Making DiGi a leaner telco machine

newsmaker DiGi Telecommunications may be the smallest cellular player in the country, but the oft-branded catch-up kid in Malaysia's competitive wireless world has gained a reputation of being an upstart in the industry and somewhat of a "thorn in the flesh" to its larger, more celebrated rivals.

Being small has its advantages, and it's something DiGi has managed to exploit successfully over the past five years, with revenue growing steadily from 2.8 billion ringgit (US$843.08 million) in 2005 to 4.9 billion ringgit (US$1.48 billion) in 2009. Since 2005, it has returned more than 5.8 billion ringgit (US$1.75 billion) in cash to its shareholders, and has 30 percent of the market share with just under 8 million subscribers.

But growth in the wireless arena is now tougher than before, as the country's mobile subscriber base reaches saturation point. Navigating DiGi through this latest phase is new chief Henrik Clausen, who officially took the helm on May 17 from outgoing CEO Johan Dennelind.

Starting out his career with Big Blue in 1987, the former CEO of Telenor Denmark brings with him over seven years in various management consultancies and 10 years in the telco space. An MBA graduate of INSEAD, the soft-spoken Dane took time out to speak to ZDNet Asia about his plans and challenges, and what his priorities are as the new head of DiGi.

Q: Your predecessors built the network, changed the culture of working, and brought operational efficiency to the fore for DiGi. What will you bring to the table?
Clausen: Having come as a CEO of Telenor Denmark, I believe I have the knowledge of what it takes to compete in a tough marketplace. Denmark has 4.5 million people and four mobile network operators and a competitive regulatory environment. For DiGi to continue moving forward, [this] would require us to be much more segmented in our markets, and I have the experience doing this. For example, we know we can't serve all segments with all products. Thus, having partners through mobile network virtual operators (MVNOs) makes sense, just like in Denmark.

The other thing I bring is the ability to drive the cost reduction agenda, which has been a big part of my time in Denmark, a country experiencing only single-digit growth. The tough conditions there helped me do things more smartly and [to] drive cost down.

As DiGi's network grows, there is going to be pressure from capital expenditure (CAPEX) and increasing competition from other players. What is the strategy for DiGi going forward?
I believe there are still about three to four million people in Malaysia who are still underserved, and we are working to capture this market. In our traditional stronghold segments such as the youth, migrant and small and midsized businesses (SMBs), we believe that data is becoming part of their voice service. This is where the next battleground is--to focus on increasing our combined ARPU (average revenue per user) rather than just on voice ARPUs alone. We believe we can stimulate the market to increase usage and consequently better our ARPUs.

How exactly do you plan to stimulate growth?
One way to do this is to ensure that our coverage and quality are up to mark. From a coverage perspective, we have about 95 percent 2G coverage in populated areas. For 3G, our target is to achieve 50 percent nationwide coverage by year-end.

That said, coverage and quality alone are not going to do it as we believe we must provide the capacity in the network to go along with coverage and quality because our customers will not increase their usage if they have poor user experience.

Besides this, to stimulate growth, we need to continue introducing relevant products that have both voice and data plans. This is especially true in the smartphone arena where we bundle our plans with the handsets.

Your predecessor implemented operational efficiency within DiGi. What will you do to continue this effort?
Since April, we have embarked on cost reduction exercises for our network, which is a big part of our CAPEX and OPEX (operational expenditure). What we want is to be careful where we roll out our coverage and we will try to match that to where we believe our paying customers are.

Also, we are working on site sharing for both base stations and transmission locations and we are pushing our vendors hard to provide us with more competitive pricing. In fact, we have seen a reduction in pricing for our hardware in the last 18 months. Another area we are looking at is how to prudently use our advertising and promotions budget so we can be more strategic in winning mind share.

In a nutshell, we are looking at everything we do and only doing the things we know [will] create value for our customers. Our target is to save 100 million ringgit (US$30.11 million) by year-end. We're currently at 37 million ringgit (US$11.14 million), and I believe we can achieve that.

DiGi may need to acquire more spectrum for the expansion of its operations in the future. Do you expect an auction scenario to develop here in Malaysia?
Frankly, we hope we will see an auction scenario develop because I believe it's the fairest principle for determining access to frequency. Also, we should move away from "beauty contests" for determining issues such as spectrum. Companies like us that buy spectrum are the entities which will use it to drive more business and expand coverage for the good of the country. I also believe Telenor has the knowledge to engage in auctions as we have done that a lot of times. Personally, I have just come off bidding for 4G spectrum in Denmark, so I think I have the experience to steer DiGi through it.

As the incoming CEO, what would you do differently from your predecessors in DiGi?
The overall direction of the company has not changed. We are still challenging the market while focusing on our customers. This is something I'm not going to change. What I will work on is to make changes within DiGi structurally in the way we operate and how we approach the market. We need to be focused on having more product segments, improving our distribution channels and to be more process-orientated.

But I want to achieve this without taking away the energy and the attitude with which we have been approaching the market all this while. My job is to combine the best of all that DiGi has to offer, making it a leaner machine. I think we will do well when this happens.

Edwin Yapp is a freelance IT writer based in Malaysia.