The telecommunication industry Free Essay Example

Introduction

The telecommunication industry is one of the world most competitive industries. The key to becoming a leader in this industry is technology. A well planned technological forecasting allows a firm to lead the race and acquire large market share. Currently, the industry is saturated with wired and wireless telecommunication technology. Malaysia has undergone numerous important physical and structural changes in the past. The period between 1986 and 2000 is where the industry began and boomed, with the country’s telephone penetration rate increased by 540%.

It is in the 1980s where privatization and liberalization of the sector, that brought in an era of regulatory reform and competition.

Development of Industry Structure

Physical Expansion

The infrastructure sector represents a very important part in any country’s economic growth and development, including Malaysia. “The Sector’s share of development expenditure in the various five-year plans implemented since 1966 has fallen in the range between 18 per cent to as high as 34 percent (Lee 2000)”. However before the 1980s most of the expenditure was targeted at transport and power sectors, as a result telecommunications indicators, such as the fixed line penetration ratio, remained somewhat low especially prior to 1980 (see Table 1).

On the other hand cellular phone subscribers after the 1990s was about 84,557, 5.1 million in 2000 and in 2010 was 34.4 million. Regardless of the high achievement in telecom penetration rates there are still areas where the penetration rates are lower than the national average.

Liberalization and privatization

Restructuring in infrastructure started in early 1980s; and due to the encounter of twin deficits and escalating external debts throughout this time, convinced the Malaysian government to arrive at a strategy of encouraging private sector-led growth and development.

The government considered privatization would be the way to ease their administration and financial burden whilst improving the efficiency in the service delivery. Privatization was also important because it brought into light the issue of economic disparity between diverse races in the country. Consequently the government wanted to boost the participation of the indigenous community in typical economic activities.

This mean the government was looking to carry out reforms that were efficient and had equity considerations. It is complicated to determine the degree of clash among these two objectives. “Some critics tend to think that distributive considerations were given more emphasis compared to efficiency objectives. Adam and Cavendish (1995:129), for example, have regarded privatization as the second phase in the New Economic Policy (NEP) where assets accumulated by the government on behalf of the Bumiputeras have been redistributed to individual Bumiputeras and Bumiputera institutions” (Lee 2000).

Development in the telecom sector began in 1983 after the government permitted the private sector to work with Jabatan Telekom Malaysia (JTM) in the distribution of terminal equipment such as phones and teleprinters. Due to a shortage in equipment, and the ability that the private sector can provide a solution the initial liberalize effort came in to action. Many local and foreign companies took advantage of the new market. Liberalization continued as technology developed and the markets open example VANs in 1984 and radio paging on 1985.

As the telecom sector was undergoing liberalization there were already plan in action to privatize JTM; and by 1985 due to a series of legislative changes is was possible to privatize JTM. On 1 January, 1987, Syarikat Telekom Malaysia Berhad (STM) formally took over the operational responsibilities of JTM. Afterward, the government sold 25% of STM’s equity to the public via a public listing exercise in 1990. (With the public listing, STM was renamed Telekom Malaysia Berhad or TMB). After the privatization of TMB, the government continued to liberalize the telecom market even though having significant shareholding interests in the incumbent firm. “Kennedy (1990, 1995) and Gomez and Jomo (1999) have suggested that political patronage was responsible for the liberalization of the sector before and after the privatization of JTM”.

Between the 1993 and 1995 five other licenses to operate fixed line market was approved, and even though this increase in participant s TMB market share was unchallenged because of the cost of building a fixed line from the initial stages is too expensive. TMB’s market share in 2000was estimated to be as high as 96.7 per cent (TIME dotcom 2001: 26).

Cellular phone services have lower start up costs and allow new competitors to progressively expand. Therefore issuance of new licenses brought in new competitors. In 1984 the first cellular phone service was introduced, after that second license was issued in 1988 to a STM subsidiary (STM Cellular Communications Sdn. Bhd.) to offer cellular phone services established on a newer advanced technology. However in 1990 the sold the company and it was rename Celcom Sdn. Bhd. Celcom Sdn. Bhd had a slow start as it was losing to its former subsidiary however within 2 years (1992), Celcom’s subscriber base was 123,330 against TMB’s 83,118. TMB continued to decline as more licenses were issued. They were hanging on to their market share because of the 2 operators had acquired in the market Emartel from MRCB in 1996 and Mobikom in 1998. As mentioned above in the telecom industry technology is the key to becoming the leader, and because of this there is a lot of completion in the cellular phone service market.

Before in 1995 cellular phone companies used first generation platforms and then in 1995 they introduced second generation platforms, this leveled the playing field making it more competitive. “For example Celcom’s GSM services had 25,820 subscribers, Maxis (formerly known as Binariang) had 25,820 and DiGi (formerly Muitara Telecommunications) had 23,878 in 1995. By the year 2000, both Maxisand DiGi had increased their market share in the cellular phone services market substantially to 26.5%and 17.3 %respectively. The market shares of both incumbents (Celcom and TMB) were eroded significantly” (Lee 2000). Innovation and timing are factors as well to this industry, for example DIGI was the first to introduce the popular pre-paid cellular telephony. This allowed them to gain significant market share estimated to be around 40% in 2000. However this been a competitive industry other companies such as Celcom soon followed DIGI.

Finally another form of liberalization is the Internet Service Provider (ISP) market. MIMOS Berhad, a government owned research institute, first provided internet in 1987, nine years later TMB followed and in 1995 five other firm received licenses to provided internet. Out of this five 3 (TIME, Maxis and Celcom) began offering ISP services in 2000. The ISP firms with the largest market shares are MIMOS and TMB with a combined market share of more than 70% in 2000.

Regulatory Development

There are 2 main actions that have considerably altered the regulatory system for the telecom sector in Malaysia have been corporatization in 1987 and the enactment of the Communications and Multimedia Act in 1998 Privatization and the change in regulatory structure

Before 1987, telecommunications service was provided by JTM, and it was regulated by receiving instructions from the ministry. As privatization came along fundamental changes were made. First, the Telecommunications Act of 1950 was modified to make JTM the regulatory authority for the sector. Decisions regarding licenses continued to be made by the METP, as provided for in the Telecommunications Act. Second, the course of the Telecommunications Service (Successor Company) Act of 1985 paved the way for Syarikat Telekom Berhad (STM, the precursor of TMB) to take over the provision of telecommunications services from JTM, which it did in 1987.

In 1994 the METP published a policy titled ‘The National Telecommunications Policy (NTP)’ that contains policies that cover both macro and micro levels, to develop the sector between 1994 and 2020. Some of the most important sectors can be found in pages 9 and 10 in the NTP. The NTP describes the industry structure comprising 2 major components Network infrastructure

Telecommunication services

With the course of the Communications and Multimedia Act 1998 (CMA) 4 years later, the licensing structure was changed.

The Communications and Multimedia Act 1998 (CMA) and the Malaysian Communications and Multimedia Commission In November 1998 METP was changed into Ministry of Energy, Communications and Multimedia (MECM) this was to bring the regulatory structure in order with technological developments, in particular, the union in communications and multimedia industries. In April 1999, the CMC assumed the regulatory mandate for the sector with the passage of the Communications and Multimedia Act 1998 (CMA 1998) and the Malaysian Communications and Multimedia Commission Act 1998(CMCA 1998). This
legislation restructures the regulatory structure by merging many legal statutes and authorities and putting them under one framework.

It is quite influential as the Minister makes all the decisions regarding regulatory policies. “In the case of the issuance of licenses, the Commission administers the application and renewal process and makes recommendations, but the final decisions are for the Minister” (Lee 2000). The CMA 1998 offers for the manner of public inquiries by the CMC on regulatory matters. It allows establishing an Appeal Tribunal to review CMC verdicts and direction when required. Also there is the setting up of industry forums that act as an advice-giving body to the CMC in vital issues such as access codes, consumer codes, content codes and technical codes. CMC is an organization outside the Ministry, unlike the JTM, which means there is larger flexibility with view to regulatory ideas. This is vital as it allows monitoring competition. And as a statutory body it has flexibility in staff employment.

Regulatory Principles
Under CMA 1998, regulatory activities are categorized into:
Economic regulation,
consumer protection,
technical regulation and
social regulation
Economic regulation

The purpose of economic regulation is to make sure that the communications and multimedia industry is efficient. This done by the Implementation and enforcement of 3 types of regulatory policies licensing, competition policy and service access.

“CMA 1998, licenses were issued for four major categories of activities, namely content application services, application services, network services, and network facilities. This new licensing structure takes cognizance of the potential for vertical separation, allowing competition at different levels along the upstream-downstream continuum of the industry (akin to enhancing horizontal competition)” (Lee 2000). Also an Act was added to prohibit anti-competitive conduct.

Consumer protection

It is to make sure that consumers ‘needs in terms of access, affordability, and service excellence are met. Also to solve with important issues such as service quality, required applications services, consumer disagreements, rate regulation and universal service provision. “The CMA 1998 has provisions for market-based rate setting (i.e. cost oriented and no cross-subsidies) but ironically it also provides for the Minister to intervene on this matter. The latter tends to dominate the former thus tariff re-balancing requires Ministerial approval. Equal Access by way of call-by-call which enables subscribers to choose their long-distance (STD) or international (IDD) carrier via dialing of a 3-digit selection code was implemented in January 1999” (Lee 2000). “An even more ambitious version of Equal Access by way of pre-selection which allows subscribers to permanently pre-select the long distance or international carrier without dialing a selection code has been deferred” (Lee 2000).

Technical regulation

Technical regulation is essential to make certain technical interoperability of networks, well-organized allocation of resources and the safety, security and integrity of network services and applications services (Syed 1999).

Social regulation

The influence of reforms has to be assessed alongside the objectives of applying them, namely efficiency and equity. Conclusion
After analyzing NEP, privatization and liberalization, industry regulation and multimedia Act, competition policy of 2010, and a few political factors it is clear that there has been some major improvement and a solid market structure strong competition. Many of the current telecom companies are doing well with increasing revenue.

The telecom industry has now moved on to faster multimedia smart phones and forth generation connections. Additionally there is room for market penetration for example YES 4g an YTL Corporation was founded in 2010, and they are currently doing well. This shows that there no anti-competitive conduct going on.

References

2000c, Process for Assessing Allegations of Anti-competitive Conduct: an Information Paper, Information Paper No. IP/Competition/1/00(1). 2001a, The Regulatory Framework for the Communications and Multimedia Sector in Malaysia, Processed. 2001b, Report on a Public Inquiry under Section 55 of the

2001c, Commission Determination on Universal Service Provision, Determination No. 2 ADAM C. and CAVENDISH W., 1995, ‘Early privatizations’, in Privatizing Malaysia: Rents, Rhetoric, Realities, K.S.Jomo, ed., pp. 219^35, Westview Press, Boulder, CO. Ashoka, ed., pp. 27-49, World Bank, Washington, DC.

COMMUNICATIONS AND MULTIMEDIA COMMISSION, 2000a, Guideline on Substantial Lessening of Competition, Discussion Paper No. RG/SLC/1/00(1). Communications and Multimedia Act, 1998 on a System of Universal Service Provision, No. PIR/USP/1/01, March 12 GOMEZ E. and JOMO K. S., 1999, Malaysia’s Political Economy: Politics, Patronage and Profits, Cambridge University Press, Cambridge. ISAHAK D., 1989, ‘Meeting the challenges of privatization in Malaysia’, in Restructuring and Managing the Telecommunications Sector,B. .KENNEDY L., 1990, ‘Privatization and its policy antecedents in Malaysian telecommunications’, PhD Dissertation, Ohio University. LEE C., 2000, ‘Regulatory reform in the infrastructure sector: the Malaysian experience’, Processed. MINISTRY OF ENERGY, 1994, Telecommunications & Posts, National Telecommunications Policy, Malaysia. NAIDU G. and LEE C., 1997, ‘The transition to privatization: Malaysia’, in Infrastructure Strategies in East Asia: The Untold Story, M. POON W-C, 2000, Regulatory Reforms in the Malaysian Telecommunications Sector, Master of Economics Research Paper, University of Malaya. SYED H., 1999, ‘Communications and multimedia regulation: an overview’, processed. TELEKOM MALAYSIA BERHAD, 2000,1999 Financial Review, Kuala Lumpur. TIME DOTCOM, 2001, Public Issue Prospectus, January.

Wellenius, P. Stern, T. Nulty and R. D. Stern, eds, pp.118^21, World Bank,
Washington, DC