40379775 DiGi Strategic Management

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DIGI.COM BERHAD

|

Lecturer:

PROF. DR. NOOR AZMAN ALI

STRATEGY MANAGEMENT GSM 5160 |

WRITTEN ASSIGMENT

PREPARED BY: GROUP 1

KUAN YEN CHING

GM03709

KUAN YEN NEE

GM03698

TUNG WAI CHEE GM03578

KAMELIA SHARIFIAN GM03360

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... 4

1.2 Market Composition ... 6

1.3 Commenting on DiGi‟s Vision ... 7

1.4 Commenting on DiGi‟s Mission ... 8

1.5 DiGi‟s Long Term Objectives ... 8

1.6 DiGi‟s Potential Issues ... 9

2.0 3 Key Strategic Environments

... 9

2.1 Introduction to External (Macro) Environment ... 10

2.2 PESTLE Analysis ... 10

2.3 Cultural and Demographic Factors ... 17

2.4 15 External Environmental Factors ... 18

2.5 5 Identified Opportunities and Threats ... 19

3.0 Introduction to Industrial Analysis (Competitive Information)

... 20

3.1 Threat of New Entrants ... 20

3.2 Threat of Substitute Products ... 21

3.3 Industrial Rivalry ... 21

3.4 Bargaining Powers of Suppliers ... 22

3.5 Bargaining Powers of Customers ... 23

3.6 15 Industrial Environment Factors ... 23

3.7 The External Factor Evaluation (EFE) Matrix ... 24

3.8 Top 5 Opportunities and Threats ... 24

4.0 Introduction to Internal Analysis

... 26

4.1 DiGi‟s Common-Size Financial Statement Analysis (2005 – 2009) ... 26

4.2 DiGi‟s Financial Ratio Analysis (2005 – 2009) ... 31

4.3 20 Internal Factors……… 32

4.4 The Internal Factor Evaluation (IFE) Matrix………32

4.5 Top 7 Strengths and 4 Weaknesses………...33

5.0 Introduction to SWOT Matrix Framework

... 33

5.1 DiGi SWOT Matrix ... 37

6.0 Introduction to Types of Strategies

... 37

6.1 DiGi‟s Possible 4 Types of Strategies ... 38

6.2 DiGi‟s Intensive Strategies – Market Penetration ... 38

6.3 DiGi‟s Intensive Strategies – Market Development ... 40

6.4 DiGi‟s Intensive Strategies – Product Development ... 42

7.0 Introduction to SPACE Matrix

... 43

7.1 SPACE Matrix for DiGi ... 45

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8.0 Introduction to Blue Ocean Strategy (BOS)

... 47

8.1 DiGi Strategy Canvas ... 49

8.2 DiGi ERRC Grid ... 49

9.0 Introduction to BCG Matrix

... 53

9.1 DiGi BCG Matrix ... 54

9.2 DiGi BCG Matrix Justifications and Strategies ... 54

10.0 Introduction to Strategic Implementation Action Plan

... 59

10.1 DiGi Strategic Implementation Action Plan ... 59

11.0 Introduction to Strategic Evaluation – Balanced Scorecard

... 64

11.1 DiGi Balanced Scorecard/Strategy Map ... 64

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Note: 100% indicates wholly-own subsidiaries

1.0 Introduction to DiGi Telecommunication Sdn Bhd

Company Overview (History, Location, Structure, Size and Key Employees)

DiGi Telecommunications Sdn Bhd (herein

after known as DiGi), a subsidiary of DiGi.com Berhad (former name: Mutiara Swisscom), is a mobile communications company that engaged in establishment, maintenance and provision of telecommunication and related services. DiGi, was established in May 1995, primarily operates in Malaysia with its headquartered1 in Shah Alam, Selangor.

DiGi sister company, Pay By Mobile Sdn Bhd deals with electronic financial services, while its subsidiaries are DiGi Services Sdn Bhd (property holding, renting of premises) and Djuice.Com Sdn Bhd (others related services). The table below tabulates DiGi.com Berhad

Key Employees who are leading DiGi  2,800 strong workforces.

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5 Ownership

As a group, DiGi.Com Berhad is listed on Bursa Malaysia Securities Berhad under the Infrastructure category with a paid-up capital of RM77.75 million and a market capitalization of approximately RM16.8 billion as at 6 April 2009. As of March 2010, DiGi market capitalisation was approximately RM17.5billion.

Top 20 Shareholders as at 18 March 2010 No. of Shares %

1 Citigroup Nominees (Asing) Sdn Bhd

Telenor Asia Pte Ltd (DiGi)

380,975,030 49.00

2 Employees Provident Fund Board 124,865,095 16.06

3 Amanahraya Trustees Berhad

Skim Amanah Saham Bumiputera

37,090,300 4.77

4 CIMB Group Nominees (Tempatan) Sdn Bhd

Pledged Securities Account For Time dotCom Sdn Bhd

27,500,000 3.54

5 Valuecap Sdn Bhd 23,935,200 3.08

6 Kumpulan Wang Persaraan (Diperbadankan) 23,553,500 3.03

Amanah Saham Wawasan 2020

18,303,400 2.35

Amanah Saham Malaysia

14,487,300 1.86

9 HSBC Nominees (Asing) Sdn Bhd

Exempt An For JPmorgan Chase Bank, National Association (U.S.A.)

9,700,600 1.25

10 Permodalan Nasional Berhad 4,868,800 0.63

As 1Malaysia

4,600,000 0.59

12 Dato Ahmad Sebi Bin Bakar 4,551,813 0.59

BBH And Co Boston For Vanguard Emerging Markets Stock Index Fund

3,938,373 0.51

14 Citigroup Nominees (Tempatan) Sdn Bhd

Exempt An For American International Assurance Berhad

3,930,400 0.51

Amanah Saham Didik

3,510,500 0.45

16 Alam Nusantara Sdn Bhd 3,401,523 0.44

Public Islamic Dividend Fund

3,322,300 0.43

18 Citigroup Nominees (Tempatan) Sdn Bhd

Exempt An For Prudential Fund Management Berhad

3,068,300 0.39

19 ABB Nominee (Tempatan) Sdn Bhd

Pledged Securities Account For Ahmad Sebi Bin Bakar

3,000,000 0.38

Exempt An For Jpmorgan Chase Bank, National Association (U.A.E.)

2,918,400 0.38

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Note: above is market position back in 2004

1.1 Business Description

DiGi operates through 2 business lines:

 Voice Services

fixed and mobile telephony (prepaid, postpaid, international services)

 Data Services

dial-up, mobile and broadband internet, messaging

1.2 Market Composition

The subsequent table give the overview of the Malaysia telecommunication market composition by business line:

Business Line Market Composition

Voice Services2

Fixed Line Telephone

Main Rival 2009 Major Market Share

Telekom, Maxis, Time dotCom Telekom Time dotCom 97.6% 1.6% Mobile

Cellular Maxis, Celcom

Maxis Celcom DiGi 39.9% 34.4% 25.7% Data Services3 Dial-Up Internet (Narrowband/ Wired Broadband) Telekom, Maxis, Celcom,

Time dotcom, Jaring no statistic found Mobile

Internet4 Maxis, Celcom, P1

Wireless Broadband Telekom, Maxis, Celcom, Time dotcom, P1, Jaring, UMobile Celcom Maxis P1 Telekom DiGi 69.9% 11.7% 8.4% 6.5% 3.5%

With reference the below figure (Source: DiGi), on an overall basis, DiGi benchmark only against Maxis and Celcom since 2004. Even in 2009, when broadband was accounted for 31.7% of total

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Source: Malaysian Communications and Multimedia Commission – MCMC, 2009 3

Source: Starbiz, November 30, 2009

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Mobile internet only took off in 2009 and DiGi had entered the arena with 3G for small screen in 3rd Quarter of 2009

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7 market growth, DiGi managed to defend its revenue market share (compare to 2008) when Maxis lost substantial share to Celcom and some to DiGi (refer below figure from DiGi‟s 13th Annual General Meeting on 13 May 2010) despite having less 3G coverage. However, notice that numbers exclude broadband.

2nd Quarter of 2010 Updates

The subsequent tables compare and contrast the same parameters (subscribers, revenue and EBITA) of Maxis, Celcom and DiGi in 2nd Quarter of 2010. It echoes DiGi sentiment on Celcom overtaking Maxis on quarter revenue and EBITA while DiGi is still #3.

Parameters Telcos

Maxis Celcom DiGi Subscribers (million) 12.97 10.60 8.10 Revenue (RM million) 2,191 3,854 1,335 EBITA (RM million) 1,028 1,812 578

1.3 Commenting on DiGi’s Vision

DiGi‟s Vision is to be seen as stars in excellent customer experience by enhancing communications to improve customers' quality of life, at home, work and play.

Comments: This is a good statement – reveals DiGi‟s core communications business. It is short – one

(not so long) sentence length; thus acceptable. Plus, it does serves as the starting point in everything DiGi do and express where DiGi want to be in the long term. It does not tell how DiGi are going to get there but sets the direction. DiGi‟s strategists believe that the Vision attracts commitment and energises employees to strive for an established standard of expected excellence.

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1.4 Commenting on DiGi’s Mission

DiGi‟s Mission is to:

1. Provide customers specific solutions to meet individual needs for communications, connectivity, and access to information and security; (1,2,4,6,7)

2. Provide an environment where our employees can grow and be fulfilled; (5,8,9) 3. Provide superior returns to shareholders; and, (5,9)

4. Contribute to improving life in Malaysia. (3,8)

Note: the numbers in parentheses correspond

to the 9 essential components of the mission statement below

In DiGi‟s 2009 annual report, DiGi declared this in addition to their mission: Every day we go the extra mile, in small and big ways, to exceed our customers‟ expectations, by delivering mobile and internet services that are; “Made for me”, “Make it easier”, and offer the “Best deal”. DiGi make things simple and easy to understand for their customers. Their products and services are practical and intuitive. They make things happen to uphold “Make it Easier”.

Comments: The statement is clear as it declares DiGi‟s “reason for being”. Apart from that,

it also fulfills these characteristics of a mission statement:

 broad in scope; do not include monetary amounts, numbers, percentages, ratios or objectives

  250 words in length

 inspiring

 identify the utility of DiGi‟s products – as long as it is for communication

 reveal that the DiGi is socially and environmentally responsible

 includes all 9 essential components of mission statement – making it effective

 reconciliatory enduring

1.5 DiGi’s Long Term Objectives

DiGi‟s long term objectives is to create long-term shareholder value through providing innovative, easy-to-use and best value telecommunications services in the Malaysian market.

1. Customers (Who are the firm‟s customers?)

2. Products or services (What are the firm‟s major products or service?) 3. Markets (Where does the firm complete?)

4. Technology (Is the firm using the latest technology?)

5. Concern for survival, growth, and profitability (Is the firm committed to growth?) 6. Philosophy

(What are the basic beliefs, values, aspirations and ethical priorities of the firm?) 7. Self-concept (What is the firm‟s distinctive competence?)

8. Concern for public image

(Is the firm responsive to social, community and environmental concerns?) 9. Concern for employees (Are employees a valuable asset of the firm?)

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1.6 DiGi’s Potential Issues

These symptoms are recognized from DiGi‟s annual and quarter Financial Statement:

 slower subscribers‟ growth despite increase in total numbers of subscribers

 declining revenue growth rate despite yearly increase

Voice Services will still be DiGi cash cow (especially for prepaid Mobile Cellular), but growth will definitely come from Data Services (mobile internet and mobile/wireless broadband). Yet, the

mobile/wireless broadband market is crowded with DiGi having the smallest market share in

2009 and there are many new entries in 2010 (refer 3.3 Industrial Rivalry).

Hence, DiGi‟s key potential issue is how the firm should fight (strategic planning) to compete for growth and at least defend or preferably increase its market share in both Voice and Data Services? Specifically:

 What action (intensive strategies) should DiGi take to increase its subscribers‟ growth and encourage more spending among its current subscribers base?

 To what extend should DiGi venture into enhance communications of Data Services (especially

mobile/wireless broadband) so that they can be seen as stars in excellent customer experience

that improve customers' quality of life, at home, work and play, which is DiGi‟s Vision?

 How should DiGi react to continued price pressure (pricing decision) while upholding their mission statement #2 (Provide an environment where our employees can grow and be fulfilled) and #3 (Provide superior returns to shareholders)?

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2.0 3 Key Strategic Environments

As shown by the left figure, strategic planning commences with an analysis phase to understand DiGi‟s 3 key strategic environments, namely:

(a) External (Macro) Environment, (b) Industry Environment, and (c) Internal Environment

(a) will be cover in subsequent sections while (b) begins in 3.0 Introduction to Industrial Analysis (Competitive Information) and (c) in 4.0 Introduction

to Internal Analysis.

2.1 Introduction to External (Macro) Environment

External environment are conditions, entities, events, and factors surrounding DiGi which influence its activities and choices, and determine its opportunities and threats. As DiGi operates in Malaysia telecommunication industry, Macro Analysis will be done on 8 major external factors (Political, Economic, Social, Technological, Legal, Environmental, Cultural and Demographic – the first 6 are collectively known as PESTLE Analysis) that affects the industry as a whole. Each factor will be deliberate in isolation for the final listing of DiGi‟s 15 External Environmental Factors.

2.2 PESTLE Analysis

This section analyzes the political, economic, social, technological, legal and environmental structures of Malaysia that affects the telecommunication industry as a whole.

POLITICAL

Prolonged Internal Political Stability (despite the failure of democratic institutions to take firm

root): Malaysia has enjoyed a relatively stable political climate since achieving independence under the leadership of the United Malays National Organization (UMNO). The current ruling alliance, Barisan Nasional (BN), won the 2008 elections, although it could not garner an absolute desirable 2/3 majority. Despite this, the BN-led alliance has been successful in establishing a sound governance system and has continued to follow the policies established by the previous regimes, as no significant changes have taken place in the political order since 1957. With the dominance of this alliance in the political landscape, Malaysia will enjoy continuity of policies with little opposition. (Datamonitor, 2009)

Strong Malaysian Government Support (National Broadband Initiative – NBI): In 2007, Malaysian

government has set to achieve 50% Malaysian household (both wired and wireless mobile) broadband penetration by the end of 20105. To aid service providers further, the government roll out supplies of broadband infrastructure and services throughout Malaysia. Plus, they also aggressively generate continuous demand – in 3 aspects: awareness, attractiveness and affordability – for broadband (refer

also The Implementation Plan on Page 16).

Malaysian Government discourage the usage of cell phone among school kids: In 2006,

Malaysian government banned the usage of cell phone among kids in nationwide school (included fully residential schools). The decision was taken after many groups especially parents and teachers expressed their concern that allowing the handheld tool to be used by students while in schools could

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Achieving 50% household broadband penetration in 2010 can result in tangible contribution of 1% to Malaysia‟s GDP and creates 135,000 new jobs by 2010

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11 lead to a lot of problems although guidelines on its use had been issued by the Education Minister earlier on.

ECONOMY

Globalization: The world is now borderless. Economic openness and growing interdependence

between countries had spur on increase in movements of people, goods and services. As global citizen intermarriage, work in multinational companies (MNC), study abroad or travels for business and leisure, effective telecommunication tools for communication plus knowledge seeking, sharing and disseminates becomes essential.

Growing Malaysia‟s GDP: Malaysia‟s GDP for 2nd Quarter of 2010 was at RM 186,047 million (8.9% growth rate from past quarter) while global economic recovery continued at an uneven pace. Previously, in 2008, the communications and multimedia industry contributed 6.1% in term of revenue to Malaysia‟s GDP. In 2009, the industry generated  RM40 billion.

For 2nd Quarter of 2010, the communication sub-sector registered 8.4% growth, mainly attributed to greater usage of cellular, broadband and 3G services (Ministry of Finance, 2010).

High Inflation – Increased Price: Malaysia Consumer Price Index (CPI) rose to 1.9% in July 2010 –

which is still not a concern as inflation in many regional countries also shown similar uptrend. Furthermore, the Malaysian government had announced subsidy cuts in sugar and fuel products effective 16th July 2010.

On a micro level, the communication subgroup recorded growth in a slower pace compare to total CPI (refer above graph). Nevertheless, domestic inflation is expected to continue its upward trend in the coming months, but to remain at manageable levels. Higher prices are largely attributed to increased cost following subsidy cuts and other supply side related factors such as bad weather conditions. To some extent, the sudden jump in spending for the festive seasons may also exert some upward pressure on prices (Amanah Mutual Berhad, 2010). Hence, there might either be a widespread drop in consumers‟ spending on telecommunications products and services or aggressive demands for cheaper ones since telecommunication are nowadays a necessity, not a luxury.

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SOCIAL

Influx of Foreign Worker: Up to 31st December 2009,  1.91 million legal foreign workers were recorded to be in Malaysia6. The same figure are estimated for illegals, on the basis that for every legal foreign worker, there is one illegal. Malaysian government could not have accurate data on the number of foreign workers without permits as they had entered Malaysia illegally and their number was not recorded by any agency (Immigration Department, 2010).

In Malaysia, majority foreign workers and migrants are working at the bottom of the economic pyramid. As such, they face the hardships of adapting to this „new‟ country and language, working long hours with low pay, and spending a long time away from their families back home. These people are the foundation for Malaysia's economic development, and therefore they should not be discriminated against or discredited in any way.

Traditionally, Maxis and Celcom have neglected to provide mobile services for this segment on the assumption that they are unable to afford them. DiGi entered this full of opportunity yet neglected segment after discovering that these migrants were willing to pay for communications to connect with their loved ones back home if they were offered affordable packages without any extras and make it their stronghold.

Higher Standard of Living among Malaysians: The right table below tabulates monthly household

income of Malaysians in 2007 in RM1,000 interval (Source: The Star base on Household Income Survey – HIS). Average monthly household income then was RM3,686.

Compared to 2004 (refer left table below), it denotes an increase in Malaysian earning and spending capacity – thus, a higher standard of living. In fact, the standard of living in Malaysia has increased dramatically in the past 20 years. What was a luxury 20 years ago, has become a norm – a color TV, washing machines, car, air-conditioning or even telecommunications like handheld mobiles.

Source: The Edge, 2008

High Literacy Rate: Malaysia‟s Literacy Rate for 2nd Quarter of 2009 was at 95.3% – defining that majority young Malaysia  15 years old can read and write. This is good news to the telecommunication industry as literacy leads to knowledge hunger. Combine with rapidly improving telecommunication and internet connectivity, Malaysian spend more time and money to online 24/7 (surf for information, read online news, blog, chat, socializing, entertainment etc) and keep in touch more often through conveniently cheap telephone calls and texting.

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exact number =1,918,146 – Top 5 nationals are Indonesians (991,940), Bangladeshis (319,020), Nepalese (182,668), Myanmars (139,731) and Indian (122,382)

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Rising Telecommunication Penetration and Demand (Broadband, Cellular): The table below

summarizes the stagnant fixed line but impressive penetration rate of cellular and broadband in Malaysia for 2010 (Source: Ministry of Finance, 2010).

Social Indicators Penetration Rate (%)

1Q 2010 2Q 2010 Fixed line telephone subscribers (per 100 households) 44.0 44.0 Cellular phone subscribers (per 100 population) 107.1 108.8 Broadband subscribers (per 100 households) 34.5 37.5

Cellular performance was led by increased usage of voice, data and multimedia services. In addition,

the introduction of social network contents for mobile phones, coupled with advanced data plans fuelled demand in the cellular segment. Growth was also supported by brisk SMS traffic, which expanded 9.0% to 24.0 billion (Q1 2010: 14.7%; 23.4 billion), driven by higher usage, particularly during the 2010 FIFA World Cup season. Similarly, 3G subscriptions surged 30.1% to reach 7.9 million (end-March 2010: 37.1%; 7.5 million), largely on account of rising demand for internet access and affordability.

Broadband segment sturdy growth was spurred by improved service quality and extensions of

network infrastructure by industry players. Furthermore, the roll-out of HSBB and WiMAX services created demand for broadband subscriptions.

TECHNOLOGICAL

Continuous technological advancement in wired and wireless telecommunication: The table

below delineates continuous technological advancement in wired and wireless telecommunication in Malaysia. Each generation (G) of mobile technologies are also match with pioneering major players.

Major Players Description of Technology

1G

Telekom, Celcom, Mobikom

Based on analogue technology, communication was purely voice, with the information retransmitted to the receiver/listener without any manipulation. The big drawback, however, was illegal interception with the use of radio scanners which led to cloning.

2G

Maxis, Celcom, DiGi,

Sapura, Telekom

Malaysia adopted 2 different technologies:

 European-based

GSM 900 (Global System for Mobile Telecommunications) PCN 1800 (Personal Communications Networks)

 American-based

TDMA (Time Division Multiple Access) operating on 800 MHz; offered as dual mode analogue AMPS 800 + D-AMPS 800

Although the 2 different 2G technologies did not “interoperate,” Malaysian welcomed a better world of digital wonders – voice quality, high capacity, global roaming and low power consumption.

2.5G –

General Packet Radio Services (GPRS) is a packet-based wireless communication service specifically designed for data and allows for continuous connection to the Internet for mobile phone and computer users. The entry of GPRS enabled consumers to instantly access WAP, HTML or even I-mode sites using appropriate mobile phones, PDAs or Notebooks. Suddenly, information became accessible from anywhere, anytime, anyplace, as it allows info to be sent and received across a mobile network. GPRS works together with GSM to provide better data transmission speed.

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Major Players Description of Technology

2.75G DiGi, Maxis

Enhanced Data rates for GSM Evolution (EDGE), an add-on to GPRS to increase data rates on the GPRS link, is a radio-based high-speed mobile data standard that allows data transmission speeds of 384kbps. EDGE was initially developed for mobile network operators who were either unable to obtain the 3G spectrum or did not wish to bid for one. This gave incumbent GSM operators the opportunity to offer data services at speeds that are close to those available on 3G networks.

3G7

Celcom, Maxis, UMobile, Time dotCom, DiGi

After 1G (analogue - designed for voice transfer) and 2G systems (digital – created for voice, data, fax and other value-added services) comes the most exciting 3G (global technological breakthrough based on the GSM communication standard that turns mobile phone into a multimedia machine). Simply, it is a packet-based transmission of text, digitized video and multimedia at data rates  2 Mbps, offering a consistent set of services to mobile computer and phone users wherever they may be in the world. Fully implemented 3G are constantly connected to the Internet, enabling roaming capabilities.

3.5G Maxis, Celcom

High Speed Downlink Packet Access (HSDPA) technology is an upgraded network path that allows higher data transfer speed. The minimum speed HSDPA can achieve is 5 x faster than the current 3G technology (384kbps). HSDPA provides a smooth evolutionary path for 3G networks allowing for higher data capacity. Therefore, setting up HSDPA networks usually involves upgrading existing 3G infrastructure while competitors Worldwide Interoperability for Microwave Access (WiMax) require a totally new system. HSDPA is evolving rapidly with speeds up to 1.8, 3.6, 7.2 or 14.4 Mbps (downlink) available. Similar to fixed-line broadband services (Streamyx ADSL), the speed is optimised for downloads and can provide upload speeds of 384 Kbps. HSDPA continues to evolve to provide faster download and upload speeds.

WiMax8 and 4G

P1, REDtone, YTL, Asiaspace

WiMAX is the next step in wireless communications technology aimed

at providing high-speed wireless data over long distances in a variety of ways, from point-to-point links to full mobile cellular type access – enable the delivery of last mile wireless broadband access as an alternative to cable and DSL (Streamyx).

The bandwidth and reach of WiMAX make it suitable for the following potential applications:

 Broadband Internet – providing the last mile connectivity at high data rates to commercial and residential areas

 Mobile applications – increase bandwidth for a variety of data-intensive applications such as mobile multimedia streaming, mobile internet access

The major cellular standards are being evolved to so-called 4G, high bandwidth, low latency, all-IP networks with voice services built on top. 4G allow rich applications currently enjoyed by wired broadband (desktop computer) to be enjoyed on hand-held devices (mobile phone).

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when it comes to transmission speed, 3G is 6 x faster than GPRS and 3 x faster than EDGE

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15 Spinoff offerings from the advancement in mobile technologies are:

 Short Messaging Service (SMS)

enabled text messages as another means of communication apart from voice

 Multimedia Messaging Service (MMS)

with GPRS, the level of communication was further enhanced as messages could now contain text, still images, voice or audio clips, video clips

LEGAL

No legal implications on the telecommunication industry which hinders it from operating freely:

The mobile market has undergone its trials and tribulations over the decade or so of its introduction and continued growth till today. It is govern by an independent regulatory body, the Malaysian Communications and Multimedia Commission (MCMC) since 1999. Following financial crisis and the stiff competition among a large field of players, the Malaysian government encouraged rationalisation of the sector in 2002. In 2003, 3 service providers emerged to a structure that remains in place today (refer below figure – Source: Malaysia Telecom Brief by Network Dynamics

Associates, MCMC).

Other regulations that benefit the telecommunication industry are:

 Mobile Number Portability (MNP)

MNP lets mobile users move from one service provider to another without losing their number. However, operators are allowed to charge consumers that do  RM25.

 Universal Service Provision (USP)9

USP main objective is to provide collective and individual access to basic telephony and Internet services throughout Malaysia. This is because network facility providers had, tend to focus on commercially lucrative areas – thus creating a Digital Divide gap between the “haves” in urban areas and the “have-nots” in rural areas.

MCMC use USP to challenge private sector investment into unprofitable rural areas and allow reimburses for expenses incurred, at cost. The pie

chart on the left shows overall contribution from

telcos to USP Fund as at 31st December 2008.

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 High Speed Broadband (HSBB)

The Implementation Plan of NBI (refer below figure from MCMC) also involve supplying

broadband to High Impact Economic Area and Businesses – in conjunction with Malaysian government effort to bring broadband to the whole nation. For that, the government has signed a Public Private Partnership (PPP) agreement with Telekom to roll out high speed broadband infrastructure at selected areas. The project is called HSBB.

 Lower Mobile Termination Rates (MTR) and Fixed Termination Rates (FTR)10

Termination/interconnection rates are the charges which one telecommunications operator charges to another for terminating calls on its network. Termination may take place on a fixed or mobile network. Effective from 15th July 2010, these new rates (reduced 5 cents/minute) applies:

 MTR = 8.36 cents/minutes  FTR = 6.07 cents/minutes

 Spectrum Re-farming11

Spectrum/frequencies have become a rare commodity in the telecommunication industry. Re-farming is a way to free up spectrum of an age-old technology that is not used; free up a frequency that may not have been fully developed; and help a frequency where demand is huge. Moreover, modern day technologies use spectrum more efficiently.

Spectrum re-farming is currently underway in Malaysia. Since June 2010, operators are said to have been bidding through tender to MCMC for several spectrums.

However, in September 2010, there is flying industry rumours that the Malaysian government, this time around, will award 9 blocks of 4G12 spectrum to 9 wireless players (4 cellular – Celcom, DiGi, Maxis, U-Mobile, 4 WiMax – Asiaspace, P1, REDtone, YTL and a new player linked to billionaire Tan Sri Syed Mokhtar Al-Bukary13). The new way of awarding spectrum instead of through bidding overcomes problem of denying spectrum to deserving party14. However, the process of award is unclear and whether there will be a fee for spectrum is also not known.

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lower interconnection rate translates to lower direct costs for the operators

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Re-farming is like having a plot of land where durian trees are growing but they are not giving desired returns. So, all are burn and replant with maize which give 3 x more value than durians (The Star, 2010).

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also known as long-term evolution (LTE)

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richest Bumiputra corporate figure in Malaysia, 7th richest Malaysian

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ENVIRONMENTAL

More Communication Towers/Base Stations: USP Fund

finance building of more base stations to enable cellular operators to expand their coverage to 97% national population by 2011. This kind of construction usually requires land clearance or sometimes built near the residential area causing uneasiness among citizens (refer left picture).

Besides that, there is an ongoing debate on whether exposure to electromagnetic radiation poses risk to health or not. In 2010, Information Communication and Culture Minister Datuk Seri Dr Rais Yatim reveal that studies conducted in France and Spain showed that the amount of radiation emitted by base stations is so small that it will not have any effect even on rats. So far, there are also no reported radiation cases in Malaysian hospitals.

His statement was reaffirmed by World Health Organisation which declares that radiation emitted from towers is a lot lower than those by handsets.

2.3 Cultural and Demographic Factors

This section analyzes the cultural and demographic factors in Malaysia that affects the telecommunication industry as a whole.

CULTURAL

Malaysians in general are pessimistic towards telecommunication services provided (slow internet connections, network congestions): In 2007, a total of 2,147 complaints were received by

MCMC (increase of 223% from 664 complaints in 2006). The large increase in the number of complaints is possibly due to the publicity and advertisements made by MCMC in the mass media on channels for registering complaints. Back then (2007), the most frequent categories of complaints received were:

 poor services provided by a service provider

 (service downtime/line interruption, slow Internet speed)

 SMS mobile content services (receiving unsolicited SMS, unable to stop the service)

 billing dispute

 cellular coverage and blind spot

A quick check on MCMC‟s http://aduan.skmm.gov.my/ reveals these percentages (as of 10 September 2010):

 poor services (40.8%)

 SMS (10.9%)

 telecommunication equipment ( 1.5%)

 bill and charging ( 9.7%)

 poor service coverage ( 3.4%)

 content (13.4%)

 no service coverage ( 3.3%)

 spectrum interference ( 0.8%)

In a nutshell, Malaysians are pessimistic towards telecommunications services as they become more tech-savvy and demanding.

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DEMOGRAPHIC

A Young Society: Of the population, 63.6% of Malaysia population belongs to the 15 – 64 age group,

31.4% of the population in the 0–14 age group and 59% of the population is in the 65+ group. The median age is 24.9 years, indicating that the society is young. While many developed nations are faced with the problem of an ageing population and rising social expenditure, Malaysia‟s demographic structure works in its favor as there is a regular addition to its labor force (Datamonitor, 2009). This is also good news to the telecommunication industry where youngest forms the largest consumer market.

2.4 15 External Environmental Factors

The following table summarizes the 15 External Environmental Factors that are influencing DiGi‟s operation:

8 Major Factors Descriptions No of

Factors

Political

 Prolonged Internal Political Stability 1

 Strong Malaysian Government Support

(National Broadband Initiative – NBI) 2

 Malaysian Government discourage the usage of cell phone among

school kids 3

Economy

 Globalization 4

 Growing Malaysia‟s GDP 5

 High Inflation – Increased Price 6

Social

 Influx of Foreign Worker 7

 Higher Standard of Living Among Malaysians 8

 High Literacy Rate 9

 Rising Telecommunication Penetration and Demand

(Broadband, Cellular) 10

Technological  continuous technological advancement in wired and wireless

telecommunication 11

Legal  no legal implications on the telecommunication industry which

hinders it from operating freely

12

Environmental  More Communication Towers/Base Stations 13

Cultural  Malaysians in general are pessimistic towards telecommunication

services provided (slow internet connections, network congestions)

14

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2.5 5 Identified Opportunities and Threats

From the previous 15 External Environmental Factors, 5 Opportunities and Threats are identified and rationalize: Rationalization O P P O RT UNIT IE

S 1. Strong Malaysian Government Support

(National Broadband Initiative – NBI)

align to DiGi‟s possible intensive strategies

2. Globalization

increase demand for communication tools to increase quality of life … at

home, work and play – align to DiGi‟s Vision

3. Influx of Foreign Worker 4. Higher Standard of Living

Among Malaysians 5. High Literacy Rate

T H R E A T S

1. High Inflation – Increased Price decrease demand for

telecommunication products and services

2. Malaysian Government discourage the usage of cell phone among school kids 3. continuous technological advancement in

wired and wireless telecommunication

DiGi‟s product and services might go outdated overnight

4. More Communication Towers / Base Stations

harm the environment and increase citizen uneasiness

5. pessimistic towards telecommunication services provided

challenge to change perception and fulfil needs

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3.0 Introduction to Industrial Analysis (Competitive Information)

Generally, Porter‟s 5 Forces provide a good, simple yet powerful, framework for developing an understanding of the competitive forces or pressure (either increase or reduce) within DiGi‟s industry that influence its pricing decision. Great competitive forces put more pressure on it while weaker competitive forces subdue the pressure.

Hence, as indicated by the combo figure above, Porter‟s 5 Forces (all forces listed in the right figure) will be use for Industry Analysis or the final listing of DiGi‟s 15 Industrial Environment Factors after deliberation of each force in isolation.

3.1 Threat of New Entrants

In general, telecommunications is not an easy entry industry despite the rumours of easy award of 4G spectrum to new entrants. Several barriers are recognized:

License: Every potential entrant will need to obtain a license through MCMC. However, it is

somewhat difficult and expensive to get an approve license due to MCMC‟s strict requirements and procedures. Yet, once obtain, a licensee may apply for the renewal of its individual license prior to expiry.

High Capital Investment: Other than an expensive licence, telcos also required high fixed costs and

spend relatively large on network equipment and to maintain development. It might reach a few billion Ringgit Malaysia.

Sole Right for Certain Projects: The government of Malaysia had granted sole right for certain

projects to existing telcos (e.g. Telekom has sole right to both partnership of submarine cable for the broadband service and also HSBB). However, apart from TM, other Network Facilities Provider (NFP) licensees: Maxis, Celcom, DiGi and Time dotCom can build their own network and cable landing stations should they choose to invest in the facility. Similarly, broadband license are also granted to some private telecommunications operators.

Advance Technology: The advanced technology required in telecommunication industry not only

incurred high capital investment but also need professional knowledge and skills (human resources) to ensure success in the industry. It is not easy to copy or imitate.

Major Network Operators in Malaysia

Company License

Telekom/Celcom Fixed; Mobile 450, 800, 900, 1800 MHz Maxis

Fixed; Mobile 900, 1800 MHz DiGi

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3.2 Threat of Substitute Products

As highlighted before, DiGi operates through 2 business lines: Voice and Data Services. Mild threats of substitute products for both of the business lines are recognized:

Voice Services (mainly mobile): Many traditional and modern substitutes – letter, fixed home line

telephone, fax and email. From 2000 onwards, broadband Internet services, which enable faster and always-on connection to the worldwide web, offer more promising growth potential. In addition, the pressure on the very low cost to use the phone calling through internet or communicate through online messenger had threatened the mobile service industry. The attractiveness of internet services making it more affordable to the masses.

Data Services (focusing on broadband): Consumers have become more demanding in quality

broadband service and this create an opportunity for new entrants to provide a substitute product for consumers in lower price or better performance than the existing ones.

3.3 Industrial Rivalry

Malaysia mobile market is oligopoly nowadays after the consolidation in 2003. The telecommunications industry has also been undergoing gradual liberalization since 1985, when Telekom, the Malaysian government-dominated enterprise, granted a number of licenses to private sector telecommunication operators. Gradually, the industry witnessed more competition in various segments of mobile, fixed line and telephony services, and the functioning of the sector became more transparent.

Early 2010 seems to favour Celcom when at the 2010 Frost & Sullivan Malaysia Telecoms Awards, Celcom triumphantly clinched 3 awards at the 2010 – the much coveted 'Service Provider of the Year' (2nd consecutive year), 'Broadband Service Provider of the Year' Award and 'Mobile Service Provider of the Year' Award thus further reaffirming its strength as one of the market leader.

Yet, within the industry, together with Telekom, Maxis, Celcom and DiGi continue to compete on differentiation of products and services through improvement and introduction of new innovative features – aspects such as call rates, package price and so on. They try to gain competitive advantage through low call rate and price. Each of them also invests a lot on advertising to promote their product – successful maintaining their place in Malaysia Top 10 Advertising high spenders list from Jan – June 2010 as shown:

All key players are also aggressively pushing mobile/wireless broadband as it is expected to surpass fixed line by 2013 (refer forecast broadband subscribers and revenue next page). At the same time, WiMAX are also gaining ground and acceptance among customers.

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The telcos aggressive market promotions and keen competition had successfully reduce prices in telecommunication products and services (drop 0.4% in 2nd Quarter of 2010) but telcos kept reiterates that they are keen to avoid price war.

Other expected development in 2010 (dub the broadband year for Malaysia) will be plenty of new devices and packages flooding the market place, and the possibility of fixed broadband players stealing some market share from wireless players. For example, Telekom is expected to deliver its HSBB in some areas even if it is for trials (launch “UniFi” on 24th March with free trial until 30th June 2010).

Then, Maxis re-enter the fixed broadband market in a way that surprise many. Time dotCom – a company many say is history – will re-emerge while YTL, which has been grossly overselling its WiMAX 4G idea, “sizzle” the market with a grand entry in July. And there is Tune Talk which is eager to eat into every operator‟s customer base with its smashingly cool pricing. Just to be in the game, U Mobile managed to launch its broadband service known as XFone at the 11th hour of 2009. Also, in September 2010, there is flying industry rumours that the Malaysian government will award 4G/LTE spectrum to telcos instead of the through bidding process. The award will puts Malaysia ahead of many countries that are still grappling with their 3G spectrum awards. LTE is said to be the natural migration path from 3G and do complement WiMax technologies in many ways. Both Maxis (with Huawei) and Celcom (with Huawei and Ericsson) are already move ahead by undertaking trials to test this 4G/LTE technologies to see how they can deploy richer offerings for their users.

Further, in October 2010, rumours had it that Celcom will bring in iPhone 4s to Malaysia. It is unknown whether a contract has been signed. However, it would not be easy for Celcom to get iPhone 4s stocks from Apple. Even right now, Maxis and DiGi does not seem to be satisfied with the current iPhone 4 stocks that they have.

Yet, in conclusion, high exits barriers of this industry due to the high investment budget and responsibility towards customer making will make companies strive to survive. Technology advanced also leads to fast industry growth and opportunities, thus, ignite further competition.

3.4 Bargaining Powers of Suppliers

Generally, the telecommunications industry in Malaysia is dependent on imports for majority of its network components as most of the equipment cannot be sourced locally resulting in high bargaining powers of suppliers. The factors contributing to these are recognized:

Limited (Big Boy) Suppliers: DiGi networks utilize standard GSM equipment which is available

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23 network operations are purchased from large international companies – size increases supplier power – namely Motorola, Siemens，Ericsson and Trisilco Folec, and DiGi maintains close working relationships with its key network equipment suppliers. As there are relatively very few suppliers in this market, DiGi have limited choices.

Since Siemens is now a sub-contractor of Motorola for network switching systems, DiGi left with only 2 main suppliers: Ericsson and Trilsilco Folec. Thus, the bargaining power of those suppliers becomes stronger.

High Switching Cost: As DiGi cannot manufacture in-house, the other viable option – 3rd party manufacturing contracts may post complexity with terms covering cost, quality, and use of intellectual property; and switching between contract manufacturers may therefore be a more costly process. In addition, such a supply structure usually means lower control on the delivery schedules and may cause component shortages due to manufacturing process issues. Any persistent shortages in supplies due to capacity issues or manufacturing process issues would increase the price of manufactured products. If a company is not able to source required components in adequate quantities, this would affect its business operations and margins. In the future, DiGi believes that comparable equipment and support will be available from other established suppliers.

3.5 Bargaining Powers of Customers

Information technology increase the bargaining power of buyer and high availability of information makes it easier for customers to evaluate sources of materials about telecommunication. There are many alternatives product such as fax, email, and internet which enhance the bargaining power of buyer to the mobile service provider. Customer also becomes more demanding of high speed broadband (which is less costly but yields wider coverage) and after sale service, creating a relatively high competitive industry. As a consequences, the intense rivalry among mobile and broadband service providers only benefit the consumers who can enjoy lower price broadband and mobile services, and eventually making them more powerful – hence, low switching cost.

3.6 15 Industrial Environment Factors

The following table summarizes the 15 Industrial Environment Factors of DiGi:

Porter‟s 5 Forces Descriptions No of Factors L O W Threat of New Entrants

 difficult and expensive to get an approved license from MCMC 1

 high capital investment 2

 sole right for certain future granted to existing telcos 3

 advance technology – need competent human resource 4

L

O

W _SubstituteThreat of

Products

 traditional and modern substitutes for mobile 5

 demanding broadband consumers create opportunity for new entrants

that can offer low price or better performance 6

H

IG

H Industrial

Rivalry

 tense rivalry 7

 telcos market lead by Maxis 8

 2010 dub the broadband year of Malaysia 9

 high exit barrier 10

H

IG

H Bargaining

Powers of Suppliers

 non availability of substitute for GSM equipment 11

 limited (big boy) suppliers 12

 high switching cost (to other suppliers) for DiGi 13

H

IG

H Bargaining

Powers of Customers

 high bargaining power of customers 14

 consumer low switching cost as plenty of other brand with different

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3.7 The External Factor Evaluation (EFE) Matrix

The key external and industrial environmental factors are summarizes and evaluate:

Weight Rating Weighted Score Opportunity (largest) Threat (largest) 1 0.11 4 0.44 O1 2 0.04 2 0.08 3 0.08 4 0.32 O2 4 0.08 4 0.32 O3 5 0.07 4 0.28 O4 6 0.04 4 0.16 O5

7 Traditional and Modern Substitutes for Mobile 0.03 4 0.12 Threats

8 0.08 3 0.24 T3

9 0.03 1 0.03

10 0.08 3 0.24 T4

11 0.06 1 0.06

12 2010 dub the broadband year of Malaysia 0.07 2 0.14 T5

13 new entrants can offer low price or better performance 0.06 2 0.12

14 High Switching Cost (to other suppliers) for DiGi 0.10 3 0.30 T1

15 High Bargaining Power of Consumers 0.07 4 0.28 T2

1.00 3.13 Influx of Foreign Worker

continuous technology advancement in wired & wireless

Government discourage cell phone usage among school kids pessimistic towards telecommunication services provided

High Inflation - Increased Price

Rising Telecommunication Penetration & Demand

Key External Factors Opportunities

Total

Globalization

High Capital Investment

Advance Technology - Need Competent Human Resource Higher Standard of Living Among Malaysians

Note that the total weighted score of 3.13 indicated in the calculation is above the average (midpoint) of 2.5, so DiGi is doing pretty well, taking advantage of the external opportunities and avoiding the threats facing the firm. Yet, there are always room for improvement.

3.8 Top 5 Opportunities and Threats

From EFE, Top 5 Opportunities and Threats are recognized and rationalize:

OPPORTUNITIES Rationalization

EFE Weight EFE Rating

1. Globalization

important as it greatly contributes to frequent international roaming demand

with instant communication (mobile) and information

seeking (broadband)

DiGi can response by capitalizing on it and kept offering roaming and broadband

product and services broadband internet services to (for mobile

broadband, DiGi aim to assist MCMC in reaching 50% of the Malaysian population by end 2010)

– it is high quality telecommunication services at competitive prices 2. Higher Standards of Living Among Malaysians

important indication that most Malaysian can afford minimum one mobile (service

provider) and broadband

3. Rising Telecommunication Penetration and Demand (Broadband, Cellular) important statistic as higher penetration = higher demand for DiGi‟s product and

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OPPORTUNITIES Rationalization

4. High Capital Investment

important factor as entry barrier:

high cost for new entrée to compete with existing giant in

the industry

DiGi have high capital investment largely contributed by its largest

shareholder, Telenor 5. Advance Technology – Need Competent Human Resource

mild important factor as human talent is one of the key

area for DiGi‟s continual success and survival – expertise are expensive

DiGi are able to response by focusing on recruiting new blood while provide intensive training to existing staffs and succeeded in maintain a competent yet loyal workforce at an affordable cost

THREATS Rationalization

1. High Switching Cost (to other suppliers) for DiGi

important because supplier relationship management can

make or break DiGi as they practically control DiGi‟s product and services‟ selling

price

DiGi can response by keeping close relationship with their existing suppliers: Ericsson and Trilsilco Folec while being optimistic that there will be

new possible suppliers in the future

2.

High Bargaining Power of

Consumers

important because power of bargain for lowest price and highest quality switch to consumers due to non-existent

of information asymmetry

DiGi can response by offering high quality telecommunication services at

competitive prices

3. High Inflation – Increased Price

important because high inflation will decrease demand

for

communication tools DiGi can response by continuous R&D to prevent going outdated overnight and

kept selling price low

4.

Continuous technology advancement in wired and wireless telecommunications

important because DiGi is still trailing behind Maxis and Celcom plus once outdated, it

is hard to bounce back in a short duration

5.

2010 dub the broadband year of Malaysia

important because plenty of new devices and packages flooding the market place –

tense rivalry

DiGi is able to respond since they had invest  RM350 million for mobile

broadband expansion as part of its plans to improve its infrastructure.

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4.0 Introduction to Internal Analysis

Internal Analysis is the final section in analysis phase to understand DiGi‟s 3 key strategic environments. It is all about identifying DiGi‟s businesses value proposition/core competencies. It can be use to explore what DiGi does:

 better than its competitors

 that are hard to replicate

 that are valued by DiGi‟s customer(s)

In other words, what is DiGi‟s strengths and weaknesses? To answer that, Internal Analysis will be done by gathering and assimilating information about DiGi‟s functional areas: management, marketing, finance and accounting, production and operations, research and development (R&D) and management information system (MIS).

Financial Statement Analysis is done first because it could provide numerous insights about DiGi as it exemplifies complexity of relationships among the functional areas. Common techniques for analyzing financial statements are common-size financial statements and financial ratio analysis.

4.1 DiGi’s Common-Size Financial Statement Analysis (2005 – 2009)

In common-size financial statements, all items in the Balance Sheet are computed as percent of Total Assets (base). For Income Statement, all items are computed as percent of Revenue (base). From the indirect method of Cash Flows, myriads of typical questions such as how much cash was used to purchase property, plant and equipment or how good DiGi is in paying out dividend can be answered by going through its three main categories of activities: (a) operating, (b) investing and (c) financing. Then, the changes (trends) in asset and capital structures over time are evaluated.

Balance Sheet (refer calculation on Page 27)

Total non-current assets had been rising from 2005 – 2008 before a slight drop in 2009. This is

similar to the trend of their intangible assets15. The highest portion of non-current assets comes from property, plant and equipment (60 – 70%).

Total current assets conversely, had been declining from 2005 – 2008 before a slight increase in

2009. A similar trend can be seen from their cash and cash equivalents16 and an inverse one for inventories. Trade and others receivable slumps from 2005 – 2007 before picking up 2008 – 2009. On a closer look, DiGi started to have short-term investment in 2008.

Current liabilities trend is the same as total non-current assets (rising from 2005 – 2008 before a

slight drop in 2009). Current (secured) borrowing commence in 2007. Taxation jumped up in 2006 – 2007 but had reduced in 2008 – 2009.

Non-current liabilities rose in 2006, went down in 2007 – 2008 and shoot up high in 2009.This is

largely contributed by non-current (unsecured) borrowing17.

15_{technological support and technical know-how from Telenor, 3G spectrum (since 2008), computer}

software and license fee (previously Deferred Expenditure in 2005 and 2006)

16_{cash in hand and at bank, money on call and deposits with licensed banks}

for the purpose of the cash flow statements, cash and cash equivalents are net of outstanding bank overdrafts, if any

2009 improvement due to DiGi‟s strategic focus on enhancing cash-generation

17

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28 Income Statement18 (refer calculation on Page 29)

Revenue increases yearly but a falling cost of sales (materials and traffic expenses) from 2005 – 2007 that rise back in 2008 – 2009 directly impacts the gross profit. This is analogous to the trend of trade and others receivables in the Balance Sheet. However, no correlation can be seen between:

 cost of sales – cash and cash equivalent

 trade and others receivables – cash and cash equivalent Internally, DiGi sequence of priorities in spending was:

 depreciation and impartment losses

(mirror trend of intangible assets in the Balance Sheet)

 sales and marketing

 other operating expenses

 staff

 rental

 operations and maintenance

 amortisation

Cash Flows (refer calculation on Page 30)

(a) operating: Cash generated from operations steadily increase from 2005 – 2008 but tumbles in

2009 due to higher inventory and increase in deferred revenue. DiGi shows that they value their customers and employees by having increasing amount of annual provision. They have customer loyalty programme, employee leave entitlements and related benefits.

(b) investing: DiGi utilizes large amount of cash (RM650,000,000 – RM900,000,000) annually to

purchase property, plant and equipment and intangible assets.

(c) financing

No dividend has been paid or declared by DiGi in 2005. The Directors then do not recommend any dividend to be paid for the year under review. However, after that, paid dividend increases from 2006 – 2008. It only drop 8% in 2009. Huge amount of RM1,012,500,000 was being used to repay borrowing in 2006 causing lower cash and cash equivalents throughout 2006 – 2008.

18

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4.2 DiGi’s Financial Ratio Analysis (2005 – 2009)

4 categories are used in Financial Ratio Analysis, namely: (a) financial liquidity and solvency, (b) efficiency, (c) profitability and (d) market performance. Each ratio formula and calculation is clearly showed in Page 32.

(a) financial liquidity and solvency

For 4 years (2005 – 2008), DiGi‟s liquidity ratios (current and quick ratio), cash and cash equivalent and times interest covered went downhill – making DiGi in a state of low monetary liquidity. This is a threat as there is a high chance that DiGi cannot meet its current obligations especially the interest expense on borrowings. Not being able to meet payment will further lead to problems with others creditors.

In 2009, condition improve as sales and income

increases substantially plus there is

additional interest receive from short-term investment. For the time being, DiGi might still be able to meet its current liabilities commitment – current (secured) borrowing, accrual payables that included exposure to foreign currency denominated in USD, Special Drawing Rights and also deferred revenue. But, they be must caution as debt ratio had been bumpy since 2005 and

consider taking some measures

to further curb upward trend, especially after a huge borrowing in 2009.

(b) efficiency

The working capital ratios (inventory turnover and accounts receivable collection period) shows a mix working capital management. DiGi manage to keep its inventory holding period between 4 – 6 days indicating they are do have slow moving and obsolete stocks. However, credit control is poor (11.44 – 14.56 years) which subsequently contribute to increase in bad debts. This reflects inefficiency of its credit management team or a less stringent collection policy adopted by DiGi. To get payments from debtors is not an easy task and its take time. DiGi must place priority in it to safeguard their cash and cash equivalent upward trend.

Total asset turnover shows low utilization of assets. It shows that growth of sales has fallen relative to total assets. This may lead to perception that DiGi has reduced its efficiency in generating income with respect to its investments. In other words, DiGi has not fully optimized its resources (new property, plant, equipment and intangible assets purchased annually) for generating of sales. DiGi may want to further investigate this inefficiency issue where one of it might be the 3G spectrum. The under utilization of investments may also reflect poor operation management.

(c) profitability

Two profitability ratios (gross profit margin and net profit margin before tax) move in parallel trend – inverse „U‟, which mirror cost of sales. While cost of sales kept increasing in numbers, the peak gross profit margin and net profit margin before tax might be attributed by DiGi flurry launch of new exciting product and services in 2007. However, in terms of ROE, 2009 success exceeded 2007. (d) market performance

DiGi‟s PE ratio climbs up from 2005 – 2007. The market price in 2007 was RM24.80 market price which reflects investor confidence in gaining future returns (dividends and increase share price). This may again due to DiGi flurry launch of new exciting product and services in then which provides an indication or „sign‟ that they are expanding operating activities (future growth), hence enabling increase in its market share. Although it slips in 2008 (having more share capital), it rise back in 2009 despite a lower profit after tax. This may suggest that in 2009, the share price of DiGi, which stood at RM21.96 is overvalued or the market may perceive the company as having good future earnings potentials. Dividend yield increases from 2006 – 2008 yet reduces in 2009. On the hindsight, 2009 dividend is higher than 2007.

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4.3 20 Internal Factors

The following table summarizes the 20 Internal Factors of DiGi:

Functional

Area Descriptions

No of Factors

Financial

 strong financial performance ₁

 healthy current ratio ₂

 strong profits and net cash flow from operation 3

 stable number of subscribers – increasing 4

 reasonable debt ratio 5

Marketing

 superior customer care 6

 strong company reputation 7

 dependency on strategic sharing between mobile producer,

application writer and etc 8

 good reward system to subscribers 9

 DiGi Ambassadors – lack of involvement 10

 latest info on new technologies seldom/late to reach end users 11

 facilities – auto reload, online payment, etc 12

 intense and attractive advertising 13

 caring for climate – corporate image building 14

Operation _ lack of base station as compared to others operators 15

affiliation with Telenor – wider overseas coverage 16

R&D _ innovation 17

world class R&D 18

Management _ flexible working environment 19

experience management personnel from oversea 20

4.4 The Internal Factor Evaluation (IFE) Matrix

Weight Rating Weighted Score

Strengths (largest)

Weakneses (largest) 1 experience management personnel from oversea 0.13 4 0.52 S2

2 0.09 4 0.36 S4

3 0.15 4 0.60 S1

4 Innovation 0.11 4 0.44 S3

5 0.09 3 0.27 S5

6 World Class R&D 0.07 3 0.21 S6 7 Facilities – auto reloads online payment, etc 0.01 3 0.03 S7 Weakneses

7 0.12 1 0.12 W1

8 0.11 1 0.11 W2

9 0.09 1 0.09 W3

10 DiGi Ambassadors – lack of involvement 0.03 2 0.06 W4 1.00 2.81

lack of base station compared to competitors dependency on strategic sharing between mobile producer, application writer and etc

Key Internal Factors Strengths