Telekom Malaysia's Many Competitors Make a Crowded Market
International Herald Tribune
June 21, 1995
Michael Richardson 

After collecting six tourists and their guide from a camp on the banks of the Kisab River the other day, Jaafar bin Man set the twin outboard engines on his boat at high speed and reached for the mobile phone hanging on the steering column.

As the motor sent a kingfisher fleeing low over the muddy water, Mr. Jaafar dialed a restaurant near a town some five kilometers (three miles) upstream to book a table for lunch.

Mr. Jaafar, who hires his boat to visitors wanting to travel well off the beaten track, is a keen supporter of Malaysia's telecommunications revolution.

"I use my handphone to take bookings from customers," he said. "And if there was an engine breakdown or an emergency, I could always call for help."

Mr. Jaafar is one of the 1.2 million people who subscribe to a cellular mobile telephone service in Malaysia. A decade ago, there were none; by 2000, there will probably be 2.5 million, if industry predictions come true.

As in many other rapidly growing Asian economies where state-controlled telecommunications monopolies were slow in delivering fixed-line phones, a wireless system also enables Malaysia to catch up with demand by using new technology.

After partly privatizing the government- run telephone company, Telekom Malaysia, in 1990 to make it more efficient, Prime Minister Mahathir bin Mohamad announced in May 1994 that Malaysia's telecommunications market would be opened up to competition.

The liberalization brought a flurry of licenses to new companies, which are vying for a relatively small market among Malaysia's 19 million people.

Telekom now has two competitors that are licensed to provide nationwide fixed- line services. It has seven rivals in the mobile phone business - three already operating and four planning to start this year.

Between them, the 10 firms plan to spend more than $15 billion by the end of the decade, much of it borrowed.

But many analysts said the burst of activity - of so many companies fighting over such a small market - was a recipe for failure, and they pointed out that almost all the companies were run by people who were politically well-connected.

"It's a case of political patronage gone mad and privatization run amok," said a telecommunications analyst for a securities house in Kuala Lumpur. "The only solution is a major shakeout that will result in forced mergers and alliances to reduce the number of competitors."

In fact, investors expecting a squeeze on profits have marked Malaysian telecommunication stocks down sharply over the past year.

For example, Technology Resources Industries - whose Cellular Communications Network had a 78 percent share of the cellular market at the end of March - is trading at around 7.50 ringgit ($3), down from a peak of 14.50 in 1994.

The government evidently realizes that something must be done to avoid some big corporate losses as rival operators duplicate facilities and services in a market too small to yield profits for all.

The Ministry of Energy, Telecommunications and Posts has given service providers until the end of this month to agree on commercial terms to share facilities or face intervention by regulators.

Leo Moggie, the new minister of telecommunications, said: "While we accept the benefits of competition, we do not want to see a situation where competition comes to the point of being wasteful, unnecessary and unproductive. If there are too many network providers, then it will be very costly for the country but equally costly for the potential operators."

Telekom is already negotiating an alliance with one of its two fixed-line rivals, Binariang, which is hoping to launch a communications satellite in December.

Binariang is 20 percent owned by US West Inc.

Some of the cellular service providers have also indicated they are prepared to be flexible.

"We believe that the success of this industry will depend on rational thinking and coexisting with other operators," said Shamsuddin Abdul Kadir, executive chairman of Sapura Holdings, which owns a bit more than 22 percent of Sapura Telecommunications, a mobile license holder.

Analysts said one of the most difficult issues for the rivals to agree on was sharing the costs of interconnection.

The issue is critical for Telekom, the largest company on the Kuala Lumpur Stock Exchange.

Telekom fears that rivals will win easy access to its lucrative domestic long-distance and international networks without being obliged to help pay for unprofitable local services, particularly in rural areas.

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