Price-cuts no longer viable for ASEAN telcos, Bain report shows

20 February 2018 Authored by Consultancy.asia

In a report on the Southeast Asian telecommunications market, global management consulting firm Bain & Company has proposed that the region’s providers can no longer rely on price-cutting to attract customers, with usage experience emerging as the biggest influence on consumers.

The beyond saturated Southeast Asian mobile phone market, long characterised by ‘take-no-prisoners price wars and boisterous marketing campaigns’, has entered a new phase according to global management consulting firm Bain & Company, with some carriers shifting their strategy from endless rate-cutting to investments in network infrastructure in a bid to lure more discerning customers.

Examining the five largest economies of Southeast Asia, namely Indonesia, Malaysia, the Philippines, Singapore, and Thailand, the report shows that until now, the obsessive focus on customer acquisition in the region has shrunk revenues to near unsustainable levels and further resulted in a state of saturation to the extent that some markets have reached penetration-rates well beyond 100% – that is, there are far more mobile accounts in use than the number of users.Mobile markets are saturated in Southeast Asia

Figures provided by the firm demonstrate both the extraordinarily high number of phone accounts in the region as a percentage of each country’s population as well as the plummeting or stagnant average monthly revenues per user for local telcos over the past decade. In Singapore and Indonesia, there are nearly one and half active mobile accounts for every citizen, with Indonesia having reached such numbers from a penetration rate of approximately only 10% just ten or so years ago.

The effect of this cost-rate scramble for customers is declining revenues across the board, with Singapore, for example, having slipped from around $40 per month per user in a relatively short space of time to record a negative compound annual growth rate (CAGR) of -5% from 2006-2011 before flat-lining over the following five years. Similarly, Thailand lodged -7% CAGR from 2006-2011 and recovered only slightly with a 1% gain in the following half decade, while Malaysia recorded a steady declining rate of -2% over the entire corresponding period.

Both these latter nations, however, started out in 2006 with monthly per-user revenues at below $15 and $10 respectively. Further, the markets of Indonesia and the Philippines, recording around $5 p/m in 2006, dropped by a dramatic -10% and -5% CAGR for Indonesia, and -16% for the Philippines (with a later 1% recovery) over the two five-year blocks measured. In such an environment, the report states, “operators can no longer prosper by endlessly cutting rates in the hopes of wooing customers away from competitors.”Usage experience is the biggest influence on customersAccording to the consulting firm’s survey of 4000 pre-paid customers across the examined markets on their opinions of their carriers, consumers cite ‘user experience’ as a more important factor than ‘value for money’ regardless. As a measure of overall regional responses both good and bad, the percentage of references related to user experience far outweighed value for money, and, to differing extents for the different regions, was of far greater concern than ‘plan selection’, ‘service’, and ‘corporate image’ in turn, with the latter registering an effectively negligible response-rate in comparison.

As a rough breakdown per market, user experience was cited by 30% or more of respondents in Thailand, Indonesia and the Philippines, and slightly less so in the more expensive mobile regions of Malaysia and Singapore, where it was still rated by between approximately a quarter and a fifth of consumers respectively. Naturally, these two regions registered higher than overall responses with regard to value for money, but the general feedback between the nations was otherwise broadly consistent in the other categories, with plan selection taking a back seat to service, and corporate image barely visible on the radar.Promoters are worth three to five times more than detractorsThese good and bad customer opinions on their carriers per category are classified in the Bain report as ‘promoters’ and ‘detractors’ – promoters indicating a nine or ten rating on a zero-to-ten scale, and detractors six or below – with the upshot being that promoters, based on average spending levels, tenure, and referral patterns, are worth three to five time more to telcos than detractors in customer lifetime value.

The report states that telcos “must find ways to differentiate themselves by the usage experience they provide, especially for data,” noting that the leading operators in the region have already cottoned-on to changing customer priorities – and are seeing early gains as to average revenues per user from substantial recent investments into their mobile networks.

“As customers use their phones more for videos and other data-rich apps and less for voice and texts, they will increasingly evaluate operators on how well they deliver data. In four of the countries surveyed, consumers currently rank their experiences with social media/web browsing and video streaming more negatively than their experiences with calls,” the report states, concluding; “Customers themselves have made their priorities clear. They want strong voice connections with no dropped calls, fast video downloads and hassle-free social media access.”   

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