UNIVERSITI PUTRA MALAYSIA

TRI/CELCOM: Fixed Services Division Strategic Analysis Factors and Strategies

SITI NORAINUL AZAM BT HJ. GHAZALI

GSM 1998 17

UXIVBRBITI PUTRA. lWIALAYIlIA MALAYSIAN GRADUATE SCHOOL OF MANAGEMENT

MASTER OF BUSINESS ADMINISTRATION SUMMER 19981 1999

TRI I CELCOM : Fixed Services Division Strategic Analysis Factors and Strategies

PREPARED BY SITI NORAINUL AZAM BT HJ. GHAZALI

51377 8th September 1998

PENGESAHAN KEASLIAN LAPORAN .

Dengan ini saya ,Siti Norainol Azam Bt. HaH Ghazali ,No

Matrik, 51377 pelajar kursus Master of Business

Administration, mengaku bahawa Kertas Projek atau Kajian

Kes ini adalah hasil usaha asal saya sendiri.

-------------------------- -------------------

Nama: Siti Norainul Azam b t Hj. Ghazali Tarikh: 07.09.98

DEDICATED TO MY FAMILY FOR

THEIR LOVE AND SUPPORT.

TR IIC e i c o m : F ixed S e rvic e s D ivision

CONTENTS

Part A

CHAPTER ONE 1.0 INTROD UCTIO N

1 . 1 History of TRIICeicom 1.2 B ackground of TRIIC eicom 1.3 Background and History of Fixed S ervices D ivision

CHAPTER TWO 2.0 Fixed Services S tructure 2.1 Fixed S ervices D ivision, Mission S tatement 2.2 High Level Roles and Responsibi l ities

CHAPTER THREE 3.0 Wor k C ulture in Fixed S ervices D ivi sion

CHAPTER FOUR 4.0 Fixed S ervi ce s Products and S ervices 4.1 D etai l s on Existing Product and S ervic e s

4.2 Future Products 4 . 2 .1 I SD N

4.2. 2. Global C alling C ard S ervices 4.2.3. Prepaid C ards

4.2.4. Video Conferencing 4 .2. 5 C entral Exchang e Syste m (CENTREX) 4.2.6. Global Frame Relay

CHAPTER FIVE 5 .0 Current Financial Performance

CHAPTER SIX 6.0 Telecommunication Industry in Mal aysia 6 .1 The Market: Businessl Residential

6.2. Th e MARKET: The Industry Players 6.3 JTM Regulatory: Government Policy

6 .4 B udget Perspec tive: Th e S eventh Malaysia Plan 6.5 Malaysia Fixed Line Market: O verview 6.6 Payphone Market: Overvi ew 6.7 Other S ervices : Internet S ervices

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Page

4 7 9

12 13 14

22

24 26 30 30 33 36 34 39

42

44 4S

47 49 57

60 66 68

T R II Celcom : F ixed S e rvices Di visio n

cont. CHAPTER SIX 6.8 F ix ed L in e Mark et: N etwork Provi ders 6.8.1. Major Network Provi ders: O wn ership 6.8.2. Maj or Network Providers: Network D evelop men t 6.8.3. Network Provi ders: Tariff an d Rates 6.8.4. Net work Provi ders : Man power 6.8.4. 1 Celc om(Fixed Li n e) Man power.

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71 73 74 75 76 77

TRIICeic o m : Fixed S ervices D ivision

PART B

CHAPTER SEVEN 7. O. Introduc tion 7 . 1 . Strength 7. 2 W eaknesses 7 . 3 Opportuniti es 7 . 4 . Threats

CHAPTER EIGHT

79 8 1 83 86 88

8 . 0 Competitive Analysis on the Market Leader(TMB) 9 1 8 . 1 . Competitive Analysis on other major network providers 94

CHAPTER NINE IFAS (Internal Fac tor Analysis S ummary) EFAS ( External Fac tor Analysis S ummary) SFAS( Strategic Fc ator Analysis Summary)

CHAPTER TEN 1 0 . 1 Details of the Profit and Loss for 3 1 . 1 2. 97 1 0 . 2 Details of B al anc e Sheet at 3 1 . 1 2 . 9 7 1 0 . 3 Acc ounting Ratio

CHAPTER ELEVEN 1 1 . 1 Key Strategic F ac tors 1 1 . 1 . 1 Growth through Conc ep tric Diversific ation 1 1. 1 . 2 . Pause and S tability Strategy 1 1 . 2 Rec omm ended Strategy IShort Term Strategy 1l . 3 Long Term Strategy 1 1 . 4 Imp lementation 1 1 . 5 Evaluation and Control

Refer enc es

Pag e 3 SITI NORA/NUL AZAM HI GHAZALI

96 98 9 9

1 0 0 1 0 1 1 02

1 04 1 04 1 0 5 1 06 1 0 7 1 0 7 1 1 0

1 1 1

T RIICeicom : Fixed S erv ices D ivis ion

CHAP T E R O N E I NTRODUCTIO N

1.1 History of TRI I Celcom

Cellular Communications Network S dn Bhd was formed as a private

limited company in January 1 988 , under the name of STM Cellu lar

Communications S dn Bhd which was initially owned by Syarikat Telekom

Mal aysia ( S TM) , now known as Telekom Malaysia . In December 1 989

after it has commenced operation STM sold 51 % of its stake to Alpine

Resources S dn Bhd . During thi s time the C ellular Communi cation s

Net work SIB customers base is already about 6,800 subs cribers . The

company l ater changed its name to C el com S dn Bhd .

Technology Resources Indust ries (TRI) was incorporated in 1 966 as a

private limited comp any in Malaysia and its shares was l isted on the

Kuala Lumpur Stock Exchange in 1971 . TRI was initially known as Roxy

El ectri c Industri es S dn Bhd .

P ag e 4 SITI NORAINUL AZAM HJ GHAZALI

TRI IC ei c om : Fixed S erv ices D ivis ion

TRI indirectly held 5 1 % stake of C ellular Communications N etwork S dn

Bhd through its subsi diary company Al pine Resources S dn Bhd and later

TRIICei com w as eventually formed when TRI acqui red the remaining

49% equity interest in C el lul ar Communi cations N etw ork (Malay sia) Sdn

Bhd for RM271, 705,000 and RM14,700,000 representing 36,750,000

ordinary shares of RM 1 . 00 each and RMI4,700,000 ( 8 %) Irredeemable

convertible cumulative preference shares of RM I . 00 each resp ectively .

The Cellular Communications N etw ork( C elcom) w as initially s et up back

in 1 9 8 8 by five y oung Malay entrepreneurs headed by E ncik Rosh Man .

TRII C elcom held maj ority shareholders of C elcom as well as s everal

other comp anies such as Alp ine Resources ( 1 0 0 % equity interest) , TR

International Ltd , TR(U S A) Ltd, and C elcom Ventures (Mal ay si a) S dn Bhd

as wholly ow ned s ubsidi aries . The exis ting list on TRIICei com

s ubsidiaries i s on Appendix ,Figure 1 .

Page5 SITI NORAINUL AZAM HJ GHAZALI

TRII Ce ic om : Fix ed S ervic e s D ivision

TRI ac t as a holding c ompany . throug h its subsidiaries an d assoc iated

c ompam es ,c ompany is pri marily eng ag ed 10 the provisi on of

telec ommun ic ation s servic es inc luding the provI si on of c ellular voic e an d

data tran smission , mic rowave lin k n etwork servic es ,the sale of pag ers,

an d provision of p ag ing servic es , the s al e of trun k radio equipmen t an d

the p rovision of radio trun king s ervic es ,the provi sion of radio

c ommun ic ation servic es an d the developmen t an d operation of

telec ommun ic at ion s n et work an d servic es .

In addition c ompany subsidiaries are also eng ag ed 10 property

developmen t an d in vestmen t, dealing in marketab l e s ec urities an d the

provision of s ec urities related servic es ,m otor home ren tals , t h e provision

of r ec reation al an d sport fac iliti es an d telec ommun ic ation s in dustry

train ing related servic es . It has also assoc iated c ompan ies an d j oin t

ven ture operation s in , The People Republic of Chin a ,B ang l adesh, Iran ,

C ambodia ,Tanz an ia, Hong Kong an d the Un ited States .

P ag e6 SITI NORAINUL AZAM HJ GHAZALI

TRIIC elcom : Fixed Services Division

1.1 Background of TRI/Celcom

After the revamp an d reorgan is ation of C ellular C ommun ication s N etwork

(M) S dn B hd i s n ow official ly kn own as C el com . A n ew corporate iden tity

accompan ied by a n ew logo called "S ayap Gemilan g" was laun ched in

199 7 . The logo embodies the freedom to commun ic ate without any

boun daries ;men tal, human or geographical . It als o portrays C el com as a

s in gle source that brin gs together the l atest commun ic ati on s an d reaffirms

the customer focused orien tation ; warm , approachab l e an d fri en dly. More

importan tly the "S ayap Gemilan g" en c apsulates our desire to be a ful ly

in tegrated commun ic ation s provider for the b en efit of customers an d the

comp any itself . A n ew in tern al taglin e was also p ro moted "Straight Talk"

con veys sin cerity to serve the bets to customers an d busin es s partn ers .

Lookin g b ack to its history an d compann g it to the presen t situation

C elcom tn its first year of operation was abl e t o secure about 6,800

subscribers in year 1 989 . And in 1 994 there are about 300,000 cellular

phon e users subscribin g to C elcom' s Art 900 system with accumulated

turn over of RM300 million un til that year.

P age 7 SITI NORA/NUL AZtM HJ GHAZtLI

TRIICelcom : F ixed S erv ices Divis i o n

Starting in from a team of tw enty five p eople 1 9 8 9 i t then doub led up

to over one thousand six hundred staff w here the company at pres ent has

almost four thousand staff throughout Malaysia .

The pos itive progress marked b y C elcom proved to b e succes sful In

strengthening its position in the cellular market w here it i s ab le to have

almost 9 4 0 , 0 0 0 s ub s crib ers b y end of year 1 9 9 7 .

I n line w ith TRIIC eicom mi s si on of b ecoming the region ' s premi er

telecommunications company , it has set its goal to b ecome a company

fully focused on telecommunications Thus to operate as a total

telecommunications s ervi ces provider it has ob tained l icenses for

International Gatew ay in 19 9 3 , digital c ellular and transmis sion in 1 9 94,

and offered fixed l ine s ervices I n 1 9 96, the l a test is to offer Internet

s ervices through its s ub sidiary C elcom Technology S IB in 1 9 9 8 .

The continuing market exp ans ion and market p enetration added w ith the

exp ansion of its line s er vic es the c om p any is con fiden t of its fu tur e to

propel ahead of the increas ed competition.

Page 8 SIT! NORA/NUL AZAM HI GHAZALI

TRIIC ei co m : Fixed S ervices D ivision

A t the s ame time Celcom' s operations internationally have continued to

expand in terms of market penetration and range o f services . This is due to

the development and accelerate growth of its transmission network and

international gateway .

1 .3 Background and History or Fixed Services Division

The Fixed S ervices Divisi on was s et up In 1 99 6 and still i n its infant

stage as it has only b een in the telecommunic ations for ab out one and half

year only . The division is meant to concent rate and o ffer s ervices

ranging from voice , image and data . The division started off b y offering

POTS ( Plain Old Telep hone System) to its fi rs t customer at Tasik Bukit

Merah , Perak .

Fixed S ervices Division ( F S D) is regarded as a p roduct hous e and operates

on its own although certain aspects of funding and infrastructure are still

implemented through TRIICelcom. Presently there are about eighty nine

staff stationed at various departments .

P age 9 SITI NORA/NUL AZiM HJ GHAZALI

TRII C ei com : Fix ed S ervi ce s Division

Staff ranges from management, tec hnic al as well as s up po rt s taff . The

Divi si on i s headed by i ts S eni or Vic e Presi dent , E nci k B adrul H assan

Mohamed Kassi m, who was p revio usly attac hed as the General Manager

for No rthern Regi on .

At present there are about 1 60 0 li nes b ei ng subsc ri bed and the divi si on i s

o pti mi stic that i t wi l l b e abl e to ac hi ev e thei r target of havi ng about 5 00 0

li ne i ns talled b y the end o f 1 9 9 8 .

One fac tor i s based o n the rec ent openi ng o f Mal aysi a Internati onal Ai rport

,KLIA S epang where they hav e been awarded the co ntrac t to i ns tall almo s t

2000 li nes i n the ai rport i tse lf b ei ng the s eco nd provi der o f i ts

teleco mmunic ati ons li nes B esi des upo n c ompletio n o f the

i nterc onnec tio n n etwo rk between o ther o pe rato rs and i nterc onnec tio n

agreement wi th Teleko m F S D wo uld b e abl e to o ffer a new produc t,

kno wn as Integrated S e rvic es Di gi tal N etwo rk(ISDN) to the public by

S eptember , 1 9 9 8 .

Apart from that Leased li nes s ervic es suc h as Internatio nal and Do mestic

,i t has also been o ffered but i t i s managed by C elc om Tec hnology S dn

B hd (CTSB) whic h wi ll als o o ffer Internet S ervic es Pro duc ts(ISP)

before the end o f thi s year.

Pag e lO SITI NORAINUL AZAM HJ GHAZALI

TRIICelcom : F ixed S er vi c e s Division

FSD ac ts indep endentl y b ut st i l l work together with other dep artment,

Divi sion or group that is th e Sh ared Infrastruc ture wh ich s upports In

terms of p roviding on time on budget exec ution of raw infrastruc ture and

equipment bes ides integrating end to end operations and maintenanc e of

th e network infras truc ture. FSD is al s o working cl osel y with th e Group

Marketing to as sist th e divis ion in giving inputs s uch as market res earch

and marketing tool s to promote th e produc ts .

I n addition s upport from Shared S ervic es are al s o obtained in order to

h el p c entral ised th e bill ing and c redit man agement as well as th e

information tech nol ogy needs .

Page 1 1 SITI NORAINUL AZA.M HJ GHAZA.LI

TRII C e lc om Fixed S ervic es Division

CHAPTBR T'1lV'O

O RGA N I SAT IO N S T RUCTURE

2.0 Fixed Services Structure

B ased on the C elc om organisational struc ture F ixed S ervic es Divi sion

(FSD) i s regarded as a group . How ever they still report to the

Management S e rvic es and in the divi sion itself there are eight

departments reporting direc tly to th e management , headed by a

S enior V ic e President � they are

• Strategic Planning and Regulatory A ffair s

• F inanc e and Acc ounting

• Human Resourc es and A dministration

• Produc t M anagement

• Tec hnic al! Produc t S upport

• B us iness S upport

• Greenfield I n itiatives

• CUC I n itiatives

For an overVI ew of the Celc om Organisation struc ture and F ixed

Servic es struc ture refer to Appendix ,Figure 2.

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TRIIC elcom Fixed S ervic e s Divi sion

2. 1 Fixed Services Division, Mission Statement

FSD mIS Si on I S "To become the customers preferred network in

Fixed Line "

C elcom' s overall strategic vI si on I S to b ecome a customer focused

,integrated telecommunications company . With th i s Vision , C el com

b uilds and maintains relationsh ip s with th e h igh est values b usiness and

residential customers in Malay si a offering integrated mix of products and

s ervices th at suits th e c ustomers needs b esides gradually enh ancing its

l evel of tech nology to contrib utes s ignifi cantly to th e national goal

, making Malay sia a h igh tech nology and information - intens iv e society .

Th e divis ion ' s mis s ion i s translated th rough its roles and goals th at i s to .

develop and manage Fixed S ervices N etwork S ervi ce ' s strategic and

tactical b usiness plan th at s atisfy th e stake h older' s expectation; to b uild

h igh quality future ready network ;to strive and deliver personal ised and

customised product and s ervices any time ; to promote rich ,h armonious

and satisfy ing working environment th at s upports and nurtures a deep

sense of p urpose , contrib ution and personal congruence .

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TRII Ceicom : F ix ed S e rv ic es D ivision

O verall the mission and goal s i s f ocused on comp eti ng on the basi s of

superior val ue, s ervic e and reli abi li ty over an increasi ng ly broad array of

products and s ervices. Thi s means C el com, F S D wil l agg ressi vely but

selecti vely move f orward into fi xed n etwork servi ces as a market ori en ted

en terpri se .

2.2 Higb Level Role, and Responsibilities.

E ach departments in F S D has it' s own mission statemen t wi th their own

roles and respon sibilities .

a)Strategic Planninl and Regulatory Affairs

The dep artment mission statemen ts are :-

To develop an d manag e Fix ed S ervices D ivision strategic an d tactical

business plan that s atisfy stakeholder ' s ex p ectation s .

Roles and G oals of each i ndi vi dual i n the departments are g enerally to

look i nto diff erent maters of the fol lowing ;

1 ) Strategic Plan nin g and C on trol where i t i nvolves developing strategi es

an d obj ectives f or N etwork S ervi ces, Marketing an d B usin ess O perati on s .

Page 1 4 SITI NORAINUL AUM HJ GHAULI

TRIICelc om : F ixed S ervic es Divi sion

2)To develop F SD Business Pl an and c onduc t process and operations

audit on business plan implementation.

3 )Contribution Management - wil l analys e ,rec ommend revenue sharing

mec hanis m between F SD and its Business P artners and to have the

opportunity to rec ommend , agree and monitor implementation of policies

and obj ectives with regard to contr ibutions by P roduct/ revenue lines .

4 )Preparing an intel ligence c ompetitive analys i s ( market, competitor and

tec hnology) , ex ternal analysis on e conomic s and industry as well as,

organisation and proces s analysi s .

5 )Tariff and D emand F orecasting will also b e done i n line with the

c ompetitors tari ff/rate offered.

6)Regulatory matters are to be observed to liase with Group Corporate

Planning , l ie __ I s ing and other b usiness matters and interconnection

matters .

P ag e 1 5 SITI NORAINUL Az.tM HJ GHAZALI

T RII C elcom : Fixed S ervi c e s Division

b) Network Services

The department ' s mis sion IS mainly "To build High Quality Future -

Ready Network ".

In s upport of its mission their roles and goal s are divi ded into typ es of

services offered by F S D

Public Switched Telephone Network (PSTN)

• To provide Technical switching and Access Network Plan

• To implement P S TN

• To operate and maintain P S TN switches and networks

DATA

• To develop local and inte rnational S trategic Alliances

• To provide Technical D ata Network Plan

• To implement Data Network

• To operate and main tain Data Network

VIDEO

• To develop local and international Strategic Alliances

• To provide detail network plan for Video S ervi ces

• To implement Video Network

• To operate and maintain data

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T RI IC e i c o m : F ix e d S erv i c e s D ivisio n

Access Network

• Access Network Technology identification

• To obtain approval fro m local authority

• To develop Access Netwo rk

• To operate and maintain Access Network

c)Business S upport

Mission S tatement of this department reads as "To continuously strive

Gnd deliver personalised and customised services and support, anytime.

"

Their roles and goals are mainly to ensure the fol lowings'

• To forecast S ervices directly to market centres

• To provide highly visible and acce ssible product

• To strive for strategic advantage and continuous improvement through

advance technology appli cations .

• To increase acquisition and retention of high value customer

• To enlarge corporate market share .

P ag e 1 7 SITI NORA/NUL AZiM HJ GHAZALI

T RI IC elcom : F ixed S e rvice s D ivis i o n

Responsible for billing and after s ervi ce requirements , also maintain

business relationship wit h other parties in other departments and group s to

standardise the operation systems .

d)Finance and Ad ministration

Th is depar tm ent is r esponsible for moni tor in g accounts and

prepan ng budget figures for the divis ion to follow . Their miss ion is

"To be Efficient, Understandable and Cost effective in providing

the service in Fixed Services Division II

Therefore the goals of this department is : -

eT o show the precise financial forecast for decision making

eT o be cost effective organis ation in order to realis e higher profits

eT o analyse the financial viabi lity of the future business

eTo be accountable in reporting the business operation

Pag e 18 SITI NORAINUL AZtM HJ GHAZ1LI

TRII C e i c o m : Fixed S erv ices D ivis i o n

F inance and Administration dep artment runs operations o n its own

however capital funding is obtained from holding group company, C elcom

S IB and budget figures will be in line with the whole I overall comp any

budgeted figures . Finance and Administration liase directly and indirectly

with certain dep artments in the division as well as other groups in the

comp any .

e)Human Resources Department

This dep artment manages employees activitie s s uch as Training and

Professional Development. It is also responsible for the employee

recruitment as well as deployment to other departments in the division and

company itself . The dep artment also acts as the repres entative for the

Human Resources Group .

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TRII C eicom : F ixed S ervic e s Division

F) Product Development

This department is responsible for handling the development of the

existing as well as new p roducts and s ervi ces of F S D . E ach product

manager in the department prepares their own product plan and marketi ng

plan . Thi s m eans that the department provi des i np ut for all department in

F S D .

G) Corporate Urban Centre (CUC) I Greenfields

Thi s department is responsible for marketing the products and s ervices

of F S D and to generate and conduct market research on the most viable

area or regi on for FSD to p enetrate in the near future . They are also

responsible to implement the promotional activities that are being

planned and generated by the Product development to achieve targets set

by the SPRA, to accumulate profits proj ected by the Finance and

Administration department .

CUC which stands for C orporate Urb an C entre i s responsible to market

products around the urban areas especially in big established township

such as Kuala Lump ur, Ipoh , l ohor Bahru and other major township while

focusing more on business and commercial parks/b uil dings .

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T RIIC elcom : Fixed S ervic e s Division

As for Greenfields it will look more on the new an d emergin g town ship

preferably in the more rural areas . examp le new business parks , technology

parks or new resi dential areas .

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