IMITATION is the sincerest form of flattery. There is no harm in acknowledging that others tend to do things better. It’s often a fact of life and when Maxis Bhd wanted to transform its worn-out ways of doing things, the domestic cellular reached out to one of its most bitter rivals.
Handpicking Morten Lundal as its new CEO, that move was seen as reaching out to the man that some would say changed the face of the then smallest but most nimble of rivals.
Lundal, who transformed the way DiGi.Com Bhd works when he was CEO of the company from 2004 to 2008, aptly describes Maxis has as “a company that has lost its way... it has drifted.’’
He doesn’t need a report to realise that. Maxis has displayed classic symptoms of a company that has feasted on its own success. Starting from behind in 1995, it grew to number 1 in the business but along the way, its dynamics got sluggish.
Shareholders knew all was not well within Maxis and change was need. Transformation is essential in a business that was fast evolving.
In Lundal, they see a man who is right for that job. Lundal, in his second stint in Malaysia, rode DiGi hard towards a head-on collision with Maxis and Celcom Axiata Bhd. In that process, he transformed the smallish DiGi into a leader in the prepaid segment of the market.
Changing Maxis
Since coming on board eight weeks ago, Lundal has put into motion a plan that flattens the managerial structure in Maxis. The hierarchy within the heavily wood decorated headquarters will see 40% of managers get more involved in running things. In making them team players instead of leaders, the first consequence of that is a reduction of head count at the top.
He wants to freshen things up and make the company leaner. Lundal wants Maxis to banish the perception it was an old man’s brand, and focus on quality and deliver as promised. No longer does it want hear ramblings of bill shocks from its users. Maxis needs to revamp its distribution, push for enterprise business, regain prepaid market share and guard the postpaid turf.
It’s a long to-do list that also wants to smoothen its relationship with Telekom Malaysiato deliver on better broadband and content into homes. Maxis needs to strengthen its presence in the youth segment of the market too. Lundal wants that done while not making its products more pricey than what it needs to be.
The long route to Maxis
Even before he arrived in Malaysia two months ago, the market wondered why did he quit a global company to join a smaller Maxis. Lundal was at that point the third most influential man at Vodafone Group plc. He was its chief commercial officer.
Fate would have it that at the point when Maxis owners were desperately combing the world for talent, Lundal was busy dusting his CV. He had grown tired at Vodafone by his fourth year there and needed a new challenge.
“I like unconventional choices...I enjoyed my five years with Vodafone. But in the last year in Vodafone, I knew I wanted to leave. I didn’t choose Malaysia. I chose Maxis because I’m intrigued by the story of how Maxis had been drifting in the last two years and how difficult it is to come back with momentum. It is like when you have a car and you slip off track before you recover,’’ Lundal told StarBizWeek in an interview this week.
Maxis has been without a CEO since Sandip Dass left in May. Both Nasution Mohamed and Suren J Amarasekera were put in charge as joint COOs to take charge and restructure the company.
It was a stop-gap measure though but they did dismantle the thick and cumbersome organisational structure, and set in motion a separation scheme to reduce head count.
They introduced a leaner Maxis with four business unit structures. They tried to reposition its prepaid segment with fresh “#Hotlink’’ offering but have still not done much with postpaid.
The ideas are generally what Lundal wants to do but it hasn’t really changed the performance of the company. Maxis has seen a drop in ebitda (earnings, before interest, tax, depreciation and amortisation margins) and the shareholders remained worried. Lundal met analysts for the first time this week to share his plans but not all the analysts were excited by what they have been told. CIMB Research says in a note that “Maxis lacks a re-rating catalyst.” UOB KayHian Malaysia Research in its note says Lundal needs time to cut bureaucracies that have been holding back Maxis.
Maxis share price rose 3% or 21 sen on Thursday, a day after he met a group of analysts, but fell 4 sen on Friday to RM7.17 a share after some analysts reiterated their sell calls on the stock.
Making that connection
On his first day at work, Lundal moved through floors, shocking some co-workers when he showed up at their work stations. They are not used to the CEO showing up in person. Last week, he briefed the board what he wants to do at Maxis. He prepared 156 slides but only 25 were presented to prove his point in a 3.5 hour discussion. He talked at length about implementation, the right technology mix, network, customers to everything that needs to be done.
The board seems to be in agreement with his plan.
Though Maxis has drifted, Lundal sees in essence “a good company.”
“I see a lot of people, processes and achievements that impress me... but Maxis has also lost its way in terms of being connected with the customers. Still it is a proud company which has lost confidence but still operates at an absolute high level,’’ Lundal says.
Lundal feels Maxis can recover. “Postpaid business is doing fine but we will suffer in prepaid. The company used to be great and now becoming more average. I don’t see it as a turnaround. I see it as transformational towards excellence.’’
Now that the plan has won over the board of directors, it is time for implementation.
Lundal has kept the revamped four core businesses - consumer services, enterprise solutions, digital services and sales and services.
“We are also inefficient in our branding and distribution and that’s what we need to also fix. We will spend on marketing and branding next year and when it comes to postpaid, I want to get the message through that you can get “data the way you want it’’ and this is to inspire confidence. We have to inspire people to use the phone to use the Internet.’’
It will be a tough transformation
UOB KayHian Research writes that “Maxis had been losing subscriber market share, down by 13 percentage points since June 2008, and this continued to slip this year to 27%. Maxis therefore has been focusing on this segment since the middle of this year, led by the launch of its latest prepaid pack called, #Hotlink. We expect more products from the company.’’
CIMB Research adds that “Maxis lost market share in prepaid because of bill shocks for mobile data as their pay per use rates were too high. Maxis needs to get users to start using mobile broadband again.’’
The house adds that on the distribution side, Maxis has lost touch with its dealers and its incentive structure is not competitive.
“In addition, the products of new players have become more visible on the shelves of dealers. Maxis says it will take up to 20 weeks to fix this but the results will take time to emerge. Distribution is important for its prepaid franchise from a client engagement point of view because users walk in a few times a month to reload their credit. We have highlighted that Maxis’s distribution channel lags behind that of its rivals.’’
CIMB adds that Maxis has neglected certain segments such as the Chinese/urban users and needs to re-engage them.
The enterprise segment is a market Lundal is excited about and sees huge growth potential. But he can’t do much if he does not fix the quality of service issues on high speed broadband (HSBB) with Telekom Malaysia (TM) and Lundal wants to engage with TM on that. Maxis leases capacity on the HSBB.
UOB KayHian says Maxis plans to raise revenue contribution from the enterprise segment to 20% over the long term versus 13% currently. These include selling fixed lines and service platforms.
Maxis is “king of postpaid’’ for now, but its lackadaisical attitude and lack of innovation and over pricing is forcing many users to move networks and unless it pays more attention to this group, many more will keep moving networks.
Grow mildly in transition
Lundal wants to spend RM1.1bil in capital expenditure (capex) this year and RM1bil next year, up from RM850mil this year, and a lot will go into branding, product innovation and network.
He wants the network to improve from “good to great’’ and wants the touch points with customers improved. Essentially, he wants to spend more to keep customers with Maxis.
But Lundal is practical. He doesn’t expect immediate returns.
“We will probably under perform the market for a few more quarters. But not too many. I see Maxis growing positively but only mildly. I also see us growing our margins but on the weaker side because we will invest more. We will invest RM1bil each year and keep our 40 sen per share dividend commitment. I see 2014 as a transition year and 2015 as year of performance,’’ Lundal says.
He adds “it is an expensive investment. I am not saying we do all of that at one time. Internet should be better with Maxis. We’re still in the investing stage,’’ Lundal says.
UOB KayHian is trimming its 2014-15 net profit forecasts by 1.3% and 0.7% respectively. CIMB estimates net profit of RM2.1bil this year and RM2.3bil in 2014 from RM1.8bil in 2012 and RM2.5bil in 2011.
UOB KayHian adds that with the right people in the group and after Lundal has the chance to put the house in order in 2014, it thinks the longer-term outlook for Maxis will be brighter.
The industry, though, will be watching and reacting to Lundal’s moves. It’s not an easy process but one that is needed for Maxis.
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