & Keller 2015).

It was suggested that UM has to reposition itself in the previous session and

expand its subscriber base by targeting the same segment at different geographical

locations or different segment in the same regions. Each chosen target customer

segment should have a tailored marketing mix based on the competitive advantage of

the company (Ennew & Waite 2013).

Table 3 and table 4 below illustrated the recommendation of marketing mix

decisions while targeting different customer segments. Recommendations in table 3 are

tailored for decision to penetrate into same customer segment residing at other

geographical locations, while table 4 suggested the decisions to penetrate into new

market, particularly the corporate/professionals segment. During the growth stage of

market penetration, UM has to raise marketing expenditure to meet competition and

continue to education the targeted market segment to adopt its products. Under such

circumstances, UM will be expecting to experience sale rise and lead to profits increase

when marketing expenditures are average out over larger volume. However, the

marketing activity has to be monitored and shift the trial communications to loyalty

communications at the later stage (Kotler & Keller 2015). Gerpott et al. (2001)

supported that customer retention, loyalty and satisfaction are high associated and
satisfaction is the key to loyalty which eventually leads to retention in the

telecommunication industry. Awan and Iqbal (2014) further added that brand image is

also pivotal to create customer loyalty.

Although UM has been emphasising its focus in providing customer-centre

services, however research conducted by Amani et al. (2015) concluded that Malaysian

telcos are focusing more on the revenue aspect of subscribers but overlooked the

personality aspect. UM has to rectify this issue in order to avoid mismatch of customer

expectation and unable to convert into loyal customers.

Table 3 Market mix strategy for targeting same customer segment at different location

Source: (U Mobile 2014; Goh 2015a)

Table 4 Market mix strategy for targeting different customer segment

Source: (Ennew & Waite 2013; The Star Online 2015)

Telco is no longer a mere network service provider but rather a total solution

provider to business and individual. Telco is redefined as Telco 2.0 and it should create

customer value by meeting customers’ needs in future lifestyle but not only as a

communication medium. Future trend in ICT development require telcos to review the

business areas of customer, business, technology and management infrastructure,

suggested by (Yoon 2007). Yoon (2007) further elaborated that telco should innovate

and provide better service quality to customer by providing seamless, secure, rich and

personalised content services. It is also important for telco to secure essential

technologies such as RFID, computer learning and virtual reality to develop new

business areas or reduce service lead time. R&D plays an important role in technology
advancement. Yoon (2007) provided real-life example of telco 2.0 implementation in

Korea and illustrated how telco services restructure and involved in production,

packaging, delivery of products in other businesses.

6.0 Conclusion

This report has analysed the macro and micro environmental factors of

Malaysian telco industry and identified the competitive advantage of UM. Market

segmentation analysis and perceptual map shown that UM’s performance and brand

image are still behind the top 3 players despite its strong growth. Besides, UM must be

able to identify different customer segments within the market and plan its resources

wisely to target certain customer segment; while the marketing mix toll must be

consistent with the organisation’s competitive advantage as it will affect the

effectiveness of a marketing plan. UM should be able to achieve revenue growth of 30%

and 15% growth of ARPU if service quality and brand image can be improved while

maintaining its competitive pricing. UM also needs to keep up with the fast-changing

technology in order to respond in time and gain market advantages over other telcos.

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