Mid-Year Economic Review 2002

CELLULAR

We're all very mobile now

Vivat Prateepchaikul

From status symbol to consumer product, the evolution of the mobile phone has been one of the more interesting stories developing alongside Thailand's boom-and-bust economy.

CELLULAR

With hardware now costing next to nothing, the battle for customer loyalty has shifted to service, though it has taken operators a long time to learn the lesson

In the boom years, nouveau riche stock-market speculators brandished handsets the size of bricks and costing up to 100,000 baht as symbols of their success. Today you can buy a mobile phone at the 7-Eleven, and the motorcycle taxi drivers at the end of the soi give out their numbers to their regular customers.

Operators who grew fat on inflated handset margins, which they needed in order to subsidise service expansion, have now switched to an entirely different mode. Getting and keeping customers will depend entirely on the quality of service. And with margins on service also squeezed, the only way to improve the bottom line is to find new services for which consumers will be willing to pay.

Five years ago, at the outset of the economic crisis, cellular service was still a relative novelty. The local duopoly of Advanced Info Service (AIS) and Total Access Communications had a combined subscriber base of 1.87 million people.

By the end of May this year, the same two companies boasted 11.4 million customers, including 7.6 million for AIS. Newcomer TA Orange, heavily bankrolled by the Charoen Pokphand Group and French-owned Orange, fully expects to challenge the duopoly over the next three years and has signed up a half-million users since its launch in March.

Traditional Thai dancer speaks on a mobile phone during a break in central Bangkok where the handsets are now everyday items rather than status symbols.

What sparked the huge demand for mobile phones is no secret, even though many people are still dealing with the fallout from 1997. "Even we don't have anything to eat, we still have to communicate," said a telecommunications company executive.

AIS, the country's largest operator, was one of the few large local companies to emerge from the events of 1997-98 relatively unscathed. It lost about 10,000 subscribers, either through churn or because its customers faced financial trouble, in the immediate aftermath of July 1997, but the following year subscriptions began to pick up.

AIS said steady growth began in March 1999 and has been gathering momentum ever since. In 2001 the company's customer base surged by 300% to 4.8 million.

The improvement can be linked directly to a major shift in marketing strategy. As handset prices began to come within reach of lower-income customers, notably teenagers and students, AIS realised that eliminating fixed monthly fees and offering pre-paid services instead would be the wave of the future.

The company launched its One-2-Call pre-paid service in July 1999 and a year later it accounted for 14.7% of the digital subscriber base.

DTAC chief executive Boonchai Bencharongkul displays a copy of the Telecom Business Law during his company's dispute with the TOT.

And by June 2001, growth had outstripped all expectations with more than one million new users signed up and pre-paid users close to half of the total.

TAC, meanwhile, saw no impact on its customer base in the dark days of 1997-98, though the company's books certainly did not reflect steady growth.

As a heavy borrower of unhedged foreign-currency loans, the United Communication Industry (Ucom) subsidiary had a pressing need to find a well-heeled foreign strategic partner, which it did in Telenor of Norway. Telenor spent more that US$700 million investing in DTAC and Ucom.

TAC had 880,000 customers in 1997 and managed to add 60,000 the following year, a respectable performance given the economic times. By 2001 it had 2.73 million users, double the total of the previous year.

The success of TAC was attributed to its re-branding to DTAC in mid-2001, and the launch of the Dprompt prepaid service. TAC had flirted unsuccessfully with prepaid earlier, but it took the marketing expertise of Telenor to make the service fully established.

The rebranding, aimed at creating an identity that was easy to understand and easy to remember, completely changed the public's view of the company as being a bureaucratic and awkward firm.

Now DTAC has become a household name. It also became an umbrella brand replacing all the others that had confused the public such as TAC, WorldPhone 1800, WorldPhone 800, Prompt and World Media Shop.

The rebranding, which included the deployment of a British airship cost DTAC more than half a billion baht _ one of the most expensive marketing campaigns ever staged in Thailand.

In July 2000, TAC's prepaid customers accounted for just 4.65% of its total, but as of April his year, Dprompt had captured 1.79 million or almost 50% of the company's 3.8 million users.

The market for pre-paid service continues to rise steadily, particularly as operators are introducing attractive packages with extra airtime as a bonus.

As well, the unlocking of the IMEI or international mobile equipment identification code by operators will fuel up stiffer competition.

TA Orange, seeking a way to cause a stir in the market, was the first operator to announce that it would unlock the network code. The result is that all handsets, even smuggled ones, or handsets of other operators, can enter a network. But users still need to have the Sim cards of the operator to activate use.

However, DTAC became the first operator to make open network access a reality. The move shocked the market, coming at a time when the company was engaged in a bitter bitter brawl with the Telephone Organisation of Thailand over access charges of 200 baht per number per month.

DTAC cited the Telecom Business Law, which came into effect in November 2001, as giving it the right to cease making the payments to the TOT. But the state agency retaliated with a threat to cut off access to its fixed-line network for DTAC customers. DTAC owed more than one billion baht in unpaid access charges to the TOT.

During the dispute, DTAC's marketing was badly hurt with buyers worrying about the future of the service if they chose to buy DTAC mobile phones. But a settlement was later reached and DTAC agreed to pay the charge, citing misinterpretation of the law.

A presenter shows off one of the Motorola handsets used by Thai Mobile 1900 at the soft launch of the Telephone Organisation of Thailand's cellular service in March.

DTAC's subscriber base then began to pick up with the launch of new products that raised the eyebrows of rival operators _ a Starter Kit for prepaid service cost just 300 baht with equivalent airtime and free short message service (SMS) for 100 days.

The product was very successful and prompted other operators to come up with low-priced products to compete.

The most recent offering from DTAC was a Dprompt GSM Cool Pack Starter Kit offered at just 300 baht each.
A starter kit purchased and activated within the month of June came with 150 baht worth of airtime for use within 100 days.

The success stories of both mobile phone operators, AIS and DTAC, also was fuelled by other players in the market, not only mobile operators but fixed-line companies such as TelecomAsia, operator of 2.6 million lines in Bangkok and the sister company of TA Orange.

TelecomAsia's introduction of PCT service with a "one number" concept as an add-on to fixed-line phones in November 1999 had also sliced into the wireless cake previously enjoyed by the two operators.

Although both mobile operators maintained that the PCT service had a different market segment, they admitted that they had lost some potential customers to the cheaper cordless phones, particularly housewives, teenagers and students.

A TA executive said that although the target consumers for PCT differed from those of the cellular firms, some consumer groups still perceived PCT as a substitute for cellular. Therefore, a fierce competition with cellular services seemed inevitable.

But in 2001, mobile phone subscribers doubled in number within the first nine months to 6.4 million amid growing competition.

An industry source said sales really started to take off in the second half of 2000 due to handset and equipment price reductions. As well, there were new sales promotions such as all-inclusive charges that resulted in lower tariffs. This was done in order to expand the build their subscriber base prior to the entry of TA Orange, ACT Mobile and Hutchison Tawan Mobile.

Despite PCT facing tougher competition from mobile phones and its service area being limited to Greater Bangkok, TelecomAsia still managed to add subscribers at a growth rate of 60% from 2000, to 626,944 at end of 2001.

By end of May 2002, PCT subscribers totalled 665,000. With a low penetration rate in wireless at 16%, there is still large room for growth.

However, another industry source believes the market for PCT phones is almost saturated, citing the slowdown in growth of subscribers in the first half of 2002.

The source said the main obstacles to faster growth of PCT were increasingly lower mobile handset prices, as well as the geographical limitations on coverage.

The source also said the PCT subscriber base could shrink further when the two-year "handset borrowing" programme ended at the end this year, along with a promotion of flat rates of three-baht per call.

The promotion was the main magnet to attract subscribers to PCT but once it expires, TA might have to come up with another marketing gimmick to hang on to its base.

Meanwhile mobile phone sales and subscriptions continue to gather pace.

An Ericsson Thailand executive said that although there were several players in the country's mobile phone market, there was still plenty of room for growth due to the low penetration rate.

Currently Thailand's penetration rate for wireless service is 16% of the population, compared with 53% in Hong Kong, 36% in Singapore, 50% in Korea, 45% in Taiwan and 13% in Malaysia.

And while AIS and DTAC now control 95% of the cellular market, steady growth by TA Orange is expected to eat into the giants' share. Within two months of its soft launch, TA Orange signed up more than 400,000 users, with very attractive promotions that offered selected models of free handsets to customers, with others priced as low as 1,000 baht, compared with the normal 6,000-7,000 baht charged by other operators.

But TA Orange's coverage remained a question mark, with early complaints of dropped calls and signal interruptions. But as the company likes to say, the future's bright, and in all likelihood it is for Orange and its bigger rivals.