Hutch: poised to reorder the telco industry
Hutchison Telecommunications Lanka (Pvt) Ltd (Hutch) Chief Executive Officer Thirukumar Nadarasa outlines the telco’s strategy to achieve a leading mobile broadband market position in Sri Lanka.
Five years ago, Hutch was one of the smaller operators in Sri Lanka’s mobile telecommunications industry. In 2019, it acquired a competitor and mounted a serious challenge for market leadership in the mobile broadband future. Chief Executive Officer Thirukumar Nadarasa is reassuring when he says the hierarchical reordering of the once ruthlessly competitive market is not wishful thinking, but it’s not one that is deliberately planned for either.
“We certainly want to grow strong but becoming #1 is not something we plan and plot on a daily basis, it will purely be a by-product of our focus on addressing consumer real needs and staying relevant. We have however not patiently invested in Sri Lanka for so long to be a mere laggard or follower.” Nadarasa explains in this interview with Echelon.
Hutch Sri Lanka is part of CK Hutchison Holdings, $56 billion revenue global conglomerate listed on the Hong Kong stock exchange. The group operates five of the world’s top ten busiest ports. It also owns a telecommunications and data powerhouse, “3”, pioneering 5G technology in Europe. Your experience in Sri Lanka, however, is unique. In the two decades here, is the market meeting investor expectations?
Nadarasa: CK Hutchison Holdings (formerly known as Hutchison Whampoa) entered the Sri Lankan market in 1997 because it saw long-term growth opportunities. As a group, it never invests anywhere unless it sees long-term potential and this best explains how Hutch has navigated the Sri Lankan market. We have been patient and carried out every move to a long-term plan.
When we entered this market, the leading operators were Celltell and Mobitel with their analogue networks. The industry was not moving in terms of adopting next-gen mobile telecommunications technology until Dialog entered the market. And as a late entrant, it decided to move directly into the then-latest GSM technology. Hutch has been in Sri Lanka for over a two decades now, but we took a more strategic and calculated approach. We decided early on not to introduce new technology until the market demonstrated reasonable demand. This way, we were able to secure satisfactory ROIs and investors showed faith in us by continuing to invest in Sri Lanka.
The tech upheavals in mobile telecommunications have been rapid and managing that can be challenging anywhere in the world: you do not want to invest too early or too late. As far as Hutchison Sri Lanka is concerned, we have over the last 20 years dictated our own pace in which to progress through the various evolving technologies from analogue to GSM 2G, 3G and introducing 4G in 2019; and 5G is over the horizon as well. Giving subscribers what they want and really need is always a priority for us.
This strategy eventually placed us in a strong position to acquire an 85% stake in the business of our competitor, Etisalat. The network merger was completed in 2020 propelling Hutch into Sri Lanka’s major league. The merger was not about the short-term gains. Certainly there are short term benefits, but these are not significant compared to the long-term returns.
Achieving critical scale is necessary for massive investments in 3G, 4G and later 5G to be feasible. Spectrum frequency is critical to achieving this scale, the merger expanded our spectrum bank enabling us to deliver on the promised mobile internet experiences.
What is the share of data revenue compared to voice right now, and how do you hope that mix would change?
Nadarasa: When we deployed 3G a few years ago, obviously our legacy voice revenue was higher than our data, but today I am glad to say that data revenues have exceeded voice reflecting the market trend world over. Our strategy with 3G and 4G has always been to patiently position Hutch as a leading broadband service provider in Sri Lanka. We have designed special data products and services for a mass market and our entire network assets are positioned to cater to the future demand for data and faster internet.
Is this a numbers game? Is it a chase after the highest number of subscribers or is it something more than that?
Nadarasa: ROI is our final objective. However, our experience worldwide has shown that often companies get too caught up or distracted with achieving other big numbers. There is a tendency to think that a large share of the market will translate into a bigger business which returns bigger ROIs. But I disagree with this view. Our strategy in Sri Lanka was to keep the focus on reliable and affordable service delivery and a delightful user experience. This is critical to winning in a competitive market.
I have been in the telecommunications industry for 30 years in Asia and ME and seen companies worldwide make the mistake of trying to catch up with volumes of the market leaders and get into trouble for that. They wrongly believed it was the only option to survive and grow. You have to decide which part of the market you want to serve and do it well. And this is true for any industry. You have to understand that especially in a competitive industry, you cannot try to be all things to all people. We have proven to ourselves that if you adopt niche positions in the market and offer consumers a choice this is the best way to grow in a crowded market.
Voice is on the decline and broadband is the future. Future demand for broadband data is exponential to the point where we do not have to compete as mobile operators as we did for the voice market. The demand will be so huge that the country will need the combined capacity of all four mobile broadband networks. However, Hutch is better positioned to capture that growth. So Hutch is creating a data revolution to satisfy the rapidly growing demand for high-speed internet whether mobile or be at home or office.
Our consistent 3G and 4G broadband speeds are enviable not only because we have the spectrum but also because we manage how we deliver data to consumers and study their behaviour and feedback to ensure that each subscriber gets the best experience. We have been incredibly careful with 3G and 4G and made sure we design our data network, and data products and services to suit the data consumer and this has served us well.
For example, we were the first to do away with off-peak data quota which many people do not use but we offer the full data quota throughout the day. We have a series of time-based packages ranging from one hour to 30 days and for that period, you do not worry that you are going to run out of data. We also launched unlimited data packages for YouTube, Social Media and WFH. And now your phone’s hotspot can even provide a fast and reliable internet connection to laptops and tabs at the home and workplace.
The pandemic accelerated e-commerce boom and financial and payment services evolving from rudimentary internet banking platforms has the potential to fast-track Sri Lanka’s digitalisation journey and Hutch well positioned to facilitate this transformation across the country. We are partnering several tech companies in Sri Lanka to identify how we can serve a corporate needs. However, as I said earlier our focus will remain on maintaining a reliable and affordable broadband infrastructure and ensuring all users get a consistent experience.
How do you then ensure ROIs on those infrastructure networks?
Nadarasa: We are clear that our role is to provide the digital highway, the equivalent to the Southern Expressway in a digital form. We want to deliver a broadband internet service that is affordable, fast, reliable, and as cost-efficiently as possible. What I can do is now facilitate the growth of the country’s digital ecosystem on both the demand and supply side, because reliable and fast internet connectivity is what is needed.
It is especially important to make the right scale of investment for the demand in the market and this brings us to the question about 4G and 5G as to whether are we too late or too early in the game? If you build too early, you risk committing huge investments on infrastructure that hardly anyone uses which means a long ROI period. We forecast market conditions and potential for growth to be able to realise an ROI within 5-10 years, so it is always a question of timing in this industry. There is certainly a first-mover advantage, but it is not significant if ROI takes too long because the market is not ready.
And at the moment half the Sri Lankan population have not even gotten into 3G and 4G so it brings us to the question about 5G! Hutch is pioneering 5G technology elsewhere in the world, but Sri Lanka has not demonstrated a need for 5G yet.
Mobile broadband tech cannot compete with fibre which can offer super-fast speeds, but you cannot connect every household to a fibre network as that will be too costly and even physically impossible. Mobile broadband technology has its limitations, but we have built ourselves on its significant advantages by ensuring everyone gets mobile internet at any time anywhere.
Hutch has always been perceived as a laggard compared to the market leaders. Is this view fair and how do you hope to change it?
Nadarasa: When I came to Sri Lanka in 2004 on a previous secondment, I made a radical decision at the time to launch only prepaid GSM mobile services. We focused on the largely underserved areas of the country and this enabled us to deliver ROIs to our investors without burning money to play catch up with competitors. Over the years we have built a loyal subscriber base that was happy with the services we provided.
However the merger with Etisalat has provided us with the new opportunity in mobile broadband. With a much bigger and Sri Lanka’s newest network infrastructure and additional spectrum from the merger, we can now position ourselves as a preferred mobile broadband service provider for a larger audience.
We do need to change perceptions about us in the country’s urban centres and we will do this by finally giving people a choice. Once they experience mobile broadband internet from Hutch and passionately believe people will realise its value. We do realise Rome was not built in a day, but we do have a competitive advantage over our competitors if we deliver what we promise.
Also unfortunately, there has been too much industry hype in promoting the ‘latest’ technology. This has confused people’s perceptions. Hutch is not a technology company; we are a telecom service company focused on addressing the real needs of the Sri Lankan consumer. For instance, 5G technology generates a lot of hype, but do we need it now? Is Sri Lanka ready for driverless cars or remote surgeries? Not for a long time right? Hutch has always focused on addressing the needs of the majority of mobile subscribers in Sri Lanka and this is how we will become a loved and accepted telco brand in the country.
Do you see Hutch replacing some of the larger players right now someday? Or is it more of a collaborative growth that you envision?
Nadarasa: We certainly want to grow strong but becoming #1 is not something we plan and plot on a daily basis, it will purely be a by-product of our focus on addressing consumer real needs and staying relevant. We have however not patiently invested in Sri Lanka for so long to be a mere laggard or follower. Overall, it may not be easy task to climb the mountain but I do believe that we have the 3G and 4G infrastructure today to be a highly valued mobile broadband operator.
We launched a brand marketing campaign as we completed our network merger, and the consumer response has been very encouraging, so we are on the right track.
As I said before, mobile broadband operators are already struggling to deliver the promised internet speeds and half the mobile phone population do not even have a smartphone yet! So, you can imagine the challenges ahead when they will have to meet the rising demand and the new investments they will need to make. And I am not talking about each person just owning a single device but multiple broadband devices. As such significant collaboration between all industry players is also critical if we are to successfully deliver a good internet experience to the entire population in future.
Due to people discovering new OTT products like Netflix, consumption per device growth rate is growing at a rapid pace between 30%+ annually. Today, we believe that Hutch has the widest range of most affordable data products in the market the most convenient access modes built in. And this is something we will continue to do at Hutch, we will focus on developing specialized data products and services to address specific requirements of the market to bring our loyal and ever growing customer base a painless and rewarding internet experience.
At the moment half the Sri Lankan population have not even gotten into 3G and 4G so it brings us to the question about 5G!
Our strategy with 3G and 4G has always been to patiently position Hutch as a leading broadband service provider in Sri Lanka.
Today, we believe that Hutch has the widest range of most affordable data products in the market the most convenient access modes built in.