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1. Malaysian Telecom Overview
2. Infrastructure
3. Key Players
4. Demand and Supply
5. Forecast
6. History

Malaysian Telecom Overview

Malaysia's telecommunications network is more advanced than any other in South-east Asia with the exception of Singapore. In 2000, the number of telephone lines per 1,000 population in Malaysia stood at 210, more than twice of Thailand, and six to eight times that of the Philippines and Indonesia. Use of cellular phones is growing rapidly in Asian countries. In 2000, Malaysia had 4.7 million fixed-line subscribers, and 5.5 million cellular subscribers. Although telecommunications services are excellent and readily available in urban centers, they are fair to poor in many rural locations[1].

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Infrastructure

The Malaysian Government has invested heavily in world-class infrastructure. Malaysia's Multimedia Super Corridor (MSC) is designed to create an ideal environment for ICT-related production as well as provide the backbone for an information superhighway. The network contains a high-speed link (10Gb/s network) that connects the MSC to Japan, ASEAN, the US and Europe, and is capable of supporting extensive public administration, education and business applications. The intent of the superhighway is to provide quality access to global information as quickly and easily as possible. Simultaneously, the Demonstrator Application Grand Scheme (DAGS) is intended to facilitate social and economic progress through the innovative use of ICT. It provides funds for citizens to access the opportunities associated with the MSC and to be involved in multimedia development.

The telephone penetration rate—as a measurement of the ICT readiness of the country—rose from 16.6 percent to 23.2 percent between 1995 and 1999, while fixed lines in the rural areas rose from 5.2 percent in 1994 to 11 percent in 1999. Malaysia is aiming to continue the establishment of basic telecommunications infrastructure, with plans for 250 Internet access points, 250 mobile phones and 500 fixed lines for every 1,000 people within the next 5 years. This is in addition to the development of other primary physical infrastructure, such as power supply, transportation, airports, office buildings and extended business areas[1a].

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Key players
Telekom Malaysia—a monopoly—is largely state-owned. It provides fixed-line and cellular services. The monopoly was ended in 1994 by the licensing of several competitors. Despite competition, Telekom Malaysia remains the dominant provider of fixed-line services with over 95% share of the market. New firms such as Maxis, Celcom, Digi and Time, have tended to concentrate on mobile telephony, raising the number of subscribers from 872,000 in 1995 to 5.5 million in 2000. The ensuing competition has brought lower tariffs and improved service quality[2].

The country's five mobile network operators--Celcom, Digi.com, Maxis Communications, Telekom Malaysia and Time.com—all offer 2.5G services, although demand for enhanced features is constrained by a lack of compatible handsets[3].

Nevertheless, Amar Leo Moggie, the minister of energy, communications and multimedia, has reiterated the government's plan to develop 3G technology in 2002. Plans for auctioning 3G bandwidth are have been carried out in 2002. But industry experts predict that only two or three of the five mobile operators will be permitted to develop the expensive infrastructure required.

Market share of Malaysia's mobile operators, year ending 2001 is Maxis with 28 percent; Celcom with 26 percent; Telekom Malaysia with 18 percent; DiGi with 16 percent and Time at 12 percent.[4]

According to the Multimedia Convergence Act of 1998, all five local telecoms companies, and the Malaysian Institute of Microelectronic Systems (MIMOS), are licensed ISPs. Five of the six ISPs have substantial investments from foreign telecom companies. TMnet is Malaysia's largest ISP, boasting more than 850,000 users and a 70% market share at end-2000. All four ISPs are plagued by problems such as slow service and difficulty logging on during peak times[5].

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Demand and Supply
Malaysia has a relatively elaborate telecom infrastructure. Fixed-line telephones are sparse in comparison to the population that use cellular phones.

Pyramid Research projects that mobile usage will race ahead to 32.2 subscribers per 100 in 2001, while fixed lines will increase to only 24.4 per 100. Government statisticians broadly concur about the explosion of cellular phone use, estimating that 22 percent of the population had mobile phones by mid-2001, and that 30 percent of Malaysians will carry them by 2003[6].

The number of Internet users increased from 13,000 in 1995 to about 3.8m in December 2000. There were five Internet service providers in Malaysia in 2001. The government actively promotes electronic services but keeps a wary eye on the Internet, fearing uncensored criticism[7].

Cyber-cafes are common in Malaysia. They are so popular, in fact - particularly with the nation's youth - that the government decided in June 2001 to mandate a closing time of 1 am.

Forecast

As with market trends in most economies, demand for telecommunications services in Malaysia is expected to continue to expand rapidly over the next five years. Malaysia has a well-developed telecom infrastructure. The number of mobile-phone subscribers overtook fixed-line subscribers in 2001. Despite slower growth in the mobile industry during the next five years, opportunities for development in the regions remain.

Because of slow growth in the mobile segment, suppliers are likely to put their efforts into promoting new services, rather than attracting new subscribers. The move to Internet-enabled video phones technology will be costly. In July 2003 the government announced that Telekom Malaysia, together with Maxis Communications, would spend M$7.5 billion (US$2.2bn) over the next ten years on rolling out the 3G system. Maxis stated that it expects conventional short message service (SMS) operations to continue to provide the bulk of its revenue until 2006. Telekom Malaysia’s objective is to provide 3G coverage for 80 percent of the population by 2010. For the short term, the results for mobile networks are likely to be bolstered by marketing or tie-ins with firms in other sectors, such as banks. Malaysia will remain a Global System for Mobile Communications (GSM) market. Telekom Malaysia will continue to use a code division multiple access (CDMA) network to reach some rural areas in Sabah and Sarawak.

No mobile equipment manufacturer is likely to achieve a dominant position in the next few years. In the past, Telekom Malaysia has bought equipment from a range of suppliers, although its new mobile partner, Time favors Nokia. Maxis has a long-standing relationship with Motorola, but its new partner, Celcom (now part of Telekom Malaysia) has a past history with Ericsson, a mobile systems supplier based in Sweden.

During the next five years, substantial changes in Malaysia’s computer parts industry are certain to occur. According to the Department of Statistics, electrical and electronic products accounted for over 50 percent of total exports in the first half of 2004, resulting in M$114 billion. In 2004-2008 investors will continue to look for lower-cost locations.

The challenge for Malaysia, and for the island of Penang in particular, will be how to best offer firms incentives to stay. Although more firms will probably be attracted to the Multimedia Supercorridor that runs out from the capital, Kuala Lumpur, it is unlikely to become a major regional center for electronics production.

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History

The telecommunications sector is in a state of considerable ferment, as the new operators which have emerged since the introduction of partial liberalisation in mid-1994 compete with each other, and with more established players, for market share. While the supply of fixed lines grew by 18% to 3.93 million in 1996, Telekom Malaysia, the former monopoly provider in which the finance ministry retains a controlling stake, maintained its overwhelmingly dominant position, losing only 1.5% of its market to the five new companies which came on the scene at the start of the year. The essential reason for its continued dominance was the government's decision to defer equal access (whereby Telekom's subscribers would be entitled to use its competitor's trunk and international networks) from July 1996 until January 1999. Telekom's after-tax profits rose by 20.3% to M$1.9bn in the year to end-December, and capital expenditure was projected at M$3bn in 1997 up from M$2.3bn last year.

-- as rivalry for cellular subscribers heats up --

Competition has been far keener in the more liberalised mobile phone market, which expanded by 49% to reach some 1.5 million subscribers last year. Tajudin Ramli's Technology Resources Industries (TRI), which in 1989 acquired Telekom's cellular operations for just M$4m along with a guaranteed three-year monopoly, recorded an estimated 25% rise, to some 840,000, in subscribers. However, a halving of new subscriptions secured by its mobile phone arm, Cellular Communications, to an average of 10,000 per month in July-December, underlined the ferocity of the competition, in the form of massive price discounts, from the six more recent newcomers to this market. The fastest-growing of these, Binariang, claimed in February that it had 170,000 subscribers and was attracting new ones at a rate of more than 1,300 per day.

-- and the government sticks to its guns on foreign ownership

While some of the new entrants are expected to fall by the wayside, independent analysts forecast that the cellular market will grow by at least 30% in 1997 and 20% in 1998. Its buoyancy derives in part from the recent acquisition by overseas interests of sizeable stakes in the most promising players. US West has a 20% share of Binariang, Deutsche Telekom 21% of TRI and Swiss Telecom 30% of Mutiara, another newcomer. While Malaysia is one of 69 countries which has promised to endorse a WTO agreement liberalising basic telecommunications services that is due to come into force in January 1998, the government signalled that provisions requiring that foreign companies be allowed full ownership of independent networks would not be implemented. The present 30% ceiling on foreign shareholdings in locally incorporated telecommunications companies would be maintained, it said. [8]

In late February the government decided to raise the permitted ceiling on foreign ownership of telecommunications companies from 30% to 49%, raising it again, to 61%, in late April. The government claims that the moves are in line with its obligations under World Trade Organisation agreements, and also reflect the government's desire to see the quality of services improve ahead of the January 1st 1999 deadline for the introduction of equal access to fixed-line networks (see below) and the need of many of the companies concerned for fresh injections of capital. The financial crisis has slowed the sector's growth and disrupted expansion plans, particularly of private operators. The weak stockmarket has forced some to postpone plans to raise funds through share offerings, while rising interest rates and bankers' reluctance to lend have constrained their ability to borrow.

-- amid keen interest on the part of foreign operators

Foreign companies may be slow to respond to the initiative. In announcing the raising of the equity ceiling to 61%, the minister of energy, telecommunications and posts, Leo Moggie, added that foreign companies must sell down their stake to 49% again within five years. Interested parties appear to be holding out for more attractively priced equity stakes and awaiting a further shake-out of the industry. With five major telecommunications companies, the number of operators in Malaysia (particularly of cellular services) is widely regarded as too high. [9]

Pressure on the government to find a strategic foreign partner for Telekom Malaysia, the dominant fixed-line provider that wants to significantly increase its share of the fast-growing cellular market, has intensified. Telekom's share price took a battering following the mid-July disclosure that talks on a tie-up with Nippon Telegraph and Telephone had broken down, apparently over the issue of management control. A communications ministry announcement the same month, establishing licensing procedures for companies offering Voice Over Internet Protocol services, presages a possibly significant erosion of its main earnings base. Telekom suffered a 46% year-on-year drop in net profit in January- June, according to figures released in late August. Its cellular division posted yet another loss, even though the number of subscribers more than doubled to 461,000 during the six-month period. Local press reports in mid-November claimed that Telekom had three foreign suitors -- France Telecom, Spain's Telefonica and Hong Kong's Hutchinson Whampoa -- all of them particularly keen on the potential for rapid expansion of its cellular operations.[10]

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