ASEAN is a diverse region with member countries each with different economic, social, cultural, infrastructural and political characteristics. As a region, two key market characteristics stand out, it is a young and socially engaged society. These characteristics are highly relevant to the telecommunications industry regionally. Mobile connectivity in the region is highly relevant and will play a critical role in bridging diversity and enabling economic prosperity.

Revenue for operators in ASEAN are dominated by mobile, except for Singapore where mobile revenue constitutes 2/3 of the revenue in most markets. While all markets have crossed the 100% mobile penetration and overall revenue is on the rise due to added connections by underpenetrated rural areas or multi-SIM users, the average revenue per customer (ARPU) has decreased across all markets.

Competition tends to be highly concentrated amongst the top three players in each country who control about 80% of the market share. Typically, there will be one larger player with two market followers. Only a few strong domestic players have entered the regional market i.e. Singtel, Axiata and Telenor. There is a massive shift to data and 3G on the back of rapidly declining prices of smartphones and strong 3G rollouts by operators. As a result of increased mobile access, fixed line subscriptions have declined. However, there is strong push across the region for advanced fibre rollouts and infrastructure. Singapore and Malaysia were early movers in rolling out advanced fibre infrastructure.

Moving forward, data and internet consumption will continue to rise and the ASEAN market will most likely prefer mobile access instead of fixed line due to increased accessibility to smartphones.

A highly connected consumer base that is travelling more within the region with smartphones and is socially engaged will impact the way operators rollout and provide international roaming and data across borders.

Issues and Opportunities
In view of the ASEAN economic integration, four issues will have significant impact on the regional telecommunication industry. These are:

  1. International roaming
  2. The role of Over The Top (OTT) players
  3. Mobile Money and new services
  4. Regulatory evolution in ASEAN

1. International Roaming
Roaming charges in ASEAN are significantly higher than in Europe and vary across operators. The EU regulation on international roaming is gradually being seen by legislators as an approach and example to follow. In the EU, a holistic and well enforced regulatory approach to international voice and data roaming services have played a key role in reducing roaming costs, protecting consumer interest and ensuring good compliance in all member states. Ofcom, UK Communications Regulator, helps enforce the EU roaming regulations.

Roaming regulation in ASEAN must be strengthened to reduce charges. ASEAN’s adoption of the ‘Addendum of ATRC (ASEAN Telecom Regulatory Council) Infra-ASEAN Mobile Roaming Rates’ is aimed at reducing roaming charges but has not been enforced in all member countries. There are also bilateral initiatives between countries like Malaysia and Singapore, Malaysia and Brunei, as well as Singapore and Brunei, but these do not present a cohesive common ground at ASEAN level.

There is a constant debate about how quickly the ASEAN telecommunications industry should bring its roaming rates down. The argument for an immediate lowering of rates cannot be ignored as operators are seeing a rapid decline of demand and revenue from roaming.

2. The role of Over The Top (OTT) players
The role of OTT players such as Whatsapp, Skype, Wechat, Viber are disrupting telco business models and serves as a significant threat to the industry. Increased innovation and access to apps, as well as technological development which improved sound quality over 3G networks, and lower OTT prices compared to regular voice services, among others, are drivers supporting the substitution to OTT services.

The development of OTTs is a global trend and most of these services are provided by global MNCs. ASEAN users have been quick to adopt global OTT services instead of local OTT solutions. Few ASEAN telcos have the scale and capabilities to push local developed OTT services locally. Furthermore, OTTs sit in the ICT sphere driven by technology and speed to market, whereas telcos are at times, highly regulated.

Alarmingly, telcos have not been able to adapt quickly enough and need to change their approach to OTTs. In trying to deal with this disruption, most telcos regionally are constantly trying to preserve their business models instead of shifting mind sets to view OTTs as an opportunity.

3. Mobile Money and new services
Mobile money is a new opportunity appearing within the telco sphere regionally. Telcos have two value propositions that will allow for unique new services such as mobile financial services, mobile advertising, M2M and others. First, telcos have a wide distribution reach within each market and secondly, telcos are adept at making money through small micro transactions.

Telcos have always found it challenging to monetise consumer data. However, with emerging mobile services, there can be an avenue for cross-sectoral synergies, for instance, mobile financial services. This can present a huge opportunity for both the financial and telco sector. With mobile penetration over 100% in all ASEAN countries and a significant portion of the population not being served by the formal financial sector due to infrastructural, cultural and economic factors, telcos are poised to serve banked and unbanked market segments innovatively in the region.

4. Regulatory evolution in ASEAN
Regulations establish how operators compete within each market. In ASEAN, regulations in the telco industry varies, making it challenging to achieve economic integration. There are many aspects to regulation, however, one of the biggest concern for telcos is regulations guiding spectrum allocation in ASEAN.

This is a key regulator activity and impacts competition and costs. At a regional level, it will have a knock on effect on roaming. There is currently no one common spectrum or frequency band in the region which could enable seamless roaming experience for travellers within the region.

Recommendations and solutions
Regulators within the region will play a critical role. The policy and regulatory frameworks aimed to bring down barriers to intra-ASEAN competition, protecting consumer rights, allocating and harmonising spectrum must also allow space for telcos to compete, innovate and earn revenue in a way that does not impede the operators’ ability to shape their own future.

1. International Roaming: creating a transparent customer experience
The tipping point is here – smartphones are at a price point where developing markets can afford it, demand for data is increasing, travel and mobility between countries are up. The time is now for ASEAN telco operators to work together and provide better roaming offerings and packages. Otherwise, users will switch off and turn to WiFi and OTT. If the target is to harmonise ASEAN’s socio-economic ecosystem, then the roaming experience must also be transparent and seamless as travel within the region increase. Consumers should be provided with transparent automatic enrolment to the most preferential roaming package not only to stem the switch to WiFi, but to also take an industry lead approach instead of a regulatory led approach to resolving poor international roaming cohesiveness within the region.

2. OTTs : opportunities, local innovation and serving SMEs
OTT development lifecycle is mostly based out of the US, as there is an ecosystem for start-ups and app development. However these OTTs do not meet needs of rural and lower price market segments, which is the bulk of the ASEAN customer base. Development of local apps will come to play here and locally applicable applications will be important. As a strategy, telcos in the region can create an ecosystem for start-ups and incubators to capture these apps and ensure convergence for the local market before big international apps become more competitive.

Telcos in the region should also look at ways to become a preferred partner for OTTs. The speed of decision making in telcos must be on par with the speed OTTs; telcos must be more receptive to the disruption taking place and create more openness to collaborate with OTTs. Aside from seeking opportunities with OTTs, telcos must enable usage of the cloud especially for the SMEs. Effective provision of hosting infrastructure, platforms and software services can help serve an important and growing SME market in ASEAN. Supporting the SME environment through enterprise offerings for cloud is a big opportunity.

3. Regulations and New Services
Telcos have a knack for making money even from small transactions and they have a deep and wide distribution base. Although new services such as mobile banking, wallet-to-wallet transfers, stored value account, mobile remittance and utilities transfers, among others, are still largely untapped, member countries will need to work towards harmonising complex regulation and policies concerning privacy, data security, authorisation and foreign transactions.

There is an opportunity at a regional level to use the capacity and capabilities of telcos to address the financial divide. Banks which have undeserved customers at lower income groups and policy makers should leverage on the telcos’ experience and ability to build credit ratings/profiles of costumers based on mobile consumer data. This ability will be evolutionary and does not exist in developed markets.

Regulation and foreign exchange issues, licences, cross border transfer of money, high remittance rates within the region and impact of foreign exchange on micro payments which are customer sensitive must be agreed on regionally. One way is to establish a standard (like the NFC) and create an agreement for all regional mobile operators which are rolling out mobile banking type services within ASEAN.

The other regulatory concern that needs an integrated regional response is spectrum harmonisation. ASEAN countries will have to re-look the way spectrums are allocated to make it more efficient and cost effective for operators.

Sector Champion

Alexander Rusli,
President Director & CEO, Indosat

Ernest Lawrence Cu,
President & CEO, Globe Telecom Inc

Research Partner
Bain & Company
Till Vestring, Managing Partner, South East Asia, Bain & Company
Kevin Meehan, Partner, Bain & Company
Florian Hoppe, Partner, Bain & Company

Kevin Meehan, Partner, Bain & Company

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