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Case study: XL Axiata is doing the impossible – boosting profits and per-minute revenues in hypercompetitive, multi-SIM

31 May 2011 Charles Moon

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Indonesia has been one of the most competitive mobile markets in Asia, with a price war in 2007 spurring massive growth and the emergence of a very strong numberthree player in XL Axiata. Voice promotions in 2010 coupled with a new distribution strategy has allowed XL Axiata to grab further market share, positioning it to assume the number two spot this year. Operational metrics improved with revenue per minute rising by 28% from IDR81 (US$0.01) in 2009 to IDR103 in 2010 despite a 25% decline in average minutes per subscription. More importantly, 2009 vs. 2010 financial KPIs continue to dazzle:

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Strategic goals

ROIC: 8.2% vs. 18% Normalized ROE: 20.8% vs. 29.6%.

Indonesia’s classic emerging-market dynamics – prepaid dominance, cost-conscious subscribers, intense competition, a dominant incumbent – has resulted in a market where pricing has been the main determinant to new subscriber additions. The consequence of this was seen in 2007, where irrational pricing led to a steep drop in tariffs and ARPUs, but a massive increase in subscription numbers. XL Axiata’s subscription and ARPU data show the pattern (see fig. 1).

Fig. 1: Indonesia, XL Axiata’s ARPU vs. subscriptions, 4Q06-4Q10

The smoke has cleared, and clear heads now seem to prevail, with the biggest winner being XL. With the market now bloated with multi-SIM users with on-net usage habits, XL has not just boosted its subscriber share, but has increased utilization, returns and profits. Aiming for second place, it has pulled out all the stops around pricing to keep its SIM in the number-two spot in consumers’ multi-SIM devices, offering free on-net voice, SMS and data – all combined with a customer lifecycle management strategy using platforms that allow the delivery of thousands of customized campaign offers and near real-time reward fulfillment. © 2011 Informa Telecoms & Media 1

01) in 2009 to IDR103 in 2010 (see © 2011 Informa Telecoms & Media 2 . Results Operational metrics improved with revenue per minute rising by 28% from IDR81 (US$0. but has mitigated potential cannibalization issues by requiring upfront payments and limiting free use to specific times (see fig. while the subscription penetration is far higher at 91%. the actual unique user penetration in Indonesia is around 60%. 2). this despite: • • a 25% decline in average minutes per subscription a whopping 28% increase in subscriptions. 2: XL Axiata’s promotional price plans Market positioning Two key dynamics have resulted in XL deciding to position itself as the “second SIM” operator – a dominant incumbent with a market share of 46% and the prevalence of multi-SIM devices. 3). these types of offers have been the weapon of choice for competitive players. Fig. XL has overcome this problem by offering promotional bundles with free on-net calls and SMS messages. in markets where multi-SIM is the norm. www. Hence XL has looked to first getting its SIMs into people’s phones.Business model With the dominant operator having the most to lose as competition moves to discounted onnet strategies. all the time. However. By some estimates.informatm. then employing contextual and compelling near real-time offers to boost usage of its network. on-net tactics could backfire as everyone is effectively on-net.

MoU vs. boost its overall voice revenues. Normalized ROE: 20. 29. 4: XL Axiata SWOT analysis Informa viewpoint XL Axiata has been very effective in combating the not-so-unique dynamics of the Indonesian mobile market – intense competition.2% vs. XL is well-placed to continue improving its position – both in terms of subscriptions.informatm. improve its network traffic profiles (total outgoing minutes actually decreased in 2010). 18%.8% vs. Its key advantage is not only the superior knowledge it enjoys about its user base. revenues and profits. By using its superior customer analytics capabilities. and improve its brand perception in the market. the operator has been able to lower the perception of its price levels among its customer base. but its ability to act on information far more quickly than its competitors. 2010 financial KPIs continue to dazzle: • • ROIC: 8. 3: Indonesia. 2009 © 2011 Informa Telecoms & Media 3 . www. voice revenue per minute. 1Q09-4Q10 More importantly. With the mobile battle in Indonesia continuing to be primarily about pricing of voice. XL Axiata.6% Strategic outlook Fig. widespread multi-SIM usage and very cheap tariffs.Fig.

com © 2011 Informa Telecoms & Media 4 . but also lessen the impact of competition. this type of price determination platform will work well to not only increase usage among low-tier subscribers. allowing XL to successfully pursue its goal of being the “second SIM” in everyone’s device.informatm. rural areas. www.As growth will increasingly come from under-utilized.