Telecommunications Sector TRODUCTION nificant structural transFormation following privatisation, ‘The Malaysian telecommunications sector hus undergone si Usregulation and liberalisation in the past decade. With the advent of widespread privatisation in the 1980s, tor The focus has changed from public to private provision of the government has diluted its control in the telecommumeations mirustructure Generally, all the major key players in the telecommunications service providers offer a comprenensive range of services to both domestic and international markets. The services range from voice and data communications to broadband, Internet, global snane infrastructure expands the usage of fibres optic backbone, and cabl payphones and various multimedia solutions, The existing, sre being redundant to widen coverag zement services, ‘The country has three mobile operators currently. Three major players are nal many fora papulation of 26.6 million, The competition among the country’s three telecommunications network opzrators is fierce, Operators offer different types of incentives to attract new subscribers and to retain existing customers, in order to present a moze effective and competitive front in the gfobal market. Most of the operiturs are now restructuring customer service and billing systems which allow them to introduce utiractive service packages to enhance market share, This chapter gives a background of the tskecommunications industry in Malaysia, as well as the emergiag issues ULATORY REFORM IN THE TELECOMMUNICATIONS SECTOR REc Here, we discuss the evelution of telecommunications industry in Mulaysia in general, and the regulatary polici in the Malaysian felecommmtinications sector in particular. Four phases of the regulatory regime in the Malaysian orporatisation Era: 1987-90, telecommunications sector will be discussed. They Post-privatisation Ega I: 1991-97 and Post-privatisation Ens II: 1998-the Pr PRE-PRIVATISATION: 1957-86 Prior tv 1987, Malaysian telecommunications services were opersted and provided by Jubutan Telekom Malaysia ITM, Malaysian Telecommunications Department). Heing @ public entity. it was also the regulatory hody for the industry. The main objective of JTM was (o- provide and regulate eff land and overseas telecommunicationsTELECOMMUNICATIONS SECTOR 1" services, The secior was selfegulated as TM reveived instructions and reported dircetly to the Ministry of Energy, Telecommunivatioas and Posts (MLIP). Meanwhile the Ministry was a policy maker, and had the power to grant licences, Thus, the provision of services and reyulalury functions were taken charge of by different organisations before privatisation. Although there was no Universal Service Provisler (USP) fund. the government ensured that the social obligation of providing rural telecommunications services was carried ut by STM even though it was not its commercial objective. As such, this has led to cross-subsidisarion by urban counterparts to rural arcas with respect to the basic telephone service, Inthe pre-privatisation era, telecomnmunicalions services were monopolised torally by the government, There was no experience in dealing with competition and no experience in operating a private sector environment, and no system in place far private sector operation During the initial phases of deregulation, the former monopoly was ant imanature marketplace, where the government had full market power end dial not faee competition) The snability of ITM to respond to the demand for terminal equipment in the lace 1970s triggored privatisation and liberalisation of the sector. Besides(pocr quality of services, the drive towaidls the Malaysian telecorrmunicauions reform was also motivated by management and technical inefficiencies, insufficient cepital ancl expert ‘elecommunications sysceny. Apart from this, limited government funds were a Factor thar contributed towards the 1c, low penetntion rate and low profitability margins o£ the he delivery of telecoumunicativas rationale of privatisation, he solution to these problem was the step ta char services from public provision t private provision via privatisation) CorporatTIsSATION ERA (1987-96) AND Post Privatisation Era 1 (1991-97) Basieally, privatisation of the Malaysian telecoramunications sector can bellivided into nwo stage}. In the first stage’ Syarikal TelekoncMulaysie: Pertiel oe cauiiliahed (uv téke-nwersihe qpenmienl Armaponansy:ut JTM in January 1987, which was calle telecommunications network services under a twenty-year Le Meanwhile, thd second stagQof thé privatisation) gun when the goverament divested some of its equity share of STMB through public floatation via sale of equity) STMR was subsequent“y listed on she KL.SF main bourd on 7 November, 1990 und heeame the largest listed company atthe Lime (the name was changed from STMB io Telekom Malaysia Berhad (MB) on 6 June. 1991), eorporatsation) (IL wies granted monopoly power in the provision of tusie After the divesting in £996, che government split its role into two. STM dismantled its operational function which was now pliyed by STM, in aclvising the Minister to apprave, amend or reject tariff inorease, What remained with TM was ity regulatory function, However, regulatory decisions such as decisions relating to Ticences were under ministry supervision. The role of the ministry was as a policy regulator that regulated fees, reat or royalty payable ‘on the licence, with the main thrust to facilitate growth as well as to ensure efficient services at reasonable prices 10 ceonsimers thrauighont she country The privatisation has ted to a series of legislation changes) Firstly, the Teteronnmasication Services (Successor Company) Aet of 1985 was passed through Parliament 10 take over the provision of telecommunivations services from ITM to STM from 1987 onwards, [included the transfer of telecammunications operating assets and liabilities, besides the transfer of staff. Secondly. the Felecoumumication Aet af 1950 was amended to permit a regulatory body to beset up. In addition, il granted the goverment authority to provideall domestic and international telecommunicatians services. Thirdly, the Pensions (Amendment) Act 1985 superseded the Peavions Act of TON tw protect retiree benefits if they were to retire instead of joining the newly. e¢ ent ties, In terms of employrneut, due to more favourable terms and conditions af service in the newly operating company, thece was a big shift of experienced slalf from JIM to the newly privatised entities. 28.364 staff voluntarily accepted employment in STMB trom | January, 1987, while 102 employees were transferred to the new regularory authority rival2 MALAYSIAN ECO} My tn pile of the regulatory reform in 1987, only a part of the assets (25 per cont) was sold io the private seetor. The bureuuctecy owned the “galden share" in the aew entity that entitled its veto power over major management dee'sions in the newly privatised firm. To date, the government remains the largest shareholder in LIMB. ‘The owas ani acvord of the major shareholder of Khazanah Nesional Bhd (35.91 per cent) anal Ministry of Finance Ine 21,06 pe een issued the Privatisation Master Plan (PMP) in 1985 as a privatisation guideline to implement competitive basis and lack The goverame: the privatisation programme successfully. However, licences were awarded on a nor of tansparency. The government opted ta give the project un a first-come-first-serve policy instead of evaluating Ihcir business performance. Virtually all the licences were awarded to Bumiputra tirms. Thus, the ethnic policy was: criticised as a key determinant of success it application those days. Note that no aeeentuated competition in the supply of apparatus among commercial companies way emphasised, nat ewen in the Telecammunicotion Aanendment Ace 1985, Nationau TeLecommunicarions Poicy (NTP) (1994-2020) The National Teleconmunications Poliey (NTP) was issued by METP in 1994 to stipulate all operators of fixed and mobile telesornmuniestions services to provide inleroomnecitvity to wach othe The temination year of NTP coincided with the target date for Vision 2020,(The NIP policy was formulated to meet the future challenges and Vision 2020, us well as to ensure the use of rechnology supported national development) The strategies listed in NTP of Malaysia were based on the government-private sector synergy. Competition was inevitable in developing the telecommunications sector\Since 1994, the government hus given licences to more operators in the local telephony marset to compete with the incumbent TMB. Competition forced incumbents to restructure the rariffs as competitors chose to skim-cream the profiteble markets and leave the unprofitable subsidised markets to the ineumben:. Thus, the USP burden was still borne solely by TMB. A range of obj celives has been identified: 1. Ensure the use of local products by the telecommunivations sector. R&D to facilitate the absonption of new technology and to upgrade telecommunications lacilities und services. 3. Eneourage healthy participation of telecommunications companics in the international market and invest in other countries in the fields of telecommunications 2 Eneour ‘The sirategies that are used: © Encourage competitiveness in the telecommunications seefor to be carried out in stages, beginning. with valuc-added services followed by the provision of infrastructure and other services. Domestic ‘competition in the telecommunications sector is implemented by taking into account the development ofa new system that would emerge from time to time in tine with the tise in demand. © ‘The NTP would continue emphasising on efforts to upgrade rural telecommunications facilities © ‘Telecommunications services are divided into basic telecommunications services and value-added telecommunications services. The basic telecom: s provided facilities such ax PSTN (Public Switched Telephone Network) public telecommunications network, PDSN (Public Dutu Switched Network), telex and transport nctwork. On # hand, the value-added services are based on the infiasuuclue facilities for the provision of basic services of other services without building its own infrastructure network.UTIONS SECTOR A) © Network infiastructure is subdivided into basic network infiastmeture and value-added infrastructure which provides users wider network coverage and services for personal or public services. Meanwhile, the latcer provides infrastructure facilities through supplies from basic network providers, Post PRivatisaTION ERA TT: 1998-1HE PRESENT Traditionally, telecommnunications industry was viewed as a natural monopoly. Phe developmen of buth competition, and privatisation implied the n Multimedia Act 1998 CCMA 1998) came into effect in Apri] L999 and marked a new approach to hath legis! and regulatory stricture in Malaysia, 1 repealed the Teteromaeunications Act F950 and the Rradcasting Act F988, There were weaknesses in the regulatory structure prior to the commencement of the CMA 1998, There real distinction benween the regulatory function, policy making function and operating entity. Different regulatory authorities and ministries segmented themselves, For instance, the Ministry of Information regulated the broadcasting industries, JTM regulated t2t any specific regulatory regime, for independent reguistory stamework, The enactment of Communications and ‘as no ‘ommunications industry, whereas the informetion technology industry was free from However, there was drastic change in 1998, The Malaysian Communications and Muttimeetia Commission Act 1998 (CMCA) came into offset on | November 1998 to establ (CMC). It took over from JTM as a totally independent regulatory body to re broadcasting and multimedia industries under « single umbrella elfective from 1 April 1999. ‘The Commission s several members. The decision-making process dane by CMC reflects the real voice of the majority of commissioners instead of the sole chaisman's opinion, The CMC spells aut the regulatory structure of the industry, urmulates policies an guidelines; as well as addresses key issues related to the communications andl multimedia activities in the country and advises the Ministry on regulatory issues. However, the decision of regulatory policy is still vested with the Minister. The Ministry may also give policy directions lo the Commission. Apart from this, the Ministry of Lnergy, Communications and Multimedia (MECM) was established on November 1, 1998 through a of the MIP and operates on the concept of convergence, in line with Weetinologival advancernet. +h the new, Communications and Multimedia Commission late and license telecommunications, om restructur Both CMA 1998 and CMCA LD9S Acts attempt to address the regulatory challenges posed by the convergence of the three industries. They als seek to emphasise on the principles of transparency and minimal regulation with the aim to position Malaysia in a global competitive market status. Under the Aci, communications regulation is further differentiated to pzoper classification either to social regulation, economic regulation, consumer protection, and technical regulation Malaysia guarantees market acess and national treaument for most telecommunications services and value-added services: however they are limited to 30 percent foreign equity. Restrictions on these activities tend to benef: the dominant provider, government-controlled Telekom Malaysia, and hamper the development of a more efficient information infrastructure. PRIVATISATION OF THE MALAYSIAN TELECOMMUNICATIONS SECTOR Liberalisation is seen as a complementary strategy to privatisation in Malaysia, More telecommunications companies with different technolagies wer o compele in different seamented markets. More licen cellular services, international gateway end subsequently fixed line networks, Subsequently, competitive environment is seu. as a pre-condition tor wellare improvements since greater choices and flexibility is available for consumers, Tais has gradually eroded the monopoly power of TMB. allove ss were given Wo14 MALAYSIAN ECONOMY Tue Impact OF PRIVATISATION Corporatisation in 1987 and privatisation of TMB in 1990 subsequenily tumed the telecommunications sector inte she largest market capital in the KLSE. To examine the productivity and efficiency. one must cxaming TMB?s perlormance: during the pre-and post-privatisation periods as shows ia Lable 4.1. Here, the quality of services can be measured by a number of indicators, Firstly, the total faults report per line (the call feilure rate) as a proxy flor network reliability; secondly, the total complaints per 1000 lines and thirdly, the leased circuit fault restoration (within 24 hours), A sligat drop was recorded for call failure rating from 0.76 to 0.4 for 1986 and 2000 respectively. Total complaints per 1000 lines showed a drastic drop of $8 per cent from 19.9 in 1986 16 8.3 in 2000, In addition, the percentage of responses to custostier complaints within 24 hours improved from 80 percent in 1986 to 100 percent in year 2000, This imolies tat itnprovementy had been made in the provision of serviees in terms of wdministrative flexibility, which include better billing system, improved marketing stra! ;pacity application for telephone installations and the gy Wo increase gamings, and improved quality of services such as upgrading network to enhanc speed of attending breakdowns. In u nutshell, the quality of Malaysian telecommunications services has improved significant|y aller privatisation Table 4.1: Efficiency and Productivity Indicators of TMB Pre- and Post-Privativation Pre if 3 privatisation Abie piialallee oa (eivea 1986) | (1997) 2000) [Telekom Malesia Rivtiod aE Gar etuen om assets 14 a7 2? pt Tee Proovetion pes employe (RM) : aisea | sis na | Diese exces Hines per employes = (ae ‘Tolal Lau its reports per tine 7 0.76, 4 OF | Total cciaplainty per 000 tines 99 a aoe Response uvewsiomer compinintseithin | 0 as ‘00 99.7 2A hours (Yet Sources: Mid-tese Review ol Seventh Malaysia Plan (998) Dice sia Berhad Annual Repo (various iscues) ‘Genates 200 figure Note However, the impact of liberalisation on the sector posed serious challenges to the operators. The aveord of the date the previous five servive players in # inftastracture and over-capactly were in the market, particularly before capital-intensive telecommunications industry is too small marcel of 25 million people especially in the cellular market. Duplication Hloodting the maricet, In addition, aot all the aperaiors competed on equal foo equal access policy was implemented in carly 2000. accomm On the other hand, in the first year of privatisation in 1987, the performance of STMB was distal. The company achieved a pyre-tav profit af only RMI4.91 million (lable 4.2). The following year, by eontrast, has increased 36-fulelTELECOMMUNICATIONS SECTOR to RM1R0.41 million and rose further before registering a radical drop of 47 per cent in 1999 to RM884.2 million ollowing the slowdown of the economy in the first half of 1999 and the implementation of equall access that afTeeted new subscribers’ growth, At the same Lime, long term debl to equity ratio improved fram a hih 2.3 in. 1987 to 0.6 in 2008. [B Operating Revenue, Operating Revenue Growth Rate, Profit before Tax and Debt Equity Ratio, 1987-2005 year | Operating revsnucicurnaver | Growth rateof | Profit before tax a ‘(RM Million) ‘Operating revenue (%) | (RM Million) | 187 16442 z 49 23 as | 182.0 4s 1804 1990 2S743 508.7 eae Tae 1996 e410 2388.1 ost CU RIGa 1998 7980.1 Cisne 4815.7 Oe 1204 (abs aL| 3172S 06 15,2509 PDS Re Sourees; Felekom Malaysia Rerluul Annual Repert (various isuis} KT SF, Armas] Campanes Handbook (various issues) Nevertheless, libcrafisation of the telecommunications sector did not really allow free-eutry of foreign firms into the sector, Foreign market shares in a firm still had comply with a 30 per cent limitation in the domestic tclecommunications companies. Llowever, during the financial crisis, the ceiling was inereased to 49 per cemt at the endl of February 1998, and further relaxed to 61 per cent foreign equity shareholding in April 1998, Telenor of Norway was the first foreign telecommunications company thal increased its stake from 32.9 per cent to 61 per cent in DiGi Ithd. However, this has to be scaled back to 49 per cent after five years, This straicyie alliance had significant value-added to the local telecommunications companies in terms of management and technical expertise, prodiict development and substantial investment cos The market has gone into overdsive in terms oF competition and Into a price war, With competition, technolo; also services need to be overhauled, Keen compesition and high investment costs are the key problems the sector is, jon to cater for the fast expanding facing, and this forces them ta fycus on quality of services and product innoy diverse market, Those with a greater market share, advanced [echnology infrastructure, stronger finarwial sength, as well asa differentiated macketing plan, better pricing strategy and divetsified consumer choices al reasonable rate have the key competitive edge-in the sector: Hence, those who are able to continue their strong momentum ia brand itprovemeat with partivular improving brnd pereeption, and providing the best relevant content offering to the Local marset will eansege the winners16 MALAYSIAN ECONOMY CUANGES IN MARKET STRUCTURE The degree of competition varies in the telecommunications sector among players. Prior to the privatisation and iberalisation of the telecommurications sector. the incumbent, TMB monopolised the xed network service, The number of fixed-line infrastructure-hased licences was increased to five in 1994. At present, TMB retains its virtual mmonipoly in the provision of fixed-line services, with lion share of 97 per cent, although other opefators have been usiven fixed line service Tivences stich as Time darCom Bhd, Cellular Communications Network (Celcom), Mexis Communications and DiGi.com. Fixed line business is TMB's major income generator, it has contributed 65.4 per cont of its operating income in 2002 for instanee However, TM was dragged down by the decline in fixed-line business. Mobile service providers hiad indirectly geined long-distance cal] business from the incumbent fixed-line operator TM Bhd and companies like ‘Time dotCom Bhd that provide discounted calls, Greater competition among other fixed line operators, and the growing predilcetion for cellular business have conversely attributed ditninishing allure an the growth of fixed-line business. Key players ‘would rather focus on the mobile spece and roll-out fixed fine infrastructure. The number of telephone subscribers inereased from 0.38 million in 1980 to 4.3 million in 2006 (Tuble-4.3), OF these, about 75 per cent were residential subseribers sind the remainder was business subscribers, The number of cellular subscribers overtook fixed line subscribers in 2001. Concomitantly, the number cf cellular phone subscribers has ‘grown rapicily from 5 1 millioa in 2000 to 19.5 million in 2006. CeLlular telecommunication was the premium driver in the telecommunieations industry with its growth rate stronger than fixed line growth Table 4.3: Malaysian Telecommunications Statistics, 1980-2006 ‘Sources: Comrsvnications & Multimedia Selected Facts and Figures, Malaysian Communications & Multimedia Comission, + Departunent of Statistics, Statistical Handhvok Malaysia (varies issues) + Mid-Term Revieyy of Sah, Seventls and iginh Mulaysia Plan + Vighth Malaysie Pan 2IKI] 2005 (pg: 281) + Yearhok of Stalistics Malaysia (various issues)TRLECOMMUNICATIONS SECTOR 7 PENETRATION RATE At the end of 2000, Malaysia's fixed-line penetration rate was about 19.7 per cent. This was much lower than developed countries in the region such as Singapore, Hong Keng and Taiwan, where penetration rates were in excess of 50 per cent. Meanwhile, the peneiration rate for cellular phones hac increased to 21.8 per 100 persons in 2000. La 2005, the cellular penetration rate had! reachet: 74.1 percent. We would have achieved cellular penetration rate of 5 telephones per 100 penple by yeat 2020, as the target in the NTP. Figure 4.1 exhibits a parallel growta between per capita GDP au the telephone penewration tate in Malaysia from the yeats 1992 2003, However, the penetration rite has increased sharply since 1999 and initially surpassed the per capita GDP rate arcund 2003, This indicated a growing quality of Hife with respect to Information, Communications and Technology {ICT) indicators, The expansion of the elecommunications network was not conlined only to the urban areas. The rural penetration rate increased 4.5-fold from 5.5 per 100 people in 1995 to 24.5 in 2003 (refer Table 4.3). This is still low as compared to the national average, Heave, there is room for growth espectally for the development in rural ures, To bridge the digital divide between the urba-rural penciration tate, the government has expedited the expansicn of the USP Fond ro cover broadband inftestructure development in raral areas. There is still a big gap in accessibility of services Within states (Table 4.4), Higher pencirstion per 1000 population és found in develuped states such as Selangor, Johor, Perak, Pulau Pinang and Kusla Lempur,18 MALAYSTAN ECONOMY Table 4.4: Population and Number of Telephone Subscribers in Malaysia (by types of users and state), 2004 60,721 201,289 Sonree Notes cial Statistics Bulletin Malaysia Cenotes Mid-yenr population cstimates by states in Malaysia + including population in Labuan of §2,000 2 including MorisTELECOMMUNICATION: Figure 4.1: Per Capita GDP Current Price and Total Number of Telephones Per capita GDP current price and penetration rate: +000 n so000 00 ‘enn = 7 3 0000 a z z con} = 8 6000 | & a ee ee ee [= tpersapta cor) porevator rate) MARKET SHARE [Ag they aie firmly on the roed to be & full voice, dats and rhultimedia seevice providers, the five companies are ‘competing to win a greater church of the country’s cellular market. Phe total cellular market had more than 5.2 milion subscribers in 2000, Alihowgh Ccleam had the Lion share of the market swith 1.53 inillion subscribers whieh trans hated to 30 par cent, Maxis showed a remarkable increase in the cellular phone market share of 27.8 per cent to 1,446 million ia the year 2008 (Table 4.5), Meanwhile, TMToueh did not dominate the cellular sector despite having tare separate networks, This was in stark vouteast to its fixed line. Inthe doaestic mobile market, TM's Celcom is facing increasing competion from upmarket Maxis Communications ‘Bhdund nimble DiGi,Com Bhd, Profit before «ax for both TM and Maxis service providers is just marginally different. Though the operating revenue for the TM’s Celeom is high, the operating profit iy 6-fold lower than the revenue, rellecting high operating costs in TM (lable 4.66), Llence, TM’s domesti¢ fixed line business has limited growth potential while its broadband services have yel to make significant contributions to profit. As a result, it has led to lower earning per share for TM (25.8 sen in 2005), compared to more than 60 sen per share for Maxis and DiGi Meanwhile, in terms of cellular perspective, the: prepaid segment has taken up majority of the total subscriber base. TM prepaid subsccibers make up about 87% of the 23,503,700 subscribers, while 3.772.300 postpaid subscribers make up the remaining 13%. Of the 23.$ million TM prepaid and 3.77 million postpaid subseribers, 5.74 millions and 1.11 million were Celcom postpaid and prepaid subscribers respectively, In terms of revenue, revenue growth in DiGi continued to be higher in 2005. compared lo the revenue of RM1,289.5 million in 2002 (Table 4.60). For mobile revenue, prepaid dominates in valuc and growth, while postpaid shows almost 1U% oF revenue growth, DiGi has its own niche market in prepsid mobile phone servive. DiGi hene‘ited rom the frst mover advantage and was the market leader in the prepaid segment for years. DiGi prepaid is driven by uliractive promotions and starter pack prices. It has also depicted solid postpeid growth, DiGi has gained from expanded EDG: coverage,80 MALAYSIAN ECONOMY Table 4.5: Number of Cellular Phone Subseribers (000) and Market Share uf Major Telecommunications Companies in Malaysia, Selected Year 1990-2002 288 asa | eae 16 “500 | 83 ‘Sourees: Dats lite of Asia-acific ‘Telocomnnmications (2000) + Telecommunveation Department Malaysis, Statistics Telecommunications Industry Malaysia 1997 + Telehorn Malaysia Berhad Aumuel Report (various issves) + Social Statistics Bulletin Malaysia (1999) + Malaysian Communications andl Multimedia Commission (MCMC) Notes "as arend June 2002. Adapted fram The Star (Seplsmier 17, 2002) Table 4.6a: The Performance of Telecommunications Companies, 2002 Postpaid Sourees : Tae Star Business (August 29, 2002) + Telekom Malaysia Berhud Annual Report (2003) Celeora Annual Report (2003) + Maxis Annual Report (2003) : Time doteom Berhad Annual Report (2003) + DiGi.com Berhse Annual Report (2003)1RLECOMS PIONS SECTOR 81 Table 4.6b: The Performance of Telecomm unications Companies, 2005 “Tia Fishadll Peformance (RM milion) | Mobile subscribe fo00) s ss : and ; Earning Operating | Operating Profitiluss ; i Bf “evence’ | proves | befoetax | PETStMt® | Prepaid) | Postma m™ || daa ac) 0338 | 258037 6370.8 6.439 1.419 ORS. ae | Sources: Telekom Malaysia Berhad Annual Report (2006) ‘Maxis Annus! Report (2006) DiGi.com Berlad Anaval Report Nowy 5 # 5,740,000 we 42 11,000 wer Coleen registe ‘As of 30 June, 2005, the ground gained by Celcom (37.1%) and DiGi (22.8%) was still insulficient to unseat Maxis (40.12%). which still holds the largest share of mobile paone user base (see TheEdige Malaysia, 2005b). In 2005, I'M-Celeom gained she biggest mobile phone subscribers market share for both prepuid and postpaid. services (able 4.6m), Figure 4.2: The Market Share of Telecommunications Companies, 2005 MERGING AND NUMBER OF PLAYERS Before merging, th seven cellulur-service providers licenced in 1994. The Asian crisis of 1997/98 fo tdrastiv consolidation in the cellular sector, and the number of service providers shrunk to five. The details o cellular operators are shown in Lable 4.7. The five major telecomrunications network providers in the country. aa '\MTouch (lelekom Sda Bad), Celcom, Maxis, DiGi aad TIME dotCom adopted various st industry, This has ereate cla price war. Concurrently, the revolution in mobile phone services b82 MALAYSIAN ECONOMY introduction of Wireless Applications Protocol (WP) connections to the Inletnet via handsets. Telecommynication players began to adfer various atttactive services and packages in order lo aliruct more customers. Table 4.7: A Summary: Cellular Operators, Service Name, Platform System & Frequency, Types of Service, Yeur Started Operation and Prefix ART 900) Celoom GSM TM Touch) ATUR 430 | GSM 1800 she Nobifon 800 | D-AMPS 00Ntiz Telekom Cellalar ‘sda. Bhd Therefore, TMB made the first move in April and May 1002 by acquiring the maferey Reliime stake in Celcom. Next, in September 2002. Maxis Communications Bhd acquired TimeCel, the mobile Besiness exit of Time doiCor for about RM1.3 billion. The deal was finalised by April 2003. This has further reduoed te sember of players to three in the market. The third Malaysian operator, DiGi, Tetsined its market share of arcu 23 per cent. Celcom's merger ‘with 'TM significantly altered the competitive field, vaul sigaificaat operational and business challenges. t into s aderdiie position provided it overcomes REASONS FOR MERGING Consolidation within the industry intends to develop a stronger set of players ‘competing with foreign. owned operators both within Malaysia and overseas in general. Among the sessees Sir sSerciee are: 7 1 Merger for Customer-Fovus und Quality of Services 2 Increasing customers" satisfaction and retaining users are crucial es te gustber ef cellular phone subscribers has increased significantly over years. Consumers Se pester as the cellular integration will create a more efficient industry and lead to environment. In order to grasp consumers’ interes upgraded quality services are required. sophisticated. ‘Geeeiopmnents a well ns Geographical Expansion and Growth — To create and broaden the geographical CSvetiige network, vba ques accessibility are essential factors. By increasing customor-subscribcrs, onc can increase peetiabity and maximise growth. This provides customers with enlarged capacity from their comsbimed specteums; Celcom"s lower frequency of 990 MHz is hased on the Glohal System far Mei Geeemieieations (GSM) technology and operates in the 1800 MHz frequency spectrum Te i Mikal Gx Glesrer transmission até improved capacity for data transmission capabilities for wider Somerantiics! areas end highly populated areas respectively, According to the MCMC. expanded Sremserimel mctwork coversee ‘will ultimately caver almost 95 per cent of Malayssia’s populated areas wise weulld enable users to ‘make calls in rural arees,TELECON MUNICATIONS SECTOR 3 Economies of Seale Reductions in per ‘The economics of scale would significantly improve sharcholder value in the medium- and longer- lerm and translate into tangible benefits for all stakeholders, customers, shareholders, employees und business parmers. Kor instance, integration of TMTouch-Celcom cellulur network provides & resolution of Celcom’s congestion problems in-view of an expanded handwidth capacity, as well as wider coverage for TM Touch in order to avoid duplication of telecommunications network facilities in the country. 11 cuts down wast init cost and duplication costs followingthe mergers resulted in greater productivity 1c a8 Well as achieves greater network efficiency: 4 Improve Product Quality ‘On the GSM standard, the business vornbination provides the combined entity with the combination of beth platforms - tae Celcom’s GSM 900 platiorm, which has good co veraye in lasge areas, and TM Collular’s PCN 1800 newwork infrastructure, It provides better coverage in high density population areas. A broader range of products und services is made available when the two businesses are integrated Market Share and Monopoly Power With Lower elasticity of demand, the velecommunications player would be able to charge a higher percentage above marginal cost and be in a stronger position to erect effective entry barrers, thereky eohaneing its monopoly position by reducine competition, raining greater market power und grasping a igger portion of the piv. For instance, the merger of Ccleom and TM Cellular has enlarged this new entity. We have witnessed a leap in market share to approximately 37 per cent. This momentous exercise was expected, strategically, to inmprove the pasition in the market share of the mobile market, 6 Increase in Market Value Mergers lead to an increase in the siock market vilustion of the merged firms, Int partners che opportunity to partake in larger business initiatives that ave cost effective, By setting clear comoraie directions and rewarding the achievement of measurable goals, t will be able to bind the larger pal of talenis to achieve operational eacellence, ation creates arvaler value by providing business 7 Reduce Uncertainty Firms face uncertainty in the market. ‘The behaviour of rivals is highly unpredictable, Reducing the number of rivals comespondingly reduces uncertaiity. In addition, fluctuations in national and {international economic activities play havoe oa a firm’s sales, Mergers help to protect against wider changes within the market place. 8 Capital and Operational Expenditure Savings The merged businesses will see significant capital expenditure savings. According ta ING Financial Markets estimates, the combined businesses would have capital expenditure savings of RM8S0 million, RM800 million and RM750 million in 2! 04 andl 2005 respectively. Similarly, substantial reduction in operational expenditure can also be expected by levernging cost synergies in various aspects of operations such s product development, marketing. billing ané IT systems. Apatt fiom that, other impacts of merging include the following: 1 One seamless dual-band network service gives @ much wider coverage, greater bandwidth capacity and better quality services, with domes! network roaming in the interim. For instance, the Domestic Ruaming Service that was launched by Celeom wad TM Touch.84 MALAYSIAN EC 2 Capital and operational savings result from greater evonomies of seale. Henes, possible leveragins cost ctficiencies, sustained growth and enhance profitability. In addition, stromgcorporstcsnd financial governance ensure greater affinity with investing community, resulting im desired vatkastion. 3. Fultils corporate responsibility of spearheading national development and improving the society’ quality of Life by staying in syne with the technology curve, 4 Integration creates areater opportunities and value for customers, business partners and employees. 5 End users have more selection of attractive and competitive products and service for communication needs, For instance, Data Communication Services such as Multimedia Messagine System and 3G Mobile Applications increase voice and data capacity, 6 Allows customers to conduct basic Cross Lill Payment transaction sack as payment of bills and revonnection of barred lines from service centres ‘The merging of TMTouch-Celcom cellular is a ‘symbiosis’ for both companies Nevertheless, the continuous increase in the number of subscribers would lead to bottleneck congestion Thess srs challenges shesd Technically, integrating two different access networks is complicated. ‘The merging of TM-Celoem typscally secorperates different equipment; different vendor equipment was used. TM'Touch frequenily used vendor egespecnt from Nokia, whilst Celeorn deployed Eriessim and Lucent infrastruciure. On the other hand, the tee ef seteeek eveslepping is another aspect to the integration question. Newly fixed infrastructure will he nesded te itercemnect cell sites when there is an overlap besween the twa networks, Therefore, an intemal roaming deal eeeid probably be the most capital efficient means for integration of the two networks. This involves demand for tsssetses = least in the short term, particularly in the operational support systems and billing departments GoveRNMENtT ALLOCATION Since 19608, the share of development expenditute in the various Geegest Miliesa Plans emphasised on infrastructure development, mainly on the transport and power sector Tablle £8 shows se development allocation Tor the communications sector. The government allocated RM73 million under the Seats Misiaysis Plan (1991-95) This was revised in the Mid-Term Review (1983), with an increase of 4.1 percent te RIMS million. For the Seventh and Ligith Malaysia Pim, the revised federal government development allecatins Sie the respective sector had been increased sharply from RM79.2 of the Seventh Malaysia Pian to RMSSS.£ sles of the Eighth Malaysia Plan. The share of develepment allocation to communications in the Malaysis Plame as iscreased to modesnise the commustication network, and thereby contrihuting to the overall development af tie Seis Table 4.8: Federal Government Development Aliecations for the Communications Sector, 1991-2018 owrees Ninth Melaysv Phan 2066-2010 ‘canomie Planing UnitTEL ECOMMUNICATIONS SECTOR 85 Customer SATISFACTION The MCMC has conducted Customer Satisfaction Surveys (CSS) to gauge the levels of satisfaction for cellular and fixed line telecommunications services. A random sample of 2.300 individuals (aged 13 years and above} representing the population of the country in urban and rural areas and a total of 534 business units were covered in the survey for the period ftom 1 March 2003 to 7 May 2003. The scoring index ranged benween 1 (poor) and 10) (e and is known as the Consumer Satisfaction Index (CST). Starting from 2004, the CSI ranges frm a seate of 1 (otal dissatisfaction) to § (tolal satisfaction). ‘The surveys are eartied out in waves and the time frames wre shown in Table 4.10. The results of the CSL are presented in terms of averages (Table 4.9) cellent) CS = (Mean Performance + Mean Overall Satisfaction) + 2 Table 4.9: Consumer Satisfaction Index (CSI) “Cellar phone CSL | DEL CSE Intisidual Sarsors Comment Surieh 785 30ee Ka Somree + Malaysien Communications & Multimedis Co anission {20003} Table 4.10: Consumer Satisfaction Index for Major Fixed Line and Celular Telecommunications Services in Malaysia, 2001-2004 To ee waved | Waveut [owaerit y Wavely |) Wave 5 Wavevt £5] eebetne |e Sepcoet | Martine | SemeOet. |” MneMay —'-Apgativg 52004 fe zaot. | toon |] 20078 [5 2002, 2003 9 TudividuaL Fixed | 7.41 7as 788 198 320 Line CT aay ee Tae eons: Fined Line = oe ‘ Caltstarphone | 3.10 ous 730 7.36 185 (overall) Suurees: Mavavsia Cormmunications & Multimedia Commission, Communications & Mutimedia Figures (various issnost Resulis from Table 4.9 and 4.10 clearly indicate that consumers, regardless of individuals or commercial. are generally satisfied with she services provided by cellular snd xed Tine teleoommunications corpanies in Malaysia with Celcom ranking the highest in the cellular sector (CS! = 8.06), while felekom at the twp spot in the fixed line sector (CSL — 7.47). Roth the telecommunications companies were ranked higher than the industry average in terms of consumers” sarisfaetion86 MALAY’ (AN ECONOMY Another important telocornmunications market that has been liberalised was the Internet service provider (ISP). TMB (under the brand name TMnet) registered significant growth and currently holds 70 per cent of the ISP market shares with a customer base of more than 3.6 million, Reasonable tarils and sliractive promotion packages of Streamyx are major reasons lor the mereasing subscription rates. Lor instance, a 50 per cent discount was given on access charges for ‘Telekorn’s industrial and corporate packages, and a 30 per cent reduction on consumer broadband Inteme. chaeges. Maxis Net did not take off well due to the stiff competition trom two well established ISPs. However, Malaysia's Intemet penetration rare is relatively low (13.9% as shown in Table 4.3) compared to Singapore's with 30-35 per een 2G AND THIRD GENERATION (3G) LICENCE IN MALAYSIA Malaysia has consolidated to three providers of 3G cellularserviees. With increasing purchasing power and inercusing 005, Initially, MEME received denind for promium mobile applications, 2G serviees were first launched in mi five bids for the 3G spectrum. They were Celeom (M) Bhd, TMB, Time dotCom Bhd, Maxis Communications Bhd and E-Touch Sdn Bhd, Generally, ticenses were awarded based on several criteria, namely coverage, capacity for is roaming capacity, financial standing, commitment to industry development, and management and technical expertise, On 31 Iuly, 2002, the MCMC ass two Of the three available 3G speetcum blocks in Malaysia to TMB and the Maxis Communications subsidiary UMTS (Malaysia) Sdn Bhd for a period of 1S years, Prior to this, DiGi had withdrawa from the 3G licence bidding, proclaiming its intention to avoid nework duplication and take a role to compete based on services and applications The E-Touch ids fell shozt on the last Uhre criteria. The merger of Telekom-Celeurn effectiv luded Celcom from receiving a 3G license on anti- competitive grounds, Conceptually utry but the problem with 3Gé is chat: is an ineredibly expensive witeless technolagy, The 3G liven astronomical and the infrastructure required is very costly. thes there is ¢ greater likelihood thet 3G -will be popular among users in the urban areas, Just :ecently, DiGi.Com Bhd hes underlaken a dilutive acquisition of Time dotCom to use the 3G spectrum for RM654.5 million worth of new TiGei shares (ThedgeNasty, 19 Nov 2002) structure sharin, ConcLusIon This evolution was essential to accelerate growth and technological development within the telecommunications indestry in Malaysia as well as to improve the quality of services to users. From the trend, the ability to foom strategic alliances or parmerships with regional players is the key in maintaining an edge over cthers in the longer- term as cross-border (clecommunications trallic is expected to rise, Added to that, the mergers have brought about higher capacity and wider coverage, The rue business of telecommunications industry lies with mobile data. voice services, portals and content. The grewvth opportunty is there and it's up to them to tap the potential. Therefore, voice and data capacity would be the next move, bringing the players towards globalisation.