Interview: Erik Aas of Axis

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With investment from Saudi Telecom and Malaysia’s Maxis, Axis has started to build its market in Indonesia, explains CEO Erik Aas

National roaming helps Axis build prepay BlackBerry use

Erik Aas

Erik Aas: Axis’s relationship with Saudi Telecom means
it can serve the 800,000 Indonesian expatriates in Saudi
Arabia and the 300,000 annual Hajj pilgrims to Mecca

The last time Global Telecoms Business interviewed Norwegian-born Erik Aas was at Telenor’s booth at Mobile World Congress in 2007, and he was CEO of the company’s Bangladesh operation, Grameenphone.

He was working there with Nobel Peace prizewinner Muhammad Yunus — who founded the operator — on innovative ways to develop internet access, along with mobile banking and healthcare, in one of the world’s poorest countries.

But after more than a decade at Telenor and its subsidiaries, including operations in Thailand and Malaysia before Bangladesh, he’s become a challenger, running what is effectively a start-up in Indonesia, a market with a number of existing operators.

He’s no longer with Telenor. Axis was originally a subsidiary of Malaysia’s Maxis, but in September 2007 Saudi Telecom took a majority, though Maxis retained a substantial stake.

“So now there are two industrial owners, which is great for me — they understand what the industry’s all about,” says Aas.

While negotiations with Saudi Telecom were continuing, Aas was being lined up as CEO, and the company announced his move into the top role just weeks after the new shareholding was public.

“It was a pretty good move for me, coming out of Bangladesh and also coming out of a leading operator and becoming a challenger,” he says. When you’re the biggest, “you’re used to everything working properly and you can get it done in a day — but suddenly you’re in a start-up”.

There was a team in place “but they had postponed the launch”, he recalls. “The big change was Saudi Telecom — and Saudi Telecom also bought a share in Maxis.” So today STC owns 51% of Axis and — in a deal valued at the time at $3 billion — 25% of Maxis.

What sort of shareholders are STC and Maxis? “They are active,” says Aas. “They are industrial shareholders, so we have a lot to talk about. And both of them are leading operators in their home countries. Both are the incumbents, practically.”

But they realise that a start-up in Indonesia has to do things differently from an incumbent. “You have to be a bit more light-footed.”

Professional support

It means “I’m getting a lot of professional support — more or less everything I ask for. On the other hand we have to establish a lean and mean operation, fast moving, quick thinking, trying to avoid too many levels of hierarchy and processes.”

So Axis is “trying to take the best out of the shareholders but define what is best for a start-up”.

The term “lean and mean” is commonly used in the telecoms industry — often by long-established companies wishing to trim their costs — so what does this mean for a start-up and a challenger?

“We have 600 employees and five million customers now,” he says. “We outsource call centres to professionals who know better than us. We use outsourced services to a great degree. We have to focus on certain big things that make impact — instead of many smaller activities.”

The network providers are Swedish and Chinese — Ericsson and Huawei. And the IT comes from India, from Tech Mahindra, covering both operational and administrative IT.

“We don’t want to hire so many people, but we also want speed. You can’t build up a large IT organisation in a couple of months.”

Network maintenance is outsourced to vendors, “so Huawei and Ericsson are managers of the network”. Electricity supply is the big challenge in Indonesia: “If I remember correctly, 80% of our trouble tickets are related to power. If you go to Sumatra and those islands, the average power outage for a base station is six hours. They do power sharing, and cut the electricity off region by region.”

As a result Axis is taking part in one of the GSM Association’s green initiatives: “We are trying out some hydrogen fuel cells and solar power. It’s a little early to do it in big volumes — it’s difficult to scale up to 1,000 or 2,000 base stations, but we are working on it.”

National roaming

The main challenge for the company, as a newcomer, is coverage. “We have signed a national roaming deal with one of our competitors, XL.”

This is not required by the regulator: “It’s a business to business deal we have done with them. We have a business deal that makes sense for both parties. We have found something that makes sense.”

There are relatively few national roaming deals in Asia — “a few in Malaysia and India, but they are mainly regional”, says Aas.

There are examples in Europe, and sometimes regulators have imposed national roaming on the incumbent “such as my shareholder Saudi Telecom, which has to provide national roaming in Saudi Arabia”.

In Indonesia there was no pressure from the regulator, “though in the early days the regulator encouraged operators to share towers, on the passive side”. Axis leases more than 50% of its towers — some from specialist tower companies, but most from other operators. “Another example of outsourcing,” says Aas.

Indonesia is a crowded market, with five GSM operators — Telkomsel, Indosat and Hutchison’s 3 as well as Axis and XL — and all are also 3G operators. The 3G service puts Indonesia ahead of many surrounding countries: “The first 3G licence in Indonesia was given in 2003, and now we all deliver 3G.” Pakistan, India and Thailand, for example, still haven’t issued licences.

“Many things in Indonesia are relatively early.” But this is now widely known, says Axis, who says it is a sort of “shadowland”, not understood by many outsiders. “Indonesia is the fourth biggest nation in the world in terms of population, with 244 million people, yet it doesn’t seem to be on the radar screen in the rest of the world.”

Economic growth

It has a relatively high GDP of $2,000 per person, and that grew by 6% in 2008: “They managed the crisis. This year we expect 3% growth and next year 4%. Share prices this year are up 70%. All in all they came through this — though they had a very hard time in the last recession, at the end of the 1990s. They learned a lot.”

For an operator “that’s promising”, says Aas. “The real penetration is roughly 90 million”, though there are around 150 million SIM cards issued — so there is still room for growth.

“The tariffs have gone down to the bare minimum — and that means when you get more penetration the industry will grow. We estimate the revenue for the industry will grow from $7 billion in 2008 to roughly $12 billion in 2013, and we intend to take a share of that additional growth.”

Axis estimates that its current market share is only 3.5%, some 18 months after a launch in April 2008. But coverage is only 100 million of the population so far. The new national roaming agreement will take coverage to 170 million people. “In terms of subscribers I’m happy — it’s a big country to cover.”

Axis will continue building network in the roaming area, “because it makes sense to build”, though he might focus on the larger cities. And the company needs a distribution network to reach customers.

“Our investment plan has not really changed much, but national roaming means we can focus our investments more. We want to work city by city and make it perfect. It improves the risk in the total investment.”

National coverage “is not just about reaching customers in the new areas” but also affects the story for customers in the existing area. “Suddenly I can go to customers and say that we have you covered. So we get access to higher-end customers, to business customers and travellers. A totally different segment. It’s building the business case not only in the roaming area but in the existing area. It’s a good opportunity for us.”

The Indonesian market is “extremely messy”, smiles Aas. As well as the five GSM operators, there are five mainly regional CDMA operators.

XL is the third in the GSM market — and “they have been very business oriented” in agreeing to a national roaming deal. Aas hopes that Axis will reach fourth place in the GSM market soon.

Almost all customers are prepaid — though Axis is in the process of launching postpay. “I’ve always liked prepaid. There’s no reason to say a prepaid customer is less good. It’s a much easier relationship — you don’t need to send them letters and tell them how much to pay.”

Minimum reload of prepay is 1,000 rupiah — equivalent to just $0.10. “The most common reload is 10,000 rupiah, which is exactly $1.”

BlackBerry on prepay

Prepay includes data with 3G cards. “Indonesia is the biggest BlackBerry market in the world.” There’s a well-established middle class “and Facebook, Twitter and such services are extremely popular in Malaysia and Indonesia.” BlackBerry growth is strong in the student market: “People who pay their bills themselves.”

Axis reached 70,000 BlackBerry customers on prepay four months after launch, and Aas claims a 7% market share. “The whole market is roughly 400,000,” he says.

“It has been a good success for us.” People can subscribe for as little as a day and see if they like it. “Incumbents would not offer a day,” but the service is successful for Axis — which also offers one-day tariffs for mobile broadband. In this economy that’s perfectly fine. People are conscious of how much they spend in a day. It’s a completely different economy.”

One of the biggest revenue sources for Axis is the huge number of expatriate Indonesians, many of them in Saudi Arabia and Malaysia — something which may help to explain the interest in companies from those countries in investing in Axis.

Indonesia is the world’s largest Muslim country — 90% are Muslim — and about 800,000 of its citizens live in Saudi Arabia, with another 300,000 heading there every year for the Hajj pilgrimage to the holy city of Mecca — the biggest contingent among an annual flow of two million people.

“We are trying to connect these 800,000 Indonesians living in Saudi Arabia and to offer special services to the 300,000 travellers to Mecca. One of the most important things you do when you go to Mecca is stay in touch with your family.” And, with STC as a shareholder, there is a natural synergy.

There are also many Indonesians in Malaysia — and Axis has started a system to allow travellers and expatriates to top up family members’ phone accounts back home. It’s not yet a complete money transfer system, but Axis and its shareholders are working on it. “It’s still early days.”

But it is still less than three years since Axis launched its services into one of the world’s biggest countries: there’s still a lot to do. Aas is confident that there’s a lot of opportunity — and he’s clearly enjoying it. GTB