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Maxis (Maxis Berhad) is one of the leading telecommunication provider and is the only integrated communications service provider

in Malaysia founded in 1995. Its headquarters is based in Kuala Lumpur, Malaysia. Binariang GSM Sdn Bhd a subsidiary to Maxis Berhad. Most of the firm's stake is owned by billionaire, Ananda Krishnan. Its telecommunications services operation begun in August, 1995. Since then, Maxis was listed under the first board in Kuala Lumpur Stock Exchange (KLSE) and as of December 2012, Maxis has total subscribers at 14.1million.

Maxis ventured into the provision of mobile, fixed line, and international telecommunications services in Malaysia through its subsidiary. Other multimedia services such as the Internet, broadband services and other wireless related services is also part of Maxis main operation. In July 2005, Maxis was the first to launch 3G services in Malaysia known as Maxis 3G and in September the following year.

After comparing Maxis with several market structures, it is known that Maxis adapts an oligopoly market structure. Oligopoly is defined as having few competitors in the market where entry barrier is difficult as it requires large amount of capital. Maxis is considered as an oligopoly because it is one of the few telecommunication

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companies that predominates one of the lowest rate mobile services including internet and broadband, having carried 14.1 million subscribers in 2012 (Maxis Annual Report, 2012).

In economics, the behavior of Maxis can be determined by the number and size distribution of companies in terms of subscribers and revenue in the market. The evaluation includes how products are differentiated, the ease for other companies to enter the market and the extent to which companies are integrated or diversified. However, there are only few telecommunication companies in the country and the three main companies are Maxis, Digi and Celcom. The fundamental economic aspect faced by these telecommunication companies are demand conditions where price is relatively elastic as seen by huge swings in net additions leadership quarters to quarters as different telecommunication companies took on price-leadership.

1800 ('000) 1600 1400 1200 1000 800 600 400 200 0 1Q10 2Q10 3Q10 4Q10 1Q11 Digi Maxis Celcom

Number of Net Additions of Subscribers

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70 (%) 60 50 40 30 20 10 0 1Q10 2Q10 3Q10 4Q10 1Q11 Celcom Maxis Digi

Market Share of Net Additions (Malaysia Telecommunications Report Quarter 3, 2011)

The results of these actions are interdependent between several agents. This interdependence on the other hand is mutually recognized. Neoclassical economics assume perfectly rational agents, perfect information and zero transaction costs under perfect competition. However, due to imperfect information, bounded rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information. Routine standard procedures to decision-making are employed by bounded rational agents.

Maxis supply conditions can be explained with Kinked Demand which gives an explanation to underlying reason why an oligopolistic market experiences price rigidity. If the Maxis increases their rates, it is more likely that other like Digi and Celcom will not increase their rates. Maxis will end up losing subscribers to other telecommunication provider (telcos) and lose relatively large demand as compared to the price increase. Hence, Maxis will face a relatively elastic demand curve above the

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point A. When rates are lowered, price war will be started and other Telcos will lower their rates too.

It is more likely that Digi and Celcom will set their prices even lower than the Maxis. Hence, Maxis will not see much increase in its demand even with a relatively high price cut. As a result, Maxis now faces less elastic demand below the point A. Therefore, Maxis should maintain its rates and should continue to sell at their best rates. When both demand curves is combined, it will result the demand curve to kink at point A. The MR(marginal revenue) curve will be twice as steeply sloping.

Kinked demand curve explains the price inflexibility of oligopolistic firms that do not collude. If Maxis lowers its rates, Digi and Celcom will lower their rates even further and Maxis will lose demand and if they increase the rates, the competitors will not follow by increasing their prices and thus the firm will again lose demand. Therefore, the best strategy is to maintain its current rates.

In price competition, using game theoretic model, telecommunication companies are assumed to provide a homogenous product and have sufficient capacity
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to serve the market demand. It is a non-cooperative game as there weren’t any enforceable agreements between them as they compete in the marketplace. It is a repeated one-shot simultaneous game as they were driven by quarterly performance accountable to shareholders. As such, they would decide on their pricing strategies independently and aware of rivals’ prices in the market while forming certain expectations about rivals’ pricing strategies. Actions available are Maintain Price and Undercut Price. Payoffs are ranked in order of preference (higher number is preferred). The most preferred outcome by firms is where one undercuts price while its competitors maintains price, leading to market share gain at the expense of its rivals. When all firms maintain prices, there is no change in market-share and profitability. When all firms undercut prices, market-share remains with reduced profitability. (Anon, 2013).

Although one company’s price will affect the others, this scenario doesn’t always happen due to customers’ brand loyalty. Maxis, Celcom and DIGI have been in the market more than 10 years. They have collected and built their own customer base. Sometimes instead of having price competition, they will compete using nonprice competition strategies. Maxis had a major spending on advertising and marketing campaign to raise sales and to brand the company among the youth. Although they do not change the price for their plans, this type of non-price competition will surely affect the company’s revenues.

We find from the above data that Maxis currently have the highest market power and leading company with the highest revenue. As Maxis grow its market

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towards heavy Internet users, it provides Hotlink customers with free Internet service since smartphones users are now Internet dependent.

Today, societies are dependent on the Internet, dealing with e-mails, social networking, and instant messaging among users with mobile devices. They require a reliable, steady and fast internet access, thus Maxis launched Malaysia’s first 4G LTE network in the beginning of 2013, making Internet on mobile dives twice as fast compared with normal home Wi-Fi network. Their high speed internet footprint is the largest in the country. Through their partnership with Astro, Maxis now offers fibre internet packages bundled with entertainment. This is made available to customers at home and on mobile devices. They provide multi-channel customer service; customers are able to reach Maxis service representatives via telephone, web and social media platforms.

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The advancement of technology through the use of smartphone has become a necessity among heavy Internet users after Maxis introduced lines of smartphone devices including Apple’s iPhone, RIM’s BlackBerry and Samsung’s Galaxy smartphone line into the Malaysian market. They provide several plans that allow subscribers to experience their smartphone at very low prices and some devices are even free.

During the Budget 2013, government has announced whereby 3G smartphone purchases for those aged 21-30 with income of RM3, 000 and below would receive a RM200 rebate. As Maxis introduces its data plans, demand for both the 3G data plans and smartphones would increase especially amongst the 21-30 years old Malaysian as the cost in owning a smartphone has become substantially cheaper and

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affordable. The reduction in price of smartphones will cause the quantity demanded for them to increase tremendously as it is a fine offer by the government.

Figure 2.0 (a) illustrates the reduction in price of smartphones due to the RM200 rebate from P0to P1 which increases the quantity demanded of smartphones from Q0 to Q1. Figure 2.0 (b) shows the situation in the Maxis mobile data plan market whereby at price, P0, the demand curve is at D0 with a quantity demanded of Q0. Due to the increase in the quantity demanded of smartphones, the demand for Maxis mobile data plans would increase too as they are complements to one another. The increase in demand for Maxis mobile data plans can be seen from the shifting of its demand curve to the right from D0 to D1. This shows that at the same price, the quantity demanded of the Maxis data plan has increased from Q0 to Q1.
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In conclusion, Maxis is one of the Malaysian oligopoly cellular communications industry with high entry barriers, mainly due to government licensing restrictions and high exit barriers due to huge capital investments (sunk costs). However, frequent technology changes could potentially allow “leapfrogging” by competitors or potential entrants. Consumer satisfaction is high for Maxis though consumers are seeking for even lower communications charges and greater geographic coverage. Maxis is currently doing a good job and should continue to push ahead with its plan to allow greater customer choice. Maxis should also monitor for deceptive advertising, SMS contests and voting. It is also recommended that Maxis conducts benchmarking against regional and international cellular communication industries on key areas like profitability or returns on equity to determine fair-returns, service quality and technical efficiency in order to determine the success of its policies in future.

(1503 words)

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References

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