Telecom Market - Malaysia

MALAYSIAMalaysia covers 328,550 sq km and had a population of 22,229,040 in July 2001. Its GDP for 2000 was estimated to be US $ 223.7 billion (about US $ 10,000 per capita). Malaysia was struck by the Asian financial crisis, which contributed to a severe deterioration in its economic performance in 1998. That year, Malaysia’s GDP fell by 7.4%. It recorded in 1999 and 2000 a growth respectively of 6.1% and 8.3% (and inflation fell from 2.8% in 1999 to 1.6% in 2000). The recent sharp slowdown in the US economy (whose rapid growth during the 1990s provided a large market for Malaysia’s exports), and Japan’s continuing weakening, pose major challenges for Malaysia’s short- and medium-term growth prospects. Indeed, the Asian Development Bank has forecast a growth of 4.9% in 2001, mainly due to the slowdown in exports to the United States, notwithstanding stimulative fiscal measures adopted in March, 2001. Another challenge is the recent accession of China to the WTO. China is a formidable competitor in Malaysia’s export markets, including electronics. It also competes strongly with Malaysia for FDI. Despite a growing fiscal deficit (1.3% of GDP in 1998 and 5.3% of GDP in 2000), the public sector debt appears to be manageable. Total federal government debt to GDP reached 37.1% (compared to 31.9% in 1997) and the Government’s external debt amounted to 5.7% of GDP at the end of 2000. Imports and exports of goods and services were equivalent to 106% and 117% of GDP on average during the period between 1997-2000. Nevertheless, the Asian financial crisis created an impact on the telecommunications sector initially particularly due to the fact that Malaysia is a net importer of telecommunications equipment. However, the quick action to peg the currency helped to cushion the negative impact of the downturn. What did happen was that the telecommunications sector also did not roll out network buildout too much and that sort of stunted the growth of fixed lines specifically. On the mobile site the growth continued because at that time the government removed the price restrictions on the mobile sector enabling the free float of prices for mobile services. That proved to be an impetus for growth in the cellular mobile market. The sector recovered strongly starting from the year 2000. Japan, the United States, Singapore and the EU have been Malaysia’s main trading partners; together they accounted for nearly two-thirds of its imports and exports in 1999. Between 1996 and 1999, the United States’ and EU’s shares of exports rose while those of Japan and Singapore declined. Likewise Thailand, it is difficult to evaluate the telecommunications services percentage in Malaysia’s GDP, for the Malaysian government does not provide the breakdown of all sectors in the GDP. Some enteprise evaluations indicate 2,5 % GDP. Concerning foreign direct investment, the electronics sector has drawn significant flows of foreign direct investment and has grown to account for approximately 2.5% of global electronics production : it has been among the main engines of Malaysia’s TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 1 growth, and its strong external competitiveness was an important factor in Malaysia’s recovery from Asian financial crisis, with the sector accounting for more than half of Malaysia’s total exports. The services sector, which accounts for over half of Malaysia’s GDP, is not yet as open to trade as manufacturing. This is largely because of restrictions on foreign direct investment, which is necessary for the establishment of commercial presence, the main mode of delivery for most services. Commercial presence is generally confined to joint ventures, in which combined foreign ownership cannot exceed 30%. This is the case in the telecommunications sector, though higher level of foreign equity investment may be authorised on a case-by-case basis. The government has had a privatisation programme since 1983 but the Asian crisis has slowed its progress. State-owned enterprises continue to play an important role in the Malaysian economy, notably in the telecommunications sector. Aside from their own operations, some of these enterprises provide finance not just to each other but also to private companies. For example, Khazanah, the investment holding arm of the Government of Malaysia entrusted to manage the assets held by the Government and to undertake strategic investments1, has purchased shares in a private company’s telecom unit. Since its liberalisation the telecommunications sector has changed from a monopolistic one to a more open, deregulated structure. Even after a number of years of competition, Telekom Malaysia, the incumbent operator, remains a dominant player, notably in the fixed telephony services and internet services. It is not a significant player in the mobile telephony anymore. Despite the fact that telephony penetration rate in Malaysia remains low compared to developed countries, some optimistic signs show that telephony penetration rate will grow strongly in the future. Implementation of Equal Access has eased acquisition of potential customers without the need to provide a direct fixed line connection. Furthermore, the increasing mobility and seamless connectivity will drive the growth of the cellular sector. Cellular subscriber base is expected to grow faster than fixed lines. Demand for bandwidth will grow significantly as the new technology brings about convergence in voice, data and video. The big challenge for the telecommunications operators in Malaysia for the future are multiple : unbundling of the local loop and wireless local loop, internet access, competition of voice over IP, convergence fixed-mobile fixed-mobile-data. Currently, there are five subsidiaries and fifteen associate companies under the group. Further, Kazanah has investments in thirteen other companies. These companies are involved in various sectors such as power, telecommunications, broadcasting, automobile, defence related supplies, aviation, airport management, infrastructure and semiconductor. It should be noted that as an investment holding company, Khazanah operates with a small staff, numbering thirty-four in all. For legal and professional services, these are procured from outside to complement the staff resources. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 1 2 PART I : THE TELECOMMUNICATIONS MARKET Chapter 1 - The main EU operators Section 1 – The main manufacturers SIEMENS. Siemens has been active in Malaysia for nearly three decades. Siemens Malaysia is owned 100% by Siemens. Siemens does not produce in Malaysia. It has three kinds of customers and activities in Malaysia : carrier business (mobile operators and fixed line operators). The service offered by Siemens is related to telecommunications infrastructure (conception of the infrastructure, building of the network, training, consultation services); enterprise business. The service offered by Siemens is related to telecommunications equipment (sales). Siemens provides telecommunications equipment such as PBX, PABX, ... Its main client is Jenting; consumers business. Siemens sells mobile devices (GSM 900 MHz- 1800 MHz) through two official mobile distributors : Hello Marketing and Mobile distribution. Its main clients are : Maxis, Celcom, Fibercom (carrier of carrier). Its main competitors are Marconi, Ericsson and Alcatel. ALCATEL. No information. Refused to be interviewed by the consultant. information. Refused to be interviewed by the consultant. ERICSSON. No NOKIA. No information. Refused to be interviewed by the consultant. Other non EU firms are present on the Malaysian market. These are notably Lucent Technologies and Motorola. Section 2 – The main service providers 2.1. The incumbent operator TELEKOM MALAYSIA BERHAD2 (TMB). Before 1990, Telekom Malaysia’s capital was fully owned by the State. From 1990, its capital is partially open to the private sector. The majority of its capital remains in the hands of public or parapublic interests. The bulk of the balance is in private hands. Its major shareholders on January, 2002 were Khazanah Nasional Berhard (35.5%)3, Minister of Finance (20.8%), Employees Telekom Malaysia Berhad is also called « Syarikat Telekom Malaysia ». The words « Syarikat » or « Berhad » meaning : company or enterprise or limited company. 3 Khazanah Nasional Berhad (Khazanah) was incorporated under the Companies Act 1965 on 3rd September, 1993 as a public limited company and commenced operations a year later. Khazanah, a wholly owned company of the Ministry of Finance (Incorporated) is the investment holding arm of the Government of Malaysia TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 2 3 Provident Fund Board (11.4%), Bank Negara Malaysia (8.0%), Permodalan Nasional Bhd (4.8%) and other government-linked funds (5.3%). The number of employees in 2000 reached 24,789. The group’s net profit for the financial year 2000 amounted to RM 697.8 million4 and the company’s net profit amounted to RM 128 million. The group operating income for 2000 amounted to RM 8,815.7 million. The operating income comes from business telephone (39.1%), residential telephone (31.6%), Mobile telephone (11,2%), data services 9.3% and others (8.8%). TMB offers telecommunications services (fixed and mobile telephony services, data services, internet services) and related services (for example, printing and publications, consultancy and engineering services in telecommunications, investment holding, etc.). These services are offered by TMB or its national subsidiaries. Telecommunications services remain however the core business of TMB. TMB’s national subsidiaries are numerous. Among them, one finds Telekom cellular Sdn. Bhd. (provision of mobile telecommunications services through TMTOUCH digital network) ; Citifon Sdn. Bhd. (provision of payphone network services) ; Mobikom Sdn. Bhd. (provision of analog mobile services) ; Fiberail Sdn. Bhd. (jointventure company between TMB and Keretapi Tanah Melayu Berhard which provides telecommunications network related services) ; Telekom Payphone Sdn. Bhd. (investment holding and public telephone services) ; Menara Kuala Lumpur (management and operations of telecommunications tower) ; Telekom Multimedia Sdn. Bhd. (provision of online services using the internet as vehicle) ; Telekom Publications Sdn. Bhd. (printing and publication of telephone directories and distribution of information) ; VADS Sdn. Bhd. (provision of value-added data and electronic telecommunications services) ; etc.. TMB has also foreign subsidiaries or international joint-ventures in Thailand, Ghana (but would like to sell its 25.5% stake there), Sri Lanka, Guinea, South Africa, Bangladesh, Malawi, Cambodia, India. These are mainly mobile operators. 2.2. Fixed telephony operators other than the incumbent operator Today, in addition to TMB, five telecommunications operators are authorised to provide fixed telephony in Malaysia. CELLULAR COMMUNICATIONS NETWORK BHD (CELCOM). Despite its name, Celcom offers fixed services. Celcom was founded in 1989. At that time, it operated with a 900 MHz analog network (Celcom ART 900). In 1994-95, Celcom was granted a entrusted to manage the assets held by the Government and to undertake strategic investments particularly in high technology projects. Khazanah has a eight –member Board comprising representatives from the public and private sectors. The Prime Minister of Malaysia is the Chairman of the Board. The primary objectives of Khazanah are (a) to hold and manage the investments entrusted to it by the government of Malaysia and (b) to undertake new investments in strategic and high technology projects. 4 In June 2002, 1 Euro bought 3.512 Malaysian Ringit (RM), while in December 2000 the exchange rate was 3.234. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 4 GSM license and became in 1996 a 100% subsidiary of the Technology Resource Industry (TRI) group. In 1996, Deutsche Telekom bought 21% of the shares in the TRI group, controlled by Tan Sri Tajudin Ramli (24.3%). TRI is now in a process of a recapitalisation plan to pay the Euro-Convertible Bond (ECB) holders. In 2002, according to the latest news (but it needs to be confirmed), Telekom Malaysia is now the biggest shareholder in TRI, with 26.12%, snapping up businessman Tajudin Ramli’s 13% in TRI, foreclosed by Pengurusan Danaharta Nasional, boosting its total holdings to 15.6%, just behind Deutsche Telekom which owns now 7.99%. Celcom’s turnover for 2001 was between RM 2.2 – 2.3 billion. The turnover for 2002 will probably be RM 2.9 billion. Celcom employs 4,300 persons. Celcom is a fully telecommunications operator with licenses for fixed, mobile, internet, satellite services (whatever national or international services). Celcom is also the official Orbcomm licensee in South East Asia. Orbcomm is a commercial provider of global Low-Earth orbit satellite data and messaging services. The licenses are running until 2008 or later. Its main clients are residential areas, corporate clients, government organisations (like the police). Celcom has also invested in capital of operators in Tanzania and Bangladesh. It has also a national subsidiary “FiberCom” which is a network facility provider. DIGI.COM. This company was known before 1996 as the company « Mutiara ». In 1996, 30% of Mutiara’s capital was acquired by Swiss Telecom. The group’s name was then changed into « DiGi Swisscom ». In October,1999, DiGi Swisscom sold its shares to the Norwegian operator Telenor AG International. In March, 2000, the group was renamed « DiGi.Com. ». Today, DiGi.Com. is held by Telenor AG International (33%) and by a private Malay investor, whose origins are Chinese, called Mr. Vincent Tan. Mr. Tan is the main shareholder of the group “Berjaya”. DiGi.Com. has launched its fixed telephony service in 1999. MAXIS COMMUNICATIONS. Maxis communications, formerly known as « Binariang Communications », was created in 1993. It is a public limited company incorporated in Malaysia. The Maxis Communications shareholders were the group Usaha Tegas (49%)5, British Telecom (33.33%) since October, 19986, Media One International (12.7%) since February, 1995 and Permodalan Nasional Berhad, a Malaysian government investment fund (5%). Mid-2001, British Telecom and Media One sold their shares in Maxis Communications to Usaha Tegas. Today, Maxis shareholders are Usaha Tegas (95%) and Permodalan Nasional Berhad (5%). In June, 2002, Maxis organised an IPO which engendered a very strong interest in the financial markets. Maxis has realised a net profit of RM 130 million in 1999 and RM 350 million in 2000.7 Usaha Tegas Group (composed of Astro, Tanjong, Binariang Satellite Systems, KLCC) is controlled by the businessman Ananda Krishman. 6 Purchase price US$ 680 million (Source Australian Trade Commission 01/2001) 7 Dree – Perspective Malaysie, N° 124, February, 2002. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 5 5 Maxis has also subsidiaries among which Maxis Mobile and Maxis net (ISP). TIME DOTCOM BHD. TIME dotCom was formerly known as TIME Telecommunications Holdings Berhad. On December, 1996 , the Group was incorporated as a public company under the name of TIME Telecommunications Holdings Berhad. At the beginning of 2000, TIME Telecommunications Berhad was restructured and its name changed into TIME dotCom Berhad. The principal activity of TIME dotCom is that of investment holding and provision of management services whilst the principal activities are conducted by its subsidiaries. In March, 2001, TIME dotCom was listed at the KLL stock exchange. For year 2001, TIME dotCom’s turnover was estimated to RM 1,756.1 million, with a net profit of RM 150.6 million. Concerning its shareholders : 25% held by the public (stock exchange), 30% owned by the government, 45% owned by Time Engineering Berhad which is itself owned by the politically well-connected Renong Group, run by an associate of Malaysian Finance Minister Daim Zainuddin. Time Engineering has two activities : on the one hand, telecommunications through TIME dotCom and, on the other hand, power production through EP. The Renong Group is directly and indirectly owned by the government through Khazanah (Ministry of Finance) and Danasa. The turnover amounts to RM 1 billion. 3,200 employees for all the group (including subsidiaries). One third of them work for Time Reach. TIME dotCom offers fixed services but also mobile services, payphone services and internet services through its subsidiaries. No satellite services. Its 100%-owned subsidiaries are : - TT dotCom which provides fixed services (voice, data, video and image communications services through its established domestic and international network) ; - Time Wireless (bought previously from Sapura) which provides voice and data through the cellular network under the brand name TimeCel ; - TimeReach (initially « Uniphone ») which provides payphone services ; - TimeSat which provides data communications facilities and services using satellite, microwave and wireless applications for internal use and not commercial use ; - Time dotNet is the youngest company created in 1999. It carries on the business of providing and marketing of internet services to consumers including providing access to the world wide web, the organisation and aggregation of content, online call centre, on-line services, on-net advertising and virtual data storage and provision of application services including e-mail, chat room, instant messaging, web-hosting and bulletin boards. FIBERAIL SDN. BHD. Fiberail Sdn Bhd is a joint venture company between Telekom Malaysia Berhad (TMB) and Keretapi Tanah Melayu Berhad (KTMB). Fiberail is a licensed network facilities provider exclusively. 2.3. The mobile telephony operators 6 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 In Malaysia, there are five mobile phone operators : TELEKOM MALAYSIA BERHAD. See Point 2.1. TMB has an NMT network. The service transmitted on this network is called ATUR 450 and was launched in 1987. Through its two subsidiaries, that is to say Mobikom et Telekom Cellular, TMB has respectively two other networks : (a) a digital AMPS network whose service called Mobikom was launched in 1994; and (b) a GSM 1800 network whose service, called TMTOUCH, was launched in 1995. CELCOM SDN. BHD. See Point 2.2. Celcom has two networks. A network with the standard ETACS (900 Mhz) whose license was granted on 1st October, 1989. A GSM network. DIGI.COM. See Point 2.2. DiGi.Com. has a GSM 1800 network, whose service was launched on 24 May 1995 (under the brand name 1800). MAXIS MOBILE SDN BHD. See Point 2.2. Maxis Mobile has a GSM 900 MHz network. The service was launched in 1995. TIME WIRELESS SDN BHD. See Point 2.2. TIME Wireless is the mobile subsidiary of TIME dotCom. TIME Wireless was awarded in 1993 a Personal Communication Network (PCN) or better known as Global System for Mobile Communication (GSM) 1800 license to operate a mobile telecommunications service. It launched the service in August, 1995 under the brand name “Adam”. In 2000, Time Wireless renamed its brand name from “Adam” to “TIMEcel” as part of a marketing effort to establish a new corporate identity. 2.4. Trunk radio system operators The operators with a license for providing the trunk radio service are : CT COMMUNICATION SDN. BHD.; FIRENT MANAGEMENT SERVICE SDN BHD.; CMRS TRUNK RADIO SDN. BHD.; COMETRON SDN. BHD.; PAGER COMMUNICATIONS SDN BHD.; ELECTOMS SDN. BHD.; SMEN TELECOMMUNICATIONS SDN. BHD.; SEGI MJU SDN. BHD.; STAR ASSOCIATED SDN. BHD.; SVARIKAT PELATUS SDN. BHD.; TELEKOM MALAYSIA BERHAD; TEXTPHON SDN BHD.; HAGER ELEKTRONIK SDN. BHD.; HURAYASANG SDN. BHD.; NAHAPAS RADIO PAGING SERVICE SDN. BHD.; YAMADA ENTERPRISE SDN. BHD.. 2.5. Other mobile services providers 2.5.1. Mobile data services providers DESTIVISION SDN. BHD.; IMPIANAS SDN. BHD.; SERASI TECHNOLOGY SDN. BHD. 2.5.2. Mobile radiocommunications services providers MHSB RESEARCH & DEVELOPMENT SDN. BHD. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 AND RESOURCES 7 2.6. IP and data services operators The consultant tried to collect information but the Malaysian authorities concerned by the telecommunications sector could not provide us with this kind of information. 2.7. ISPs The ISPs are : MIMOS BERHARD.; DIGI.COM.; MAXISNET which is a subsidiary of Maxis Communications and provides internet services since end 1999; TELEPHONE CORP (NTT); TIME NET which belongs to TIME dotCom and provides internet services since October 2000; TMNET which is a subsidiary of Telekom Malaysia and provides internet services since November 1996 and NTT MSC SDN. BHD. MIMOS BERHARD. Mimos was earlier a division of the Ministry of Science and Technology. In early ’90s, it was corporatised to become Mimos Berhad. Mimos Berhad is an enterprise held 100% by the government ( Ministry of Finance). In 2001, its turnover was RM 96 million. Mimos has two types of activities : Research and Development ( security systems, chips ...) ISP (all aspects of the activity and in a near future voice over IP). Mimos has started as an ISP in 1992 and was the first in Malaysia. As ISP, Mimos operates under the brand name “JARING“. Mimos’ division for internet services has 160 employees. NTT MSC SDN. BHD. This company was established in 1997. It is a wholly owned subsidiary of NTT Communications Japan and has the MSC status. Between 19971999, NTT MSC had an office in Kuala Lumpur. In 1992, NTT MSC moved to Cyberjaya, starting operation there in July. NTT MSC was the first foreign company to start operation in Cyberjaya. 130 employees work for NTT MSC. A majority are Malaysian. Competitors, turnover, market share are considered confidential information and were not communicated to the consultant. Currently, NTT has two kinds of operations : business activities. It consists of providing : global data communications services. The Malaysian does not issue licenses to foreign companies. For this reason, NTT is working with local operators because they have the license. NTT does not own an infrastructure. It leases infrastructure from local operators for providing services. internet based services. 8 - TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 NTT offers frame relay, ATM technologies to multinational companies based in Japan, USA or Europe. These global network services are not supplied by local telecommunications operators here in Malaysia. Competitors are rather multinational companies which have their network and whose number is limited : BT, AT&T, MCI, NTT. R&D. When a company has an R&D activity, it is easier to meet the requirements to get the MSC status. 2.8. Paging services providers The operators that provide paging services are numerous : 600 INFORMATION SERVICES SDN. BHD.; ABC PAGING SDN. BHD.; ALFIN OCEANS SDN. BHD.; ANTARATEK SDN. BHD.; CMRS PAGING SDN. BHD.; CT PAGING SDN. BHD.; DIGI TELECOMMUNICATIONS SDN. BHD.; EASYCALL MALAYSIA SDN. BHD.; ELECTCOMS SDN. BHD.; FARAHAT SDN. BHD.; KILATCOM SDN. BHD.; KOMTEL SDN. BHD.; LEDDER ENTERPRISE SDN. BHD.; MULTIPAGE SDN. BHD.; NAHAPAS RADIO PAGING SERVICES SDN. BHD.; PAGECOM ELEKTRONIK SDN. BHD.; PAGER COMMUNICATION SDN. BHD. ; PENGEDAR BARU SDN. BHD. ; PHENA SDN. BHD.; SARATECH ENGINEERING SDN. BHD.; SKYTEL SYSTEMS SDN. BHD. (associated companies of Telekom Malaysia Berhad); SERTING COM. SDN. BHD.; SIJA SDN. BHD.; SOLE RADIO PAGER SDN. BHD. ; SYARIKAT TELEJAYA BERSATU SDN. BHD. ; TITIAN SEBARAN SDN BHD.; WAKKOM ENTERPRISE SDN. BHD.; “YAMADA PAGING SERVICES SDN. BHD. 2.9. The satellite operators 2.9.1. Telecommunications satellite network providers BINARIANG SATELLITE SATELLITE SYSTEMS SDN. BHD. (BSS). Binariang satellite is a commercial satellite operator. It is a private company whose main shareholder is Ananda Krishnan8 who already controls Maxis Communications Bhd and Astro which is the country’s only satellite television station. Concerning the turnover : Binariang does not want to give it to the consultant. 71 employees work for the company (mainly in the Island of Langkawi). Customers in the region : Ananda Krishnan has a real empire. He made his early fortunes through international oil trading. This business and his connections opened the way for him to set up businesses all over the world. His petroleum trading skills caught the attention of Prime Minister Datuk Seri Dr Mahathir Mohamad who roped him in as director of Petronas between 1984-86. In the 1990s, Ananda ventured into property development. (for example Kuala Lumpur City Centre and the Petronas Towers which are the world’s tallest buildings). He started planning for Malaysia’s first satellite in 1991 and launched it in 1996. Now he has two MEASAT satellites in orbit and plans for a third. Ananda’s main private vehicle is Usaha Tegas Sdn. Bhd. which has a 40% stake in Measat Broadcast Network Systems, the operator of Astro which is fast expanding into other parts of the region. Ananda’s interests strech from Japan to the Philippines and the USA. In Malaysia, besides Maxis and Astro, Ananda’s investments are in gaming and energy. He is the dominant shareholder in Tanjong Bhd., one of the gaming companies in the country and has a few years ago ventured into electricity supply through Powertek Bhd. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 8 9 telco’s operators (Celcom, Telekom Malaysia, the mobile operators, Maxis, National radio networks, direct-to-home in mainly digital video, audio, sound and data); Philippines, Indonesia, Singapor, Vietnam, Taïwan recently. Binariang Satellite is the owner and operator of Malaysia’s first regional satellite system, called MEASAT (Malaysia East Asia Satellite). It has the license to provide telecommunications satellite network services from June 2000. 2.9.2. Mobile satellite services providers CELCOM SDN. BHD.; QUALCOM SYSTEMS SDN. BHD.; SYSTEM IRIDIUM BHD.; TELEKOM MALAYSIA SDN. BHD. 2.9.3.Satellite broadcasting services providers ASIASPACE DOTCOM SDN. BHD.; MEASAT BROADCAST NETWORK SYSTEMS SDN. BHD; CELCOM. 2.9.4.VSAT DARUL LAKSANA SDN BHD.; DIGI TELECOMMUNICATIONS SDN BHD.; SCOPETRADE TELECOMMUNICATIONS SDN BHD.; SUIDAR ELEKTRONIK SDN BHD.; MALAYSIA TELEKOM BERHAD; CELCOM. MALAYSIA SDN 2.10. The publiphony operators CITIFON. Citifon was launched in the end of 1995 and, since the beginning, it was owned 30% by Telekom Malaysia. In April, 1999, Citifon became a 100% subsidiary of Telekom Malaysia. TIME REACH SDN. BHD. This company was known formerly as “Uniphone” and was owned 100% by the Sapura Group. In 1996, the Sapura Group sold 75% of its shares to Time Engineering. Uniphone was renamed Time Reach and became a subsidiary of TIME dotCom. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 10 Chapter 2 – The infrastructures and services Section 1 – The telecommunications infrastructure Malaysia utilises all sorts of technologies such as standard cable, but also optic fibres, wireless transmission, digitalisation, satellite. 1.1. The PSTN infrastructure Telekom Malaysia has a network of 240,000 km, for which Telekom Malaysia utilises a mixture of transmission technologies (including analog copper as well as ADSL). For its PSTN network, a new generation switch plan has been developed to improve the switching capability and to cater the increasing requirement of convergence of multi services on a single platform. For the enhancement of the existing PSTN network, the implementation of the standard V5.2 interface protocol has improved the quality of service. 1.2. The mobile infrastructure BRAND NAME STANDARD LAUNCH MANUFACTURER DATE OF THE SERVICE 1987 Ericsson/Nokia 1995 Alcatel/Nokia OPERATOR Telekom Atur 450 Malaysia Telekom TM TOUCH cellular (subsidiary of Telekom Malaysia) 9 Mobikom Mobikom (subsidiary of Telekom Malaysia) Celcom ART 900 Celcom GSM Maxis Mobile Maxis Mobile (subsidiary of Maxis Communicati ons) 9 NMT PCN/DCS 1800 D-AMPS 1994 Ericsson ETACS (900 1989 MHz) GSM 900 MHz 1995 GSM 900 MHz 1995 Ericsson Ericsson Nokia/Motorola Mobikom is a consortium between Telekom Malaysia, Permodalan Nasional Berhad (abbreviated PNB – which is the equivalent of « la Caisse des dépôts et consignations »), Edaran Otomobil Nasional (abbreviated EON – which is the exclusive distributor for most of the national motor vehicles with the trade mark Proton) and Sapura (which is a powerful Malay conglomerate). The first three have each 30% of the shares, while the last one has 10% of the shares. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 11 DiGi.Com. DiGi 1800 PCN/DCS 1800 Time TimeCel (ex- PCN/DCS 1800 Wireless Adam) (subsidiary of TIME dotCom) Source : Dree.org – Oct. 2001. 1995 1995 Ericsson Ericsson/Motorola Celcom and Maxis have a nation-wide network. Maxis is also considered as the best in terms of customer satisfaction. TIME Wireless’s network coverage is more limited than that of these two operators due to financial constraints. In 1995-96, the network coverage was extended to all major cities and towns in the western region of Peninsular Malaysia and East Malaysia. In 1997, the network coverage was further extended into smaller towns and destinations, improving coverage quality and expanding capacity where necessary. 1.3. Broadband/internet protocol network Telekom Malaysia’s broadband network places importance on the COINS10 network enhancement and expansion, in particular the ADSL, interactive video as well as the internet services. TMNet’s network comprises of more than 155 Mbps for local peering, more than 45 Mbps to the Asian region and more than 300 Mbps to the U.S.A. In addition, an IP backbone, the Hypernet, and an Internet Exchange provide higher speed access to the internet world. The Hypernet backbone runs at 10 Gbps from Penang, Kuala Lumpur to Johor. Telekom Malaysia is still developing its IP network. It should be noted that voice over IP can be transmitted. TIME dotNet’s IP Infrastructure are as follows : the national backbone network consists of 5 Mega Points of Presence (MegaPoPs) linking major cities in Peninsular Malaysia. These MegaPoPs located in Kuala Lumpur, Penang, Ipoh, Kuantan and Johor Bharu are linked via two independent 155 Mbps circuits. The name MegaPoP arises from the fact that all of TIME dotNet’s PoPs are connected via an aggregated bandwidth of 310 Mbps and handle a large coverage area for TIME dotNet’s Local Access Dial-up services. TIME dotNet is also privately peered with ISPs in Malaysia via high-speed links to the Kuala Lumpur MegaPoP. In total TIME dotNet has an installed base of 23,940 RAS ports nation-wide. The RAS may be upgraded for future services like VoIP and Unified Messaging via the upload of software codes to support these services. It may also form the basis of future broadband services. The 5 MegaPoPs enables TIME dotNet’s access dial-up service to cover 80% of Peninsular Malaysia’s populated areas and is accessible via any telephone line. Concerning TIME dotNet’s international backbone, TIME dotNet’s national backbone is connected to the internet through two independent international circuit going into the Kuala Lumpur MegaPoP. The international backbone comprises of a 45 Mbps full duplex submarine fibre link to UUNet and an 8 Mbps link to STIX, an Asian-wide 10 COINS means Corporate Information Superhighway Services which is a data service. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 12 internet exchange with high speed connectivity to Asian countries and also an aggregated bandwidth of 777 Mbps to the US. Celcom owns its own internet infrastructure too. Jaring has PoPs but does not own the fiber. It leases the capacity from Telekom Malaysia, Fiberail, Petronet (subsidiary of Celcom). 1.4. Terrestrial and submarine fiber optic cable systems Malaysia’s terrestrial fiber optic cables are the following : Telekom Malaysia has a network of 240,000 km but this network is not 100% made of fibre optic. Telekom Malaysia utilises a mixture of transmission technologies. Today, Telekom Malaysia’s fiber optic network covers more than 172,000 km comparing to 14,000 km in 1997. TT dotCom's national 100% fibre trunk network (including the last mile) comprises 3,600km of terrestrial fibre optic cable route linking the major towns of Peninsular Malaysia, 8 trunk switching nodes and 2 international gateways belongs to PLUS. Other routes connect Port Klang, Melaka, Kuala Terengganu and Kota Bharu. The national network is also complemented with over 1600km of submarine festoon fibre optic cable backup systems with landing points around the perimeter of Peninsular Malaysia. The combination of submarine and terrestrial cables amounting to 5,200 km provides resiliency along most routes. The national network nodes and trunk switches are located in Prai, Ipoh, Labuan, Shah Alam, Serdang, Melaka, Kuantan and Johor Bahru. The network also covers other cities including Alor Setar, Penang, Seremban, Kuala Teregganu and Kota Bharu. The trunk transmission is provided by an STM-16 mesh network and 7 STM-4 ring systems. The STM-16 links major cities while the STM-4 is used to reach outlying areas. The 8 switches each have a capacity of 23,000 trunk circuits. Remote line units hosted on these switches may be used to provide an initial capacity of up to 100,000 lines per switch. In East Malaysia, the network comprises of a MAN and a switching network in the Federal Territory of Labuan. The network in East Malaysia ties to Peninsular Malaysia via leased circuits. The Metropolitan Area Network (MAN) and Customer Access Network (CAN) complement the national trunk network. The MANs provide fiber based distribution within the central business districts of major cities. Each at the centre of a customer area that normally consists of 5 to 10 buildings located within 1 to 4 km. The copper and fibre cables from the hub to the customer buildings are referred to as the CAN. To comprehensive network, two international gateway facilities augment international telecommunications satellite and undersea cable route. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 13 Fiberail’s 100% fiber optic cable network. Fiberail has been granted the exclusive right by Keretapi Tanah Melayu Berhad (KTMB) to use their railway corridor throughout Peninsular Malaysia for its optical cable network. The fiberail’s fiber optic cable network is a 1,600 km network connecting all major towns in Peninsula Malaysia. It is suitable for the conveyance of data, voice and video. Malaysia’s submarine fiber optic cables are the following : The APCN (Asia Pacific Cable Network). It is a 5 Gbit/s capacity submarine digital cable network connecting nine terminal countries within the Asia Pacific Region, the FLAG Cable Network, China-US cable Network and the SEA-ME-We 3 (South East-Middle East-Western Europe) Cable Network. DiGi.Com. has capacity in the APCN. In 2000, this network was upgraded from a 5 Gbit/s to 10 Gbit/s system having a total capacity of 64 STM1 with a self-healing mechanism. This allows broadband services. The APCN 2 (Asia Pacific Cable Network 2). This is a high-tech submarine cable system with 42 telecommunications companies (notably China Telecom, Japan Telecom, NTT Com, Taiwan’s Chung Hwa Telecom, Singtel, Starhub and Canada’s Teleglobe) to cater the increasing broadband needs in the Asia Pacific. The APCN 2 has an initial installed capacity of 160 gigabit per second (equivalent to 1.93 million phone lines). This capacity would be fully utilised in five years. Applying Dense Wavelength Division Multiplexing technology, APCN 2 has a transmission capacity of up to 2.56 terabit per second, which is equivalent to handling 30.96 million phone lines per second. New investment (US 40.4 million) has been made by Telekom Malaysia on that particular network. In return for its investment, which included a landing station facility in Cherating, Pahang, Telekom Malaysia is provided with a large bandwidth or capacity that can support the information and communications especially those related to Internet, multimedia and e-commerce. Apart from Cherating, there are nine other APCN 2 landing stations : two each in China and Japan, and one in Korea, Singapore, Taiwan, Hong Kong and the Philippines. The 19,000 km long APCN 2 connects Malaysia to these seven countries. Services on APCN 2 were launched on December, 2001. Besides serving the Asia Pacific region, the cable system provides interconnection with the existing cable networks such as China-US Cable Network and US-Japan Cable Network for the traffic bound for the US and other parts of the world. In the North of Malaysia, TT dotCom and Telephone Organization of Thailand (TOT) has jointly constructed a sub-marine fibre optic cable to link the two countries. This connection forms a loop from Kota Bahru to Tak Bai in the East Coast and Kuala Perlis to Satun in the West Coast. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 14 1.5. Satellite infrastructure 1.5.1. Via Intelsat, Palapa, PanAmSat, and Inmarsat Malaysia is using INTELSAT but also the Indonesian PALAPA satellite for the communications with other countries in the region. Celcom through its Kijal Gateway Earth Station provides satellite uplink, downlink and turnaround facilities for occasional and full time video digital transmission services via standard – F2 7m fixed to INTELSAT IOR 64 and standard- F3 9 m steerable to Intelsat but also via 9m C-band antenna to PANAMSAT-2 and PANAMSAT-8. Telekom Malaysia offers also services via Inmarsat (telephony, telex, facsimile, data). 1.5.2. Malaysia’s domestic satellite system The vision to be a developed nation by 2020 has made it imperative for Malaysia to develop its own communications satellite facilities. Malaysia’s first regional satellite system is called MEASAT (Malaysian East Asia Satellite). The MEASAT system includes two high powered HS376 spacecraft built by Hughes Space and communications Company of the US which provides optimum coverage over the East Asian region. Both satellites were launched successfully by Arianespace. MEASAT-1, an hybrid twelve 36 MHz and five 54 MHz Ku-band payload satellite, provides a medium to link Malaysians to one another as well as to East Asian neighbours. It was launched on 13 January, 1996. MEASAT-2 can serve up to four (4) 72 MHz C-band and nine (9) 48 MHz Kuband transponders. MEASAT-2 provides reliable C-band broadcasting and communications in East Asia, Eastern Australia and United States via Hawaii. It was launched on 14th November, 1996. The MEASAT system’s Ku band capacity offers Direct to user (DTU) broadcasting services over Malaysia, India, Indonesia ( Sumatra and Java), Philippines, Vietnam, Taiwan and Eastern Australia. Binariang Satellite Systems Sdn. Bhd. (BSS) is the sole owner and operator of the MEASAT system. In early 2001, BSS entered a joint-venture agreement with Antrix Corporation Limited (Antrix), the commercial arm for the Indian Space Research Organization (ISRO) to jointly own, produce and launch a new satellite to be known as india-Mea Sat (I-MSat). I-M-Sat is intended to be located in the Indian slot, 93.5° East longitude. Antrix and BSS will jointly market the satellite capacity to offer a variety of Direct-to-User video and high-speed internet services into the Asia-Pacific region. I-M-Sat is planned to comprise 24 C-band transponders, each providing 36 Mhz of bandwidth over its expected life span of 12 years. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 15 Malaysia got also a microsatellite, TiungSat, a low-earth orbit (LEO) satellite launched in June 2000 from Baïkonour. This satellite was partially conceived by a local company with public capital. 1.5.3. Earth stations Malaysia has four satellite gateways, namely at Kuantan (which is Malaysia’s first earth station offering international services via Intelsat at 174 degrees East), Lubuan, Melaka and Sematan, which provided connections to countries around the Indian and Pacific Oceans. The communications infrastructure which supports DiGi Telecom International services includes the International Switching Centre (ISC), International Technical Maintenance Centre (ITMC) and two Intelsat Standard A Satellite Earth Stations, BTI-01A and BTI-02A. Additionally, the earth stations are capable of receiving and transmitting television programmes via the 64 Deg. East and 174 Deg. East satellites. TT dotCom has established two international gateways capable of receiving satellite signals. The gateways are located in the International Technical Maintenance Centre, Glenmarie and in the Earth station Centre in Serdang. Celcom is the official Orbcomm11 licensee in South East Asia. Celcom has invested RM30.4 million to build the first Orbcomm infrastructure in South East Asia. This infrastructure comprises the Gateway Earth Station located at Kijal Trengganu and the Gateway Control Centre (GCC) at the MHS Building in Petaling Jaya. This infrastructure was completed in April 1999 and is fully manned by Celcom personnel. The Consultant has no information concerning Maxis. He only knows that all telcos have international gateways. 1.5.4. VSAT There are also two VSAT in the Peninsula. Section 2 – The telecommunications equipment In 1999, office machines, telecommunications equipment and other electrical machines accounted for 57.7% of Malaysia’s exports and 47.2% of its imports. Malaysia’s economy has greatly benefited from the strong growth in demand elsewhere in the world for electronic products, but is also extremely vulnerable to any global slowdown in the demand of such products. 11 Orbcomm is a commercial provider of global Low-Earth orbit satellite data and messaging services. The Orbcomm system enables businesses to track remote and mobile assets such as commercial vehicles, trailers, heavy equipment and fishing vessels ; monitor remote utility meters, oil and gas storage tanks, pipelines and environmental projects ; and messaging services for consumers, commercial and government entities. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 16 From 1995 to 2000, the number of PCs installed rose dramatically from 610,000 to 2.2 million. The number of PCs per 1,000 population rose from 29.5 in 1995 to 95.7 in 2000. PC’s concentration is more in the urban areas, primarily Selangor, FT and Penang which contribute to more than 65% of computer density in Malaysia. In the meantime, the rate of PC penetration per household is still very low, i.e. at 5%. Its main customer is Telekom Malaysia. In October 2001, Alcatel announced that it signed a US$85 million turnkey contract with Telekom Cellular Sdn Bhd (TCSB) to expand the capacity of the operator’s existing GSM800 network and to set up for GRPS by 2002. This contract is the third awarded to Alcatel for TCSB’s network. As a matter of fact, in 1994, Alcatel was commissioned to roll out the first network for US$109 million. In 1998, Alcatel was again awarded a US$143 million three year contract for a major extension of TCSB’s GSM1800 network. The total value of the contracts awarded to Alcatel for this network now amounted to US$337 million. Furthermore in 1992, Alcatel had a contract for the installation of a switching system. ERICSSON. ALCATEL. Its main customers are Telekom Malaysia (contract in 1992 for the installation of a switching system) and Celcom. Ericsson has an experience of over 30 years in building the Malaysian’s telecommunications infrastructure. Malaysia serves as the gateway to the Asia Pacific region for the Ericsson’s specialist. SIEMENS. Its main customer is Celcom. The Siemens Information and Communication Mobile (ICM) Group offers mobile solutions including mobile devices, infrastructure and applications. Devices include mobile phones, wireless modules, mobile organisers, cordless and corded phones as well as products for wireless home networks. The infrastructure portfolio includes the complete range of mobile network technologies from base stations and switching systems to intelligent networks, e.g. for prepaid service. Applications cover UMTS services for Unified Messaging, Location Based Services, and Mobile Payment. A regional centre of Competence for mobile solutions and 3rd generation (3G) networks was also recently set up to develop and provide customised end-to-end mobile solutions and support for the Asia Pacific market. NOKIA. This company has signed with TimeCel on 25th October, 2001 a contract to upgrade TimeCel network, as well as to improve coverage. Section 3 – The telecommunications services 3.1. Fixed services Today, five players hold a license allowing them to provide fixed services. These are : Telekom Malaysia; Celcom; TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 17 Maxis Communications; DiGi.Com.; TT dotCom. In the international services market, the licensed operators are the same. Among the product that are currently offered in the fixed line market are fixed lines telephony, leased circuits, ISDN, ADSL (beginning of 2002) and public payphones. 3.1.1. The quasi-monopoly of Telekom Malaysia The competition on the fixed telephony market is almost absent. Telekom Malaysia, which has the most developed infrastructure, remains the dominant operator, with approximately 96.7% of the market share at the end of 2000. The saldo of 3.3% being spread among all the other operators. Furthermore, in 1996, Telekom Malaysia has got the exclusivity to provide the backbone infrastructure in the Multimedia Super Corridor. In 1999, Telekom Malaysia was also granted the MSC status. Penetration rate for the fixed line services was expected to grow to 22.0 per 100 people by the end of 2001 and to increase to 30.0 per 100 people by the end of 2005. The evolution of Telekom Malaysia between 1996-2000 was as follows : Year ended 1996 1997 31 December 1. Residential 2,738,201 3,052,203 telephone 2. Business 1,033,113 1,170,839 telephone 3. Public telephone 137,707 172,465 4. Telex 4,548 4,095 5. Leased circuits 40,898 46,269 6. Maypac 2,847 2,815 7. Toll Free 1,009 1,780 8. ISDN 1,949 4,576 9. Total access lines 3,771,314 4,223,042 10. Total access lines per100 population 18.4 20.1 Source : Telekom Malaysia, Annual Report 2000. 1998 3,226,879 1,157,269 188,839 3,406 50,636 3,742 1,102 8,866 4,384,148 20.4 1999 3,258,044 1,172,755 162,276 3,196 61,280 2,835 1,295 18,089 4,430,799 20.1 2000 3,405,744 1,228, 601 156,600 2,956 63,527 2,636 1,573 34,512 4,634,345 20.9 The quality of service during the same period was as follows : TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 18 Quality of service 1996 1. Total faults 0.5 report per line 2. Total 6.8 complaints per 1000 lines 95.8 Leased circuits fault restoration (within 24 hours) 1997 0.4 1998 0.4 1999 0.5 2000 0.4 7.1 13.2 10.2 8.3 92.4 98.0 97.3 100 3. Source : Telekom Malaysia, Annual Report 2000. Telekom Malaysia is also the main operator for rural telephony. It is the sole operator to use an NMT technology to connect subscribers located in rural zones through radio waves. For rural zones, this technology is economically more interesting than cable. The penetration rate in rural areas is between 11-12% comparing to urban areas which is between 32-33% Furthermore, despite Malaysia’s technology capacity, the country still lacks the “last mile connection” that will link end-users to the transmission segment of the infrastructure. If there are no problems for developed areas such as Petaling Jaya and Kuala Lumpur which have a penetration rates that match those of developed countries, others areas in Sabah, Terengganu and Kelantan are still lagging in terms of availability and accessibility to basic communications infrastructure. Since 1997, no license for basic telecommunications has been granted. According to an interviewed industry source, the reason is that Telekom Malaysia has a too big market share and it is not a viable business for the others. Malaysia tries to encourage the other operators to roll out fixed services in remote areas but the latter consider, from a business point of view, that it is useless because Telekom Malaysia can reduce prices a little bit and then gets part of the market. That is why, today, for certain operators, fixed services are not a priority. 3.1.2. The other fixed service operators TT DOTCOM. TT dotCom has the second largest market share. TT dotCom which has the only 100% terrestrial fiber optic network linking the main cities of Peninsular Malaysia is considered as the “second” fixed service operator. At the end of 2000, TT dotCom represented 1.3% of the market share (subscribers per equal access excluded). In 1995, TT DotCom signed interconnection agreement with Telekom Malaysia. MAXIS. Maxis has the third largest market share. In 1996-1997, Maxis chose to develop its network through agreements concluded with property developers to provide infrastructures. End of 1997, Maxis had signed 200 agreements. At that time, unlike TT dotCom and Celcom, Maxis chose not to deploy a fiber optic network. It TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 19 led it to lease capacity to TT dotCom, Celcom and Telekom Malaysia. This way Maxis used a system of fibre and coaxial cable. The number of subscribers in August 2000 was 150,000 to 200,000 per “Equal Access”.12 At the end of 2000, Maxis had 1.0% of the market share. Today, fixed telephony is not a priority for Maxis. Like Celcom, Maxis prefers to concentrate on mobile telephony. The remaining operators contributed approximately only 1.0 % of the market share. These are : CELCOM. In 1996, to develop its fixed network, Celcom has chosen a strategy of alliances with other companies in order to deploy its fiber optic cables along their infrastructures (with Tenaga Nasional Bhd. to lay 3000 km of cable, Petronas to lay 1600 km of cable, Sarawak Electricity Supply Corporation to lay 2700 km of cable, Sabah Electricity Board to lay 2000 km of cable). As the other operators, Celcom also signed agreements with property developers to provide infrastructure. Celcom leases also lines and is interconnected to Telekom Malaysia and other operators. With the Asian crisis, Celcom decided to focus on the mobile telephony sector. In 1999, with the Equal Access, Celcom announced its wish to develop again its fixed network but the operator has not implemented the means to reach that objective. In 2001, Celcom decided that it will abandon fixed services. The reason is due to a lack of reasonable business because (a) Telekom Malaysia is in an extremely dominant position and (b) it necessitates to make an enormous capital expenditure in relation to the prices Celcom can get. The unbundling of the local loop has not been granted to Celcom either and this is also the reason why the fixed service business cannot fly. Thus, Celcom for the moment still continues to provide fixed services to its customers but it is not going to marketing or to expand these types of services. DiGi.Com. It has launched its fixed telephony service in 1999. The number of subscribers in August 2000 was a bit more than 39.000 per equal access. 3.1.3. Equal access In 1999, the “Equal Access” was introduced to open the sector to more competition. Equal access is an indirect access to other operators via a carrier selection codes for long distance and international services. It enables users of fixed-line services to pick and choose any carrier of their choice to transmit their communication data (be it voice or simply a facsimile) regardless of whichever operator they are currently using. Concretely, the customer dials a prefix to get, for instance, DiGi.Com.’s or Celcom’s or Maxis’ tariff. The customer is invoiced by DiGi.Com. or Celcom or Maxis. DiGi.Com. or Celcom or Maxis pays something to Telekom Malaysia. Telekom Malaysia sends then an invoice to DiGi.Com. or Celcom or Maxis, as the case may be. According to an interviewed industry source, Equal Access does not work well because the tariffs are not attractive for customers. You have to pay call by call. The liberalisation of the fixed telephony sector, whose objective is to introduce more competition on that market, has been made through the concept of « Equal Access » on 1st January, 1999. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 12 20 This means that Telekom Malaysia invoices for each call and the alternative operator cannot buy minutes in quantity. Furthermore, there is a “determination” by the MCMC which sets a floor on the minimum tariffs for equal access which may be imposed by the telecommunications companies. The floor is currently set at a reduction of not more than 20% of current retail tariffs and is subject to the review of the MCMC. The intention of the price floor is to ensure an orderly transition of the tariffs and to avoid potentially damaging competition for all the telecommunications companies. It does, however, mean that reducing charges as a strategy to gain market share will have limited effectiveness. 3.2. Payphones This market is shared by two players : TIME Reach (initially Uniphone), which is a 100% subsidiary of TIME dotCom. CITIFON, a 100% subsidiary of Telekom Malaysia. Various types of payment medium such as coins, smart cards and major credit cards are accepted. Both companies offer public telephony throughout Malaysia. In 2000, Citifon had approximately 160,000 payphones, with 70% of the market share and a wider coverage than TIME Reach (rural and urban zones). TIME Reach had about 59,000 payphones, with 30% of the market share and focuses more on urban zones. Citifon has installed payphones operating with PSTN as well as wireless technology (Radio-in-the-Local-Loop or RiLL). With the increasing popularity of personal mobile phones, it is expected that the payphone business in general will experience slower growth in the next few years. 3.3. Mobile services13 The cellular mobile market is currently the most dynamic sector of the communications market in Malaysia. One can say that there is full competition and that Telekom Malaysia Berhard (through its subsidiaries) is not a significant player anymore. The number of analog mobile subscribers continues to decrease (ART 900 with 222,600 subscribers in September, 2000 against 775,000 in 1996; ATUR 450 with 55,646 subscribers beginning 2000 against 98,000 end 1996; D-AMPS with 166,000 subscribers in September, 2000 against 251,000 in 1996) while the number of cellular mobile subscribers is increasing. A survey was conducted from February 1 to April 15 by the Communications and Multimedia Commission (CMC) on customer satisfaction for mobile telephone service in Malaysia. On a scale of 1 to 10, with 10 being the top rating, Maxis received 7.39, followed by Telekom Malaysia Bhd’s TM Touch (7.13), DiGi Telecommunications Sdn Bhd (6.96) and Celcom (M) Sdn Bhd’ Celcom (6.75). But the survey showed that Maxis has to improve further on coverage and the other three telecommunications operators - Telekom, Celcom and DIGI - in coverage, capacity and network quality. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 13 21 3.3.1. The players The telecommunications environment in Malaysia is crowded in the mobile sector especially. So, since 1997, no license for mobile telecommunications has been granted. Five big players, after purchase and merging movements in the sector, share the mobile telephony market. They are the five same as for fixed services but most of them act in the sector through subsidiaries. In addition, the market share is spread among them differently than in the fixed sector. They are : Celcom; Maxis Communications (formerly Binariang Communications); DiGi.Com (ex- Mutiara Telecommunications) ; Telekom Malaysia (notably through two of its subsidiaries : Mobikom and Telekom Cellular); TIME dotCom (through its subsidiary Time Wireless). Between 1987 and 1993, only two operators offered analog mobile telephony: TMB through its NMT network and Celcom through its ETACS network. In 1994, Mobikom (bought later in 1998 by TMB) launched an analog mobile service through the standard AMPS. In 1995, the standard PCN (local name for Dcs 1800) was introduced by three operators : DiGi.Com, Sapura (bought later by Time Telekom renamed itself TIME dotCom) and MRCB (which sold since its network called “Emartel” to TMB. TMB renamed it TMTouch). In 1995, the GSM technology is also introduced by Celcom and Maxis, last arrived on that market. 3.3.2. Statistics OPERATOR BRAND NAME AND STANDAR D Telekom Atur 450 Malaysia NMT Telekom TM TOUCH cellular PCN/DCS1 (subsidiary of 800 Telekom Malaysia) Mobikom Mobikom (subsidiary of D-AMPS Telekom Malaysia) Celcom ART 900 ETACS (900 MHz) Celcom SUBSCRI BERS ON 30 SEP. 1997 72,990 55,950 SUBSCRI BERS ON 30 SEP. 1998 62,000 175,000 SUBSCRIB SUBSCRI ERS ON 30 BERS ON SEP. 1999 1st SEP. 2000 64,000 55,646 177,000 579,000 251,990 145,000 136,000 166,000 760,000 439,991 250,000 222,600 248,450 411,381 720,000 977,400 22 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 GSM 900 MHZ Maxis Mobile Maxis 266,910 (subsidiary of Mobile Maxis GSM 900 Communicati MHz ons) DiGi Mobile DiGi 1800 160,000 (subsidiary of PCN/DCS DiGi.Com.) 1800 Time TimeCel 139,770 Wireless (ex-Adam) (subsidiary of PCN/DCS Time Dot 1800 Com) TOTAL 1,956,060 Source : JTM & Analysts. 490,000 609,000 900,000 200,000 500,000 720,000 160,000 110,000 500,000 2,083,372 2,556,000 4,120,646 In 1999, analysts forecast that the number of cellular phone subscribers would reach 6 million in 2005. They were far from the reality. As a matter of fact, the total number of mobile phone subscribers reached 5.1 million14 at the end of 2000 and 6.94 million mid-2001, with a penetration rate of around 30%15. This penetration rate is lower than other countries in the region like Hongkong (80%), Taiwan (75%) and Singapore (60%). The market shares of these 6.94 million in June-2001 were spread between the different mobile operators as follows: Maxis with 28% for post and prepaid services. It is the leader on the market and has alliances with network operators in over 118 destinations and 165 network operators. It offers WAP services and will offer beginning 2002 GPRS services. It expects a growth of 20% to 30% of its subscriber base for 2002; Celcom with 26%. It is the second on the market, while it was still the leader in 2000 with 30% market share; DiGi.Com. through its subsidiary – 18%. Its license will end in 2004; TMB through its subsidiaries – 18%; TIME dotCom through its subsidiary – 10%. Telekom Malaysia quite recently bought a controlling stake in Celcom’s parent TRI. This take-over of TRI places indirectly Telekom Malaysia now in the number one slot as the country’s largest cellular operator in terms of subscribers. The consultant has just been informed that on 31st December, 2001, the number of mobile subscribers in Malaysia has increased to reach the figure of 7.4 million.16 Source : Ministry of Energy, Communications and Multimedia - 2001 Source : PEE of France. 16 Source : Malaysian regulator in the sector of telecommunications (MCMC) and Ministry of Energy, Communications and Multimedia. 15 14 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 23 According to another study made recently, the cellular penetration rate in Malaysia should continue to increase to reach more or less 64% (14 million subscribers) in 200517. Furthermore, always according to analysts, the demographic curb of Malaysia is a positive factor for the mobile market since 35% of the population is under 18 years old. They represent thus an important potential of subscribers in a few years. The challenge for operators is to keep up with the demand and minimise congestion, at the same time expand coverage. It is also expected that cellular sector grows faster than fixed lines. 3.3.3. Services offered The mobile operators offer prepaid and postpaid services. Prepaid services are booming. In December, 1999, classic subscriptions were evaluated at 74,7% of the offer against 25,3% for prepaid offers. In 2000, classic subscriptions were evaluated at 59,4% of the offer against 40,6% for prepaid cards. The factors pushing for the popularity of prepaid include easier connectivity, low handset pricing, no bill, no access fee and no government tax. It is easier to reload and operators are promoting it heavily. Prepaid charges are also coming down an the younger users also prefer prepaid. This success of the prepaid mobile segment has intensified competition in the market. Average revenue per user (ARPU) for the mobile prepaid segment grew to RM 56 from RM 43 in June 2001 and RM 35 in December 2000; while that for post-paid dropped to RM89 from RM98 in June 2001, but was slightly higher from RM 80 in December, 2000. WAP has proved to be a costly exercise that generated little additional revenue in Malaysia. The SMS service, offered since beginning 2000, by the Malaysian operators has become very popular (more than 150% at the end of 2001) and its traffic is increasing. It represents 10% of the revenue of the telecommunications sector. This strong increase of the SMS market can be explained by the signing of agreements between mobile operators, allowing an exchange of SMS between their respective subscribers without additional costs. That’s what the operators have called the “interoperator SMS” allowing their customers to send and receive cross-network text messages. In the fourth quarter of last year, there were about 20 to 25 million SMS messages sent in Malaysia alone18. Furthermore, the GPRS technology should be offered beginning 2002 by most of the operators. That is the case of Maxis which has decided to launch such a service by the first quarter of 2002. In that perspective, the company has signed a partnership agreement with Compaq Computer Corp. Malaysia Sdn. Bhd. for the latter to build the technology architecture for Maxis's next generation internet and data mobility services. For the moment, Maxis ha not decided yet on the charge/fee structure for the GPRS, but they feel the choice will be between packet number of bytes or 17 18 Source : PEE of France. Source : The Star – 14-06-2002. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 24 number of transactions. It also expects GPRS to take off slowly initially, due to lower availability of suitable handsets. Maxis also expects to reach early July, 2002 an agreement with the Japanese mobile phone carrier NTT DoCoMo Inc. in view to offer i-mode mobile phone-based internet service in Malaysia. The firms hope to have the service up and running by spring 2003. 3.3.4. Revenues per subscriber Revenues per subscriber do not seem very optimistic. According to the analysts, the average revenue should decrease 5% a year because of the new clients’ profile. Considering that the penetration rate is important in cities (48%), the future subscribers will be from rural areas, with a purchase power which is less important. 3.3.5. Infrastructure sharing There is no obligation in the law concerning infrastructure sharing. operators intend to do it. However, Now, Celcom, DiGi.Com., Maxis, TimeCel and TM Cellular are finalising agreements on infrastructure sharing to limit the number of structure nation-wide. These agreements comply with the guidelines on permissible radiation level, issued and enforced by the MCMC. They answer, on the one hand, to the public’s concern on the effects of radio frequency waves emitted by radio transmitters and its risk to health, but also, on the other hand, to the fact that telcos have realised that duplication of infrastructure does not make business sense. A preliminary agreement between the operators covered the exchange of telecommunications towers or sites – cost shared -, new towers and rental of towers or sites at an agreed rate. At the Kuala Lumpur Airport, all the operators share the antennas. A meeting has also been held to negotiate the share of antennas on the Petronas tower. One operator will build it (project manager) and each operator pays the costs. So far, the operators have collectively invested over RM 7 billion (US$ 3.63 billion) in setting up telecommunications infrastructure. Infrastructure sharing will certainly allow them to expand their network coverage faster and more cost-effectively. This could also eventually lead to lower costs for consumers. At the question to know if this deal was a precursor to sharing a network for third generation (3G) mobile services, MCMC answered that “it can help the implementation when 3G is implemented”. 3.3.6. 3G licenses TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 25 The formal process commenced on the 5th February, 2002 when a determination19 made by the Minister of Energy, Communications and Multimedia reallocated the frequency bands for spectrum assignments. Two days later, from 7th to 22nd February, 2002, a “marketing plan” was made available to the public for comments. The method chosen to assign the frequency bands identified under the ministerial determination was a “beauty contest”. In that perspective, on 28th February, 2002, an invitation to tender together with an “Applicant Information Package” for purchase were released to the public. The invitation was published in two national language and two English language national daily newspapers during three consecutive days. The invitation was also made available on the MCMC website20. Submissions both in writing or in electronic form for spectrum assignment had to reach the MCMC not later than 12 noon on 29th May, 2002. The applicants for spectrum assignment had to be companies incorporated under the Companies Act 1965. A briefing session on the applicant information package was organised on 27th March, 2002 to answer questions by interested persons. The results were due to be announced on or before 30th July, 2002. Up to three blocks of spectrum were offered at a price of RM 50 million (US$ 13.2 million) per combination set for a period of 15 years21. To this price, an annual fee to be determined by the MCMC once the invoice issued had to be paid to contribute to the maintenance of the spectrum. To be more precise, the spectrum to be assigned consisted of three sets of blocks A, B and C divided into sub-blocks of equal bandwidth of 5 MHz as follows : Frequency band 1920 MHz – 1965 MHz 2110 MHz – 2155 MHz 2010 MHz – 2025 MHz Block A B C Sub-block Divided into 9 sub-blocks of 5 MHz each Divided into 9 sub-blocs of 5 MHz each Divided into 3 sub-blocks of 5 MHz each The above frequency bands had to be allocated on a nation-wide basis and assigned in three combination sets of sub-blocks. Each combination set consisting of three contiguous paired sub-blocks from Blocks A and B and one sub-block from Block C, as more particularly set out below : Combination set SA 1 SA 2 SA 3 19 20 Sub-block 2x15 MHz paired spectrum in blocks A and B; 1x5 MHz unpaired spectrum in block C 2 x 15 MHz paired spectrum in blocks A and B; 1x5 MHz unpaired spectrum in block C 2 x15 MHz paired spectrum in blocks A and B; Ministerial determination on spectrum reallocation, determination No. 1 of 2002. http://www.cmc.gov.my 21 The price is payable as follows : RM 10 million as first payment. The remaining RM 40 million being paid on equal instalments of RM 8 million per year for five years (the first instalment commencing on the first anniversary of the spectrum assignment). Alternatively, the assignment holder can pay a lump sum of RM 45 million being lump sum payment for the price component immediately prior to the issuance of assignment of spectrum. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 26 1x5 MHz unpaired spectrum in block C Applicants might indicate their preference for a particular set. The MCMC, however, reserved the right to decide on the final allocation set. Applicants had to be evaluated on six criteria. Three best applicants had to be selected. They had to score at least 60% of the total 100% of the evaluation criteria weighing points. The criteria and weighing points were as follows : No. 1. 2. Weighing (%) Ability to ensure service rollout and coverage 35.% Capacity, capability and commitment in infrastructure sharing. 20% The key parameters being : (a) sharing or allowing access to the use of airtime and network facilities with other licensees. Details include (i) sharing of physical facilities (i.e. in percentage in relation to number of sites and level of sharing e.g. tower, floor, space, antenna at each site and (ii) network capacity and capabilities (i.e. traffic volume and access conditions to third parties); maximising the use of existing network facilities including existing network capacity and capabilities, existing base station sites, backbones, radio links, etc.. to enhance sharing and reduce duplication of network facilities. Basis (b) 3. 4. Capability and commitment in domestic roaming (between 2G, 12.5% 2.5G and 3G networks as well as between 3G networks). Financial considerations. A financial plan that elaborates the 12.5% applicant’s financial standing and projections had to be provided. The evaluation being based on the following key parameters : (a) good track record such as improved profitability, healthy debt position, strong liquidity; (b) sufficient capital to fund the project roll out; and (c) viability of the project based on wholesale operations. Commitment to industry development. The applicant had to 10% indicate how it plans to contribute towards development in the communications and multimedia industry, in relation to IMT-2000 technologies, applications and content applications services. The key parameters in evaluating this criteria being : (a) promotion of R & D activities; (b) promotion of applications and content services development and commitment to the development of new and innovative business models (for example, wholesale and retail markets); (c) promotion of Small and Medium Industries (SMIs), through strategic partnerships with local SMIs to manufacture or develop equipment, terminals 27 5. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 or applications; (d) promotion of human resource development such as job creation, training programmes, knowledge development, etc.. 6. Management and technical experience. The applicant had to 10% demonstrate that its key management and technical personnel had the necessary experience in the communications and multimedia industry in the last five years particularly in mobile communications. Total 100% Five companies according to a MCMC’s statement were in the running for the granting of spectrum blocks for the implementation of 3G services in Malaysia. The five were : Celcom Bhd. (which is the second largest mobile operator and a subsidiary of TRI) , E-Touch Sdn. Bhd. (which is the dark horse in the race with little known about it except that it was awarded an ASP license in April, 2002), Telekom Malaysia Bhd., TIMESat Sdn. Bhd. (which is owned by Time dotCom group) and UMTS Sdn. Bhd (which is a subsidiary of the largest mobile phone operator Maxis Communications). DiGi.Com. which was earlier tipped to be one of the three successful companies surprised investors by announcing that it had decided to drop out of the race. Finally, on 31st July, 2002, the MCMC announced the award of two (and not three) spectrum blocks. The winners were Telekom Malaysia Bhd. without surprise and UMTS Sdn. Bhd. Commercialisation of 3G services may start end of 2003 or early 2004. Telekom Malaysia has already announced that it plans to roll out a 3G network covering most of the Malaysian population by 2010. According to an industrial source interviewed, by restricting the number of 3G licenses (only two 3G licenses have been granted out of 5 mobile operators), the government intends to put pressure on the operators to force consolidation of their existing network assets. The government has already made it clear that it wants the number of cellular operators reduced to three. As a matter of fact, so far none of the existing telcos are capable to roll out a 3G network alone, except Telekom Malaysia. The investment being estimated at about RM 3 billion but others estimate it at 4 billion22. On the interviewed industrial source’s opinion, however, mergers will be useful not only for 3G but for the mobile sector as a whole. The latter requires these mergers, for there are far too many licenses. Malaysia has 22 million inhabitants and such a population for five operators is too small. No operator can make a profitable business, except if they consolidate. The cost for developing a fibre optic infrastructure has been estimated to cost at least RM 4 billion. RM 2.8 billion for trunk facilities, fibre optics, and electronics and switching equipment to carry traffic from source to base stations, and another RM 1.2 billion for antennae, power and radio equipment for the new radio base stations (RBS). Although a 100% wireless network can be used to carry traditional voice traffic, it is not efficient for broadband delivery. Quality of service in Malaysia is dependent on climate, distance and hops. Furthermore, due to the nature of the new high technologies, more RBS are required given the smaller radius of coverage for transmission to handle terminals compared to GSM technology. 3G also needs a bandwidth of up to 2 Mbps, while existing technology accommodates only 9.6 kbps. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 22 28 In case of consolidation, analysts of the sector estimated a possible purchase of Celcom (strongly indebted) by Telekom Malaysia Bhd. This analysis has been partially confirmed, for Telekom Malaysia quite recently bought a controlling stake in Celcom’s parent TRI and has since moved to consolidate its grip on the company to emerge as the single largest shareholder. This purchase is seen by the analysts as a likely precursor to a merger between virtual fixed-line monopoly Telekom Malaysia and TRI, allowing the former which has a weak cellular arm to challenge Maxis Communications, Malaysia’s leading Mobile phone operator. By succeeding in gaining control of Celcom, the government through Telekom Malaysia is ensconced firmly in the driving seat of the telco sector. This said, a merger between Telekom Cellular (Telekom Malaysia’s cellular arm) and Celcom has also been proposed. If realised, it would be the start of the consolidation of the telecom industry, reducing the number of mobile operators to four. Now the issue of who would take on TIME dotCom Bhd arises. With the only 100% fiber optic network, TIME dotCom is likely to see a boost in demand for its services with the introduction of 3G. With the pressure of Telekom Malaysia becoming a cellular giant, analysts do not preclude some form of alliance between Maxis and TIME dotCom. Furthermore, the Consultant has heard that MobileOne Asia (Singapore) and Vodafone (UK) seem interested by the leader Maxis that British Telecom has left. SingTel is also interested by Maxis. However, non-business interests revolving around matters of national security are likely to continue denying SingTel the missing Malaysian piece to its foothold in Asean countries23. DiGi.Com. cannot take another foreign shareholder unless parent Telenor divests its 61% stake. It should be noted that elsewhere in Asia, Hong Kong awarded four licenses for the minimum price, and set undemanding buildout rules that require networks to cover just half of the densely populated territory’s population by the end of 2006. In Taiwan, however, five winning bidders spent a total of US$ 1.4 billion in a 3G spectrum auction that ended in February and that analysts called expensive. South Korea’s cellular carriers plans to launch commercial 3G services in 2003. 3.4. Paging Paging services were launched in Malaysia 20 years ago. Now, about thirty licences have been issued but these licenses are not implemented by all the licensees. Paging operators generally cover limited geographic zones and international agreements have been concluded. Only four companies offer a national coverage : Komtel; Kilatcom Paging; EasyCall Malaysia; Skytel Systems. 23 SingTel, which is 65% owned by the Singapore government generates more than half of its revenues outside the Republic. SingTel’s investments outside Singapore include Thailand’s leading mobile operator AIS ; the Philippines’ Globe Telecom and India’s Bharthi Group. Las October, SingTel paid US$ 9 billion (US$ 1 = RM 3.80) for Australian Cable & Wireless Optus, after which it paid S$ 1.08 billion (S$ = RM2.09) for a 22.3% stake in Indonesia’s Telkomsel. SingTel name pops up at the slightest hint of every pending telecommunications merger or acquisition exercise in Asia, particularly in Malaysia and Hong Kong where it is yet to have a presence. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 29 Serting Com, whose brand name is Hutchinson Paging, is also a main player on the paging market, though its coverage is limited within the Peninsula. Certain enterprises have also launched a paging service by internet. companies are Hutchinson Paging, Komtel, Skytel Systems. These At the end of 1999, the number of pagers was estimated at 400,000 against 180,000 in 1996. Most of the subscribers are located in the Klang Valley which includes Kuala Lumpur. For 2003, the number of pagers has been evaluated to 600,000. The potential of this market, estimated at 2,000,000 is far from being reached. The expected growth rate per year for the future has been evaluated between 3 % to 5%. 3.5. Satellite communications services Binariang Satellite Systems (BSS) is the sole owner and operator of Malaysia’s first regional satellite system MEASAT. Subsequently, Binariang has been awarded the MSC status on 17th October, 1997. Binariang offers: broadcast services. These include television broadcast through satellite applications. This would permit TV feed both relay and live broadcasting of international programmes. MEASAT also delivers digital audio broadcast that allows radio reception even at the most remote region. Both of these services are registered trademarks for ASTRO. MEASAT is also active in data broadcasting that allows domestic and international news wire services, stocks and financial reports, sports and updates and weather forecasts; internet services. MEASAT provides the necessary links for ISPs to complete their connections. MEASAT has also an internet dial-up speed. Celcom offers satellite service from its own backbone for internal use and commercial use. Celcom has a satellite earth station in Kijka. MEASAT and Intelsat are used. The connection fees are just a little bit expensive. 3.6. Data transmission Research firms are predicting that Asia-Pacific revenues in the business will reach US$ 6.2 billion (US$1 = RM 3.80) in 2006, compared with a mere US$ 17 million in 2000. The data business is still believed to be in its infancy in Malaysia with the current ratio of data to voice being about 30:60, but data is fast catching up. Telekom Malaysia expects the internet revolution and the advent of 3G wireless broadband and interactive services to drive demand for its high bandwidth networks, resulting in its data service business raking in at least RM8 billion in revenue by the TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 30 end of 2006. Currently, Telekom Malaysia’s data business contributes around RM 1.4 billion or 17% of Telekom’s overal revenue.24 3.7. Internet services25 With a population of 22 million, Malaysia had 13,000 internet subscribers in 1995 to about 1.2 million in 2000 (which represented a rate of growth 145.2% per annum) and 1.85 million in November, 2001. This latter figure represents 8.5% internet penetration of the total population.26 According to the Foreign Investment Department, there are 2.4 million internet subscribers with a penetration rate of 10%. The figures concerning the matter are a bit contradictory. In Malaysia, the bandwidth is, for some reasons, currently low at 0.04% penetration rate. This could be a barrier for content development.27 Most of current visitors of cyber cafes in Malaysia access internet for chatting (30%), games (29%), internet surfing, meaning using software (30%), others (26%).28 3.7.1. The market structure The internet was first introduced in Malaysia in the mid 90’s with a government initiative via MIMOS Berhad (Malaysian Institute of Microelectronics Systems) as the sole provider of Internet service, called Jaring. Subsequently, the policy adopted was to allow only the network-based companies to provide internet service. With the implementation of this policy, six network-based companies have been licensed to provide internet service in the country, namely Maxis, DiGi.Com, TT.dotCom, Celcom, Telekom and Prismanet. However, not all these companies have started to provide internet service. Technological advancement has also allowed non-network-based companies to provide internet access to end-users, without having to invest in their own network infrastructure. In line with this trend, and to promote competition and stimulate the growth of internet service in the country for the benefit of end-users, the government reviewed, through a more appropriate regulatory framework29, the existing policy on providing Internet service with a view to minimising market entry requirements. Subsequent to this review, the structure of the internet market has been redefined as follows : a) Internet access service providers 24 25 Newspaper « Business Time », Malaysia, 21st February, 2002. In the CMC 2001 survey, Jaring topped the survey in customer satisfaction for internet service at 7.4 over Telekom’s TMNet (6.62). But TMNet had the highest penetration level at 82% and Jaring (245). The areas of improvement cited for TMNet were ease in logging in, customer service and reliable line connection and for Jaring it was pricing. 26 27 Source : Multimedia Malaysia, vol. 2 – issue 1 – September/October/November 2001. Source : Multimedia Malaysia, vol. 2 – issue 1 – September/October/November 2001. 28 Source : Multimedia Malaysia, vol. 2 – issue 1 – September/October/November 2001. 29 See Part II, Chapter 2, Section 4 of this study. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 31 all companies and operators that provide access to internet through existing infrastructure, whether it is their own or provided by other operators, are known as internet access service providers (IASPs); IASPs provide basic internet access services which will include other standard services; all IASPs need to register with the MCMC as a class licence holder for the applications service and to pay the annual registration fee. b) Network service providers Network service providers (NSPs), which provide bandwidth requirements to support the connectivity of the various IASPs, can also provide internet access. In addition to the NSP license in the category of individual license to provide connectivity, the NSPs need to register as applications service providers (ASPs) in the category of class license to provide internet access. c) Network facilities providers Network facilities providers (NFPs) or companies which own and operate the necessary infrastructure like leased lines and other facilities to support the network services are also eligible to provide internet access. In addition to the NFP license in the category of individual license to provide either each or both network facilities and services, the NFPs need to register as applications service providers in the category of class license to provide internet access. d) End-users services Companies which provide other standard services through existing internet access such as e-mail, internet content, mailing addresses, transaction and portal services and others are exempted from licensing. e) Way to access to the internet There are four different ways to access the internet : “Dial up access” via the PSTN or the ISDN networks; Broadband internet access through a Hybrid Fiber Coaxial network or through Asymetric Digital Subscriber Loop; Leased line access; Access via a mobile (WAP), using the GSM technology. e) The current players now on the Malaysian Market Provider Mimos (Jaring) 1996 50,176 1997 100,103 1998 155,000 1999 255,105 2000 2001 345,711 500,000 (until 30 (until 32 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 TMnet 13,769 105,000 250,000 408,911 Maxisnet - - - 5,063 TIME dotNet Celcom DiGi.Co m. NTT Source: Communications and Multimedia Commission – Annual Report 2000 – for the figures until 2000. TMNET. TMnet is the leader on the market. TMnet was formed to spearhead the internet services in Telekom Malaysia Berhad. In essence, TMnet refers to the computer network developed by Telekom Malaysia Berhad to facilitate the provision of access to the Internet for the entire nation. TMnet’s service was launched in 1996. TMnet had 1.2 million subscribers in September, 2001 and 1.27 on 31st December, 2001, which represents 70% of the market and a penetration rate of about 5.7%. TMnet has launched end of 2001-beginning of 2002 a broadband internet access through a network using ADSL technology. It offers voice over IP. TMnet differentiates its offers depending on the technology used. In 2000, Internet represented less than 1% Telekom Malaysia’s revenue. For 2004, Telekom Malaysia has forecast that internet and multimedia will amount to 30% of its revenue. MIMOS. Mimos which operates internet service under the brand name of “Jaring” has the second position on the internet market. Its assets are a good quality of service, a network with a wide coverage in urban and rural zones and a relatively stable customer base. Jaring will offer in the future voice over IP. According to Mimos’s division for internet services, Jaring has 500.000 subscribers beginning March, 2002, is behind Telekom Malaysia and has 27% market share. Compared to the other ISPs, Jaring is just an ISP while the others are at the same time ISPs and telecommunications operators. Jaring differentiates its offers depending on the fact that the customer is a enterprise or a private person.. Maxis net. Maxis occupies the third position on the internet market. Maxis launched a free service in March, 2000. Before October, 2001, it had approximately 2% market share. In October, 2001, Maxis started charging fees for its previously free internet access service. Consequently, the number of Maxis net accounts dropped dramatically. Now, it has 15,000 internet users. The company targets to reach 140,000 to 150,000 internet users by the end of 2002 thanks to their new valuebased model. TIME DOTNET. Subsidiary of TIME dotCom, TIME dotNet has launched its internet service in October, 2000. The operator was hoping to gain about 500,000 subscribers. The advantage of TIME dotNet is that it is backed by TT dotCom’s extensive 100% digital network which enable the subscribers to have fast and reliable TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 Nov.) March) 782,810 1,270,000 (until 31 (until oct.) Dec.) 280,609 15,000 (until 23 (until Feb.) Nov.) - 33 access to internet. Furthermore, with MegaPoPs links, TIME dotNet’s subscribers are assured of an extensive IP infrastructure nationwide. TIME dotNet’s dial-up access services covers 80% of populated areas in Malaysia and is accessible via telephone line. As the new technology brings about convergence in voice, data and video, demand for bandwidth will grow significantly. With its own fibre optic trunk network which is upgradeable to IP platform, the TIME dotCom group is in a strategic position to fully exploit this potential. It could eventually emerge as the principal fibre optic carrier of high speed data and wholesaler of bandwidth in Malaysia as well as an alternative to Telekom Malaysia in all aspects of telecommunications. NTT. This company was granted in October, 2000, a licence to provide internet access. It was the first foreign group to benefit such opportunity. NTT began to operate in November, 2000 through its Malaysian subsidiary NTT MSC Sdn. Bhd under the brand name “Arcnet”. NTT was hoping to gain between 5,000 to 10,000 subscribers during the year 2001. Celcom. Limited information. Celcom has a portal “Malaysia on the net” which proposes notably enterprises’ webhosting. DiGi.Com. No information. 3.7.2. Voice over IP (VoIP) In the past, only fixed-network telephone companies were allowed to provide the VoIP service. However, the policy was reviewed due to the growing popularity of such a service in Malaysia. It has been recognised that there are currently two ways of how this facility can be provided : PC to PC-based or what is popularity know as internet telephony. Phone to phone-based through Public Switched Telephone Network (PSTN) which involves multistage access dialling. This is commonly known as Voiceover-Internet-Protocol (VoIP) or IP telephony. Based on these modus operandi, the Ministry has taken the following policy positions: Since the PC to PC-based internet telephony does not involve the PSTN, the provisioning of this facility through this mode will not be subject to licensing. The general public is free to use the facility. However, in the case of VoIP, since the PSTN is a regulated service, and calls originate from and terminate at the PSTN through the VOIP mode, it will be subject to the normal regulations. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 34 Effective from 1st April, 2002, companies which provide VoIP services are required to have an applications service license in the category of individual license. 3.7.3. The internet DESA and PC for Community projects The internet DESA project spearheaded by the Ministry of Energy, Communications and Multimedia is devoted to increase the internet penetration rate among Malaysians. Likewise, the PC for Community Project concerns the donation of PCs by operators to underprivileged communities in a effort to bridge the digital divide between the haves and havenots. 3.8. E-commerce A study on Electronic Commerce Strategic Directions for Malaysia was undertaken and was completed in February, 2000. This study underlined the importance of having a critical mass, building trust to conduct business on the web, attracting inbound customers, transforming organisations as well as enhancing policy and regulatory framework. Specific initiatives were recommended and these included online trading post, integrated logistics hub, encryption technology development, intellectual property management system and internet exchange. The implementation of these initiatives was aimed at positioning Malaysia as an e-commerce hub in the global market space. Several private sector initiatives have been implemented. Local companies have started doing business online through e-commerce-enabled websites. These companies cover various industries such as retail entertainment, software, travel and auctions. Examples of e-commerce businesses included Mall of Malaysia, Asia Travel Mart, Lelong.Com and Cyber Music Asia. In order to support the development of e-commerce, the Bank Negara Malaysia has designated Malaysian Electronic Payment Systems (MEPS) to build and operate an online payment gateway between consumers and merchants for online transactions over the internet. MEPS, owned by about 27 local financial institutions, uses the Secured Electronic Transaction protocol as the standard for payment. MEPS also enables transactions to be conducted using the Secure Sockets Layer protocol. As part of the effort to promote and encourage e-commerce, various laws and regulations have also been enacted to regulate activities in cyberspace : The 1997 Digital Signature Act, No. 562, provided an avenue for secure on-line transactions through the use of digital signatures. Under this Act, the Controller of Certification was appointed on 1st October 1998 to monitor and license recognised Certification Authorities. By the end of 2000, two companies were authorised to verify transactions through providing digital certificates, namely Digicert Sdn. Bhd. and MSC Trustgate Sdn. Bhd. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 35 The 1997 Copyright (Amendment) Act. This Act aims at ensuring protection of intellectual property rights for companies investing in the ICT and multimedia environment. Other acts including the 1997 Computer Crimes Act, No. 563, to provide for offences relating to misuse of computers; the 1997 Telemedecine Act, No. 564, to provide a framework for licensed medical practitioners to provide telemedical services. To build trust and confidence in e-commerce, including security and privacy for consumers, a law on personal data protection will be introduced. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 36 PART II THE NATIONAL TELECOMMUNICATIONS FRAMEWORK Chapter 1 – General overview Until 1963, the telecommunications sector fell mainly under the responsibility of British expatriate personnel. In 1963, the ministry of infrastructure took the charge of the sector and efforts were made to train local personnel. In 1978, behind schedule with equipment and deployment of the network, Malaysia decided to create a specific ministry : the Ministry for Energy, Telecommunications and Posts. As from the 1st January, 1987, Malaysia undertook to deregulate its telecommunications industry. The first step consisted in the separation between the function of operator and the function of regulator. Two separate entities were created for that purpose. The first one, called Jabatan Telekom Malaysia, was attributed the function of regulator. The second one called Syarikat Telekom Malaysia (or Telekom Malaysia Berhard) was attributed the operations of telecommunications activities reserved until then to the Ministry in charge telecommunications and was granted at the same time two licenses : one for the provision of fixed telephony services, another one for international communications. The capital of this company, owned 100% by the State, would be offered to the public in 1990. The second step consisted, from October 1989, in the implementation of a policy aiming at opening the industry to more service providers and at granting licenses in that perspective. This policy knew its peak during the years 1993-1995 (15 licenses were granted, among which 8 were attributed to new entrants). In 1996, however, the Malaysian government recognised that if this policy had been useful to introduce a high degree of competition, it had also been excessive. Several networks could not take off in terms of subscribers and seemed devoted to disappear. Consequently, the Malaysian government, in view to rationalise the sector, expressed its will to have emerged three major actors : Telekom Malaysia, Celcom ad Binariang. The others operators being incited to incorporate into one of these three poles. The negotiations undertaken between operators to reach this governmental purpose failed, however. So, considering this failure and to avoid the prolongation of uncertainties on the sector, the Malaysian government gave up its plan to force telecommunications service operators to merge, but maintained a freeze on the attribution of licenses. In 1996, the Multimedia Super Corridor (MSC) was established with a view to making Malaysia a major global player in the field of information and communications technology. The Corridor is 50 km long and 15 km wide stretching from Kuala Lumpur City Centre in the north to the Kuala Lumpur International Airport at Sepang in the south. Within the Corridor, investors are eligible for duty-free imports of multimedia equipment, income tax exemption, and investment tax allowance up to ten years; 100% foreign ownership is allowed, fast-track processing of visas for foreign professionals apply, and there are no restrictions on the number of foreign TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 37 professionals that can be employed per company. The government has articulated the development of the Multimedia Super corridor around 6 projects or flaghips (electronic government; multi-purpose card; smart school; telehealth; R&D Cluster; EBusiness). In 1998, with the convergence of the telecommunications, broadcasting and information technology, a new institutional and regulatory framework, based on the notion that the traditional market structure has now developed into a single market, has been put into place : The Ministry of Energy, Telecommunications and Posts is restructured and renamed the Ministry of Energy, Communications and Multimedia. The Post is transformed into an independent department within this ministry. Furthermore, two new Acts are enacted to deal with convergence. These new Acts are the following. The “Malaysian Communications and Multimedia Commission Act (MCMCA)”, No. 589, which entered into force in November 1998. It creates the Malaysian Communications and Multimedia Commission (MCMC) with powers to supervise and regulate the communications and multimedia activities and to enforce the Communications and Multimedia Act. This MCMC became effective on 1st April, 1999 and replaces the previous two separate regulatory bodies for broadcasting and telecommunications, namely Jabatan Telekomunikasi Malaysia and the Ministry of Information (Kementerian Penerangan). The “Communications and Multimedia Act (CMA)”, No. 588, promulgated on first April 1999, which repeals the 1950 Telecommunications Act and the 1988 Broadcasting Act. The CMA came into effect on 1st April, 2000. The CMA responds to the requirements of regulating the converging communications and multimedia industries and is also at the same time the instrument to support the national policy objectives for the communications and multimedia industry. According to this Act, the definition of “communications” means : “any communication whether between persons and persons, things and things, or persons and things, in the form of sound, data, text, visual images, signals or any other form or any combination of this forms”. The main provisions of this Act concern : establishment of a new and more open licensing framework; possible establishment of an Appeal Tribunal to review a particular matter under a license, the CMA Act or its subsidiary legislation; establishment of the role, functions and powers of the authorities playing in the new institutional framework (the Ministry of Energy, Communications and Multimedia, the Malaysian Communications and Multimedia Commission newly created, the Tribunal of Appeal to be created, etc..); regulate online services, such as internet, which were not regulated previously; establishment of protection against abuse of market power and anticompetitive behaviour; 38 - TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 - establishment of provisions for consumer protection. The CMA covers only networked services since non-networked or electronicmedia services are covered by other legislation such as the Printing and Publication Act (for the print media) and the Films and Censorship laws for the film industry. The CMA does not either affect the general application of existing laws on national security, illegal content, defamation and copyright which are still applicable to all forms of content, regardless of how it is transmitted. Chapter 2: The current regulatory framework Guidelines for regulating the acquisition of assets, or any interests, mergers and take-overs of companies and businesses. Communications and Multimedia Act 1998. This 1998 Act repealed the 1950 Telecommunications Act and the 1988 Broadcasting Act. Communications and Multimedia Commission Act. Communications and Multimedia (Technical standards) regulations 2000. Communications and Multimedia (Licensing) regulations 2000. Communications and Multimedia (Spectrum) regulations 2000. Section 1 – Relevant authorities and their competences 1.1. The Foreign Investment Committee (FIC) The FIC is composed of a Chairman who is the special Economic Adviser of the Prime Minister. The other members are : the Secretary-General of the Treasury, the Governor of Bank Negara Malaysia; the Director-General of the Economic Planning Unit; the Secretary-General of the Ministry of Trade and Industry, the Chairman of the Malaysian Industrial Development Authority and the Registrar of Companies. Its Secretariat has been established in the Economic Planning Unit (Prime Minister’s Department). The FIC is responsible for major matters on foreign investment.30 Its functions are : to formulate policy guidelines on foreign investment in all sectors of the economy and to ensure the fulfilment of the objectives of the New Economic Policy; According to the Embassy of France in Malaysia, the authority to be consulted to get information on foreign investment for telecommunications services in Malaysia is the FIC (which depends on the Prime Minister) and not the Malaysian Industrial Development Authority (MIDA – which depends on the MITI). All investment policies relating to manufacturing projects are implemented by the MIDA. The MIDA serves as a one-stop investment approval agency for practically all domestic and foreign-owned investments in the manufacturing sector . It can propose the granting of a broad range of tax and non-tax incentives, and can also propose the granting of tariff protection to what are considered to be « deserving infant industries » ; the Ministry of Finance is the final arbiter on these matters. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 30 39 to monitor the progress and help resolve problems pertaining to foreign private investment and to recommend suitable investment policies; to supervise and advise Ministries and Government agencies concerned on all matters concerning foreign investment; to co-ordinate and regulate proposals for the acquisition of assets or any interests, mergers and take-overs of companies and businesses in Malaysia; to monitor, assess and evaluate the form, extent and conduct of foreign investment in the country and to maintain comprehensive information on foreign investment. In other words, the FIC is responsible for the implementation of the Guidelines concerning the acquisition of assets, or any interests, mergers and take-overs of companies and businesses. 1.2. The Ministry of Energy, Communications and Multimedia (MECM) The MECM was established on November 1, 1998 through a restructuring of the previous Ministry of Energy, Telecommunications and Posts. The Minister is responsible for defining energy and communications (telecommunications, broadcasting and the Internet) policy. He grants licenses based on the regulator’s recommendations. It also makes regulations on the MCMC’s recommendations on notably : the procedures for the MCMC and the Appeal Tribunal in the exercise of their powers and functions; the form of, and requirements for, written authorisations, assignments and licenses granted or issued; the procedures for the assignment of rights to the spectrum or numbers; any fees, charges or rates to be imposed; the procedures for the implementation of a system of universal service provision, including but not limited to the quality of standards; the procedures for the use of network facilities, network services, applications services and content applications services in emergency or distress situation; any other matter for which the CMA makes express provision (for example concerning spectrum, numbering and electronic addressing, technical standards) or other matters necessary for giving full effect to the provisions of the CMA. The Minister may also give directions31 or determinations32 to the regulator for the telecommunications and multimedia sectors, as well as make a declaration33 to an According to Section 6 of the CMA, the notion « direction » means : « a direction issued by the Minister under section 7, or by the Commission under section 51 ». Section 7 foresees that « (1) The Minister may, from time to time, issue directions to the MCMC on the exercise of the MCMC’s powers and the performance of the MCMC’s functions and duties .., whether of a general character or otherwise. (2) Any ministerial direction shall TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 31 40 individual license or a class license to impose conditions or to grant benefits if he deems fit. 1.3. The Malaysian Communications and Multimedia Commission (MCMC) The MCMC, created in 1998 by the “Malaysian Communications and Multimedia Commission Act, No. 589, was formed on 1st November, 1998. It began to assume its responsibilities on 1st April 1999 when the 1998 Communications and Multimedia Act became effective. The MCMC has taken the place of two former regulatory bodies : the Telecommunications Department (Jabatan Telekomunikasi Malaysia) which regulated the telecommunications industry and the Ministry of Information (Kementerian Penerangan) which regulated the broadcasting industry. Thus, it has become the sole regulatory authority for all aspects of the communications and be consistent with the object and provisions of the CMA which are relevant to the particular matter of activity. (3) The MCMC shall exercise its powers … in a manner which is consistent with a ministerial direction. …. ». The consultant has requested more explanation. The answer received was the following : « Ministerial directions allows the Minister to take quick decision process. The Minister takes a lot of decisions, but if he disagrees, he must motivate its decisions. ». This explanation is not illuminating. The consultant did not insisted It should be noted that according to Section 51 of the CMA : « The MCMC can also, from time to time, issue directions in writing to any person regarding the compliance or non compliance of any license conditions, and including but not limited to the remedy of a breach of a license condition, and the provision of the CMA or its subsidiary legislation …». 32 According to Section 6 of the CMA, the notion « determination » means : « a determination made by the Minister under Section 10, or by the Commission under Section 55 ». Section 10 foresees that « (1) The Minister may, from time to time, determine any matter specified in the CMA as being subject to ministerial determination, without consultation with any licensees or persons. (2) Any determination shall be consistent with the objects and provisions of the CMA which are relevant to a particular matter or activity. (3) The MCMC shall exercise its powers … in a manner which is consistent with the determination. (4) The Minister shall provide a copy of the determination to the MCMC as soon as practicable. (5) Every determination shall be registered by the MCMC.». Section 55 of the CMA adds that « (1) The MCMC may, from time to time, determine any matter specified in the CMA subject to the MCMC’s determination. (2) The MCMC may conduct an inquiry to decide whether a determination should be made either (a) in response to a written request from a person or (b) on its own initiative. (3) … The MCMC shall not conduct an inquiry unless it is satisfied that the matter is of significant interest to either the public or to current or prospective licensees … Within forty-five days from the conclusion of the inquiry, the MCMC shall determine the matter. (6) Any determination by the MCMC shall be consistent with the objects of, and any requirements provided in, the CMA which are relevant to the particular matter or activity. (7) A determination made by the MCMC … shall be registered as soon as practicable. ». According to Section 56 : « … the MCMC may modify, vary or revoke a determination, in response to a written request or on its own initiative. ». 33 According to Section 6 of the CMA, the notion « declaration » means « a declaration made by the Minister under Section 13 ». Section 13 foresees that « The Minister may, from time to time, make a written declaration that an individual license, or a class license (a) is subject to such conditions ; or (b) enjoys such benefits, as the Minister deems fit. ……. (3) The Minister may also make a written declaration to exempt a licensee from complying with any conditions of a license. …. (4) Before making a declaration, the Minister shall give the affected licensees written notice of his intention to do so together with a draft copy of the declaration, and the licensees may make submissions to the Minister by submitting them to the MCMC within the time period specified by the Minister …. (5) The Minister shall on the recommendation of the MCMC decide on the next course of action, taking into consideration any submission made by the affected licensees. …… (6) The Minister shall give the affected licensees a written notice of the declaration as soon as practicable. ……. (8) The MCMC shall exercise its powers … in a manner which is consistent with the declaration. ». Section 14 adds that « The Minister may at any time modify, vary or revoke a declaration regarding a license ». TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 41 multimedia sectors (including overseeing the IT industry and regulating on-line services). 1.3.1. Composition and appointment The MCMC consists of the following members: the Chairman; Dr. Syed Hussein Mohamed is the first Chairman of the MCMC. Prior to his appointment, he was a member of the Telekom Malaysia Berhad Board for Directors for nearly 12 years; for half of that time he served as Executive Director. one member representing the Government; and not less than two but not more than three other members. Before their appointment by the Minister of Energy, Communications and Multimedia, each applicant must make a statutory declaration on whether they have interests in any undertaking involving communications and multimedia activities. This declaration must also be made in case a member of the MCMC acquires such interests during his mandate. The Minister will then take the matter into consideration. The MCMC members are appointed for a term of not less than two years but not more than five years. They are also eligible for reappointment, but no member shall hold office for more than two successive terms. 1.3.2. The missions According to the 1998 MCMCA, the role of the MCMC is broadly fourfold : an advisory role towards the Minister on all matters concerning the national policy objectives for communications and multimedia activities, including reforms; a regulatory role (implementation and enforcement of the provisions of the communications and multimedia laws, as well as supervision and monitoring communications and multimedia activities); a promotion role in order to encourage self-regulation in the communications and multimedia industry; a development role in order to bring changes to Malaysia and bring Malaysia up into a standard which works in the West. In other words, according to the 1998 MCMCA, the MCMC is not only a regulator but is also a promoter and facilitator of the communications and multimedia sector in respect to the quest of Malaysia achieving technological superiority and being the regional and global hub for sharing information and knowledge as well as values. Its missions according to the 1998 CMA, are more precisely as follows : Economic regulation. This covers : TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 42 - the promotion of competition and prohibition of anti-competitive conduct, as well as the development and enforcement of access codes and standards; licensing, i.e. setting down the principles of licensing industry participants as well as enforcement of license conditions for network and application providers, and ensuring compliance to rules and performance/service quality. Thus the MCMC does not grant licenses, but only makes recommendations to the Minister of Energy, Communications and Multimedia. Technical regulation. This includes : efficient frequency spectrum assignment, the development and enforcement of technical codes and standards; the administration of numbering and electronic addressing. In accordance with the provisions of the 1998 CMA, the CMCM has appointed, SIRIM Berhad as a certifying agency for compliance with technical standards and codes. Similarly, MIMOS Sdn Bhd had to be appointed as Manager for Electronic Addressing. Consumer protection. This ensures adequate protection measures in areas such as dispute resolution, affordability of services and service availability. Social regulation. This includes content regulation (such as indecent, obscene, false, menacing or offensive content, as well as public education on contentrelated issues). It also includes recommending policies to encourage the development of creative content industry locally. In addition, the Consultant has read that to stimulate content development locally, the government could provide a financial assistance to promote the production and distribution of locally created content, especially creative multimedia content based on local culture. In this regard, the establishment of a content development fund will be considered, with mandatory contributions from broadcasters and exhibitors. The fund would be used to partly defray the cost of content creation activities that require significant financial resources. The provision of fiscal incentives will also be considered to stimulate content development locally. Another initiative is the implementation of the “E-village” project. This initiative focuses on the creative supply chain from content creation to commercialisation and, finally distribution. State-of-the-art production studios and post-production facilities with the latest cutting-edge technology in animation and audio/visual effects should provide the infrastructure for creative multimedia innovations and R&D. The first of these production studios was launched in September 2000, while the remaining seven must still be completed by 2005. Once completed the E-village will be the regional centre for multimedia and content development. 1.3.3. The powers According to the 1998 MCMCA, the MCMC can : TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 43 Establish any committees to assist it in the performance of its functions. Delegate any of the functions and powers, except the power to make subsidiary legislation, to the Chairman or to a MCMC’s member or to a committee or to the MCMC’s chief executive. The delegation does not preclude the MCMC itself from performing or exercising at any time any of the delegated functions and powers. According to Part V of the 1998 MCA, the MCMC can : Make recommendations to the Minister on different matters (for example, for granting licenses or for exempting a licensee/person or a class of licensees/persons from applying any provision of the CMA or its subsidiary legislation or for modifying/varying/repealing of the subsidiary legislation, that is to say the rules and regulations made under the CMA). Issue directions to a person requiring this person to take specified action in order to ensure that the person does not contravene or continue to contravene any of the conditions of his license and/or any of the provisions of the CMA or its subsidiary legislation (for example direction to a licensee in a dominant position requesting to cease a conduct effecting competition). The MCMC may modify, vary or revoke a direction. A person who fails to comply with a MCMC’s direction commits an offence and is liable to a fine or to imprisonment. The MCMC keeps a register of its directions. Issue determinations. The CMA is not clear neither on the meaning of the notion “determination” and its aim, nor on its legal value. The MCMC may modify, vary or revoke a determination. The MCMC keeps a register of all its determinations. conduct public inquiry on any matter of a general nature under the condition that the matter is of significant interest to either the public or the current or prospective licensees. Investigate any matter if (a) the Minister directs the MCMC to do so because he has reason to think that a civil or criminal offence may have been or may be committed, or (b) the MCMC has grounds to believe that a civil or criminal offence is or will be committed. Request to be provided with information when the MCMC has reason to believe that a person (a) has any information/document or (b) is capable of giving any evidence that are relevant to the performance of the MCMC’s powers and functions under the CMA or its subsidiary legislation. Register all matters which are required to be registered under the CMA and its subsidiary legislation. Resolve disputes between parties when they fail to reach an agreement and if a written notification is sent to the MCMC by one of the parties to the dispute. The decision rendered by the MCMC must be written and motivated and binds the parties. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 44 Designate an industry body to be an industry forum or withdraw the designation of an industry body previously designated. A primary focus of the CMA is self-regulation and these fora composed of the main players of the industry of communications and multimedia have a rôle of adviser to the MCMC concerning the adoption of certain norms. The idea being that the industry to self-regulate itself needs to intervene on what the MCMC does. These fora with the industry may prepare a “voluntary industry code” dealing with respect to access and interconnection, technical standards, consumer matters and content, on their own initiative or upon request by the MCMC. The code enters into effect once registered by the MCMC. The latter has the right to refuse the registration. The MCMC makes sure that a code is applicable to a particular matter for a particular person or class of persons at a given time. Compliance with a registered voluntary industry code of conduct constitutes defence against any prosecution, action or proceeding of any nature, whether in a court or otherwise. If voluntary codes are not complied with, the Commission may impose mandatory codes of conduct. A voluntary industry code can be revoke by the MCMC or an industry forum may submit a new voluntary industry code to replace the existing one. It should be noted that a person may provide an undertaking to the MCMC regarding any matter which may be the subject of a voluntary industry code (or even which the CMA makes express provision). A person providing an undertaking can withdraw it any time or submit a new one. The undertaking is valid and enforceable upon its registration by the MCMC. The latter can refuse to register it but must motivate its refusal. The MCMC registers all the undertakings. The MCMC or a person may apply to a court for the enforcement of a registered undertaking against the person providing the undertaking if he does not comply with. Determine a mandatory standard, if it is subject to a direction from the Minister, for any matter which may be the subject matter of a voluntary industry code if the code has failed, and will continue to fail, to promote industry conduct. The mandatory standard defined by the MCMC specifies the class of licensees which must comply with the mandatory standard. The MCMC can modify, vary or revoke a mandatory standard. Compliance with a mandatory standard shall be a defence against any prosecution, action or proceeding of any nature, whether in a court or otherwise, taken against a person (who is subject to the mandatory standard) regarding a matter dealt with in that mandatory standard. Define guidelines and control competition on the communications. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 45 Monitor all the significant matters relating to the performance of NFP, NSP, ASP and CASP and report to the Minister. 1.3.4. The employees of the MCMC According to the CMCA, the MCMC may appoint as much employees as it thinks desirable and necessary. At their head is a chief executive, who is also at the same time the MCMC’s Chairman. The chief executive is responsible for the overall administration and management of the functions and the day to day work of the MCMC. This chief executive is necessarily the MCMC’s chairman. 1.3.5. The Financing of the MCMC According to the Part V of the 1998 CMCA, the MCMC and its employees are financed by “The Malaysian Communications and Multimedia Commission Fund". This Fund consists of notably: money from the Telecommunications Fund created under the previous 1950 Telecommunications Act; sums provided by Parliament from time to time; spectrum allocation fees; license fees, based station fees; money derived as income from investments by the MCMC; money derived from sale or lease of any property; money from consultancy and advisory services or other service provided by the MCMC. Its budget must however be approved by the Minister of Energy, Communications and Multimedia. 1.3.6. The functioning of the MCMC The MCMC can hold as many meetings as necessary for the performance of its functions. Such meetings are held at places and times decided by the Chairman. The Chairman however shall not allow more than two months to lapse between meetings. Meetings can also be requested in writing by the Minister or by at least two members of the MCMC. 1.3.7. The lack of independence of the MCMC According to the CMCA, the Minister of Energy, Communications and Multimedia may at any time revoke the appointment of any member of the Commission without assigning any reason. Furthermore, MCMC’s members’ remuneration and TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 46 allowances are determined by the Minister of Energy, Communications and Multimedia, after consultation with the Minister of Finance. The MCMC is responsible to the Minister of Energy, Communications and Multimedia. The latter may give to the MCMC, according to Section 18 (2) of the CMCA and Sections 7 (1) and (3); 8, 10 (1) and (2), 11 of the CMA, (a) directions of a general character or otherwise on the exercise of its powers and the performance of its functions and duties and (b) determinations. The Commission shall exercise its powers in a manner which is consistent with a ministerial direction or ministerial determination. Section 8 (1) adds that the Minister may at any time modify, vary or revoke a direction. The MCMC shall furnish to the Minister, and to any public authority as may be specified by the Minister, returns, reports, accounts and information with respect to its activities and finances at his request. There is thus a double problem regarding the regulatory authority. On the one side, it is not independent from the Minister of Energy, Communications and Multimedia for the reasons mentioned above and, on the other side, it is not independent from the actors on the market, for the State keeps more than 60% ownership in the incumbent operator. Section 2 – Foreign investment rules 2.1. General Malaysia has founded to a large extent its industrial development on foreign direct investment (FDI). The last fifteen years have been characterised by the massive arrival of FDI : from USD 7.4 billion in 1985 to 54,3 billion in 2000. With this latter figure, Malaysia ranks at the fifth place behind Hong Kong (USD 470 billions), China (USD 347 billion), Singapore (USD 89 billion) and Indonesia (USD 61 billion). Malaysia has essentially attracted foreign investment in the sector of electronics, textile, transformation of rubber and petrochemical. Between 1970 and 2000, the capital structure of the Malaysian companies has evolved the following way : 1970 3% 34% 63% 2000 19,1% 40,3% 32,7% 7,9% Malaysian capital “Bumiputra” Malaysian capital, others Foreign capital Other (“sleeping partners”) Source : DREE, 31 october 2001. This evolution is mainly due to the fact that in the 70s, in order to give back to the Malay ethny (Bumiputra) the control of the economy, the government decided to limit progressively the capital share held by foreigners to 30% and to bring back the capital share held by the Bumiputra to 30%. Companies were then obliged to redistribute at least 30% of their capital to Bumiputra. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 47 Malaysia’s policy on FDI encourages projects to be undertaken on a joint-venture basis between Malaysian and foreign investors. Through ownership participation, foreign players are allowed to own 30% stakeholding in the local communications companies. There is no legislation concerning foreign investment. There exist only guidelines, notably for regulating the acquisition of assets, or any interests, mergers and takeovers of companies and businesses. The FIC is the guardian of their implementation. It delegates however its powers, for the manufacturing sector, to the MIDA (Malaysian Industrial Development Authority). According to an interviewed Embassy, the problem with guidelines is the total lack of transparency concerning their applications. It is impossible to know what are exactly the rules on foreign investments in the telecommunications services considering that these guidelines are always implemented on a case-by-case basis, with a result which will depend on the interest of the moment. For example, the Malaysian government refuses the investment of Singtel34 for political consideration. But what they have refused to Singtel, they are ready to offer it to Norwegians. In theory, all sectors of the economy are open to FDI. 2.2. Guidelines for regulating the acquisition of assets, or any interests, mergers and take-overs of companies and businesses 2.2.1. General policy’s guidelines Private investment, both local and foreign, in particular high technology, are welcome. However, the Malaysian government intends that total commercial and industrial activities in all categories and scales of operation remain under the control of the Malays (Bumiputra, 60% of the population) and local minorities (Indian and Chinese) in terms of ownership and management, income and employment. Accordingly, any proposed acquisition of assets or any interests, mergers and takeovers of companies and businesses will be examined in the light of this objective. This means that foreign investment for the purpose of acquiring assets and to gain ownership and control of companies and businesses in Malaysia, without giving visible direct or indirect benefits to the national economy, will be discouraged. 2.2.2. Field of implementation These guidelines apply to : SingTel, which is 65% owned by the Singapore government, generates more than half of its revenues outside the republic. SingTel’s name pops up at the slightest hint of every pending telecommunications merger or acquisition exercise in Asia, particularly in Malaysia and Hong Kong where it is yet to have a presence. SingTel’s investments outside Singapore include Thailand’s leading mobile operator AIS ; the Philippines’ Globe Telecom and India’s Bharthi Group. In October, 2001, SingTel paid US$ 9 billion (US$ 1 = RM 3.80) for Australian Cable & Wireless Optus, after which it paid S$ 1.08 billion (S$ 1 = RM 2.09) for a 22.3% stake in Indonesia’s Telkomsel. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 34 48 any proposed acquisition by foreign interests of any substantial fixed assets in Malaysia; any proposed acquisition of assets or any interests, mergers and take-overs of companies and businesses in Malaysia by any means, which will result in ownership or control passing to foreign interest; any proposed acquisition of 15% or more of the voting power by any one foreign interest or associated group, or by foreign interests in the aggregate of 30% or more of the voting power of a Malaysian company and business; control of Malaysian companies and businesses through any form of joint-venture agreement, management agreement, and technical assistance agreement or other arrangements; any merger or take-over of any company or business in Malaysia whether by Malaysian or foreign parties; any other proposed acquisition of assets or interests exceeding in value of the sum of RM 5 million, whether by Malaysian or foreign parties. These guidelines, however, know exemptions. This means that approval of the FIC is not required. These exemptions concern specific projects which are approved by the Government. They have been defined as follows : acquisitions by Ministries and Government Departments; acquisitions by Minister of Finance Incorporated, Menteri Besar Incorporated and State Secretary Incorporated; acquisitions by Statutory Corporations, Government-owned companies and their subsidiaries; Privatisation projects at a Federal or State level. However, only companies or parties who are the original signatories in the contracts for the privatised projects are considered as approved by the Government. Other companies or parties who later participate in the projects are not considered as approved by the Government and are therefore required by the FIC guidelines to obtain the approval of the FIC. The definition of “privatisation” however does not include sales of governmentowned companies or their subsidiaries, either owned by the Federal or State governments, to the private sector, and the acquirers are required by the FIC guidelines to obtain the approval of the FIC. 2.2.3. Submission of proposals A proposal for any operation (acquisition of assets or any interests, mergers and take-overs of companies or businesses) in Malaysia must be submitted in two copies to the Foreign Investment Committee (FIC). TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 49 This proposal must be accompanied by all relevant information and documents to enable the FIC to determine whether the operation concerned is consistent with the national interest. Such information and documents will include : details of the scheme of the operation; detailed information of the company(ies) involved as described in a “Proforma I” (20 copies). If the companies involved are subsidiaries, detailed information of its holding company are also required; if the parties involved in the transaction or the major shareholders of the companies involved are individuals, detailed information of the individuals is required as described in a “Proforma II” (20 copies); a copy of the sale and purchase agreement; a copy of the management, service and technical assistance agreements, jointventure agreements and other agreements; where a valuation of landed properties is involved, a copy of the valuation report and a list of all encumbrances or restrictions on the dealings in connection with the properties; present employment structure of company or business to be acquired and projected employment structure following acquisition of assets or any interests, merger or take-over for the next three years; details of the economic benefits and costs which as a result of the acquisition, merger or take-over, could be expected to accrue; details of changes expected in the structure of the companies and businesses as a result of acquisition, merger or take-over in the offeree’s practices in matters such as employment, investment, exports, imports, processing and upgrading of local materials, research and development and industrial relations including employee protection. Where the offeree considers that the acquisition is likely to have environmental effect this should be indicated; details on the proposed extent of Malaysian participation in the ownership and management following the acquisition, merger or take-over. With regard to shareholders’ interests, the offeree company should state the attitude of its board of directors to the offer; and all other relevant information. All proposals will be treated in confidence. Foreign equity participation of up to 30% is generally allowed. Higher participation may be allowed on a case-by-case basis. 2.3. The crisis of 1997/1998 In the second half of 1997, Malaysia was struck by the Asian financial crisis. This contributed to a severe deterioration in its economic performance in 1998 and Malaysia was obliged to relax temporarily its requirements on foreign investment, notably concerning foreign equity (possibility offered to foreign investors, on a case by case basis to reach 100% foreign equity ownership in certain sectors). This softening began in July 1998 with a deadline in 2001, renewed for 5 years, that is to say until 2006. All the sectors are not beneficiaries of such softening, however. Among the beneficiaries, one find, for example, the paper packaging sector, the plastic sector and the telecommunications sector. In the communications services TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 50 sector, since 1998, the government has twice revised the permitted foreign equity holding from 30% to 49%, and more recently, from 49% to 61%. Concretely, this means that, for the moment, the FIC permits companies, on a case-by-case basis, to reach 61% foreign ownership under the condition that after a prescribed number of years, the company concerned reduces its foreign investment participation to 49%. For example, it is the case of DiGi.Com. The FIC has allowed DiGi.Com. to go over the limitation to reach 61% foreign ownership but under the condition to reduce to 49% after 5 years.35 In the manufacturing sector, things seem different. For projects involving the manufacture of high technology products, companies are allowed to hold up to 100% foreign equity ownership, irrespective of their level of exports. In parallel to the impact of the 1997/98 crisis, it should be noted that this temporarily “liberalisation” on foreign investment has also become particularly important for Malaysia because of China which constitutes now a threat for attracting foreign investment. 2.4. Exception : the Multimedia Super Corridor Status (MSC status) In 1996, in order to attract investment, Malaysia created the Multimedia Super Corridor (MSC) project. This project, which has a duration of 25 years (1996-2020), aims at creating a sort of Silicon Valley where companies can develop local, regional and international businesses. The objective is to transform Malaysia into a knowledge society by 2020. The Multimedia Development Corporation (MDC) has been mandated to oversee the development of the MSC. The MDC is based in the nucleus of the MSC, cyberjaya. To be part of that Silicon Valley, a local or foreign company needs to get the MSC status. To get it, a company must fulfilled a certain number of conditions (for example, to be concerned with R&D ; electronic or high technology). The MDC is the « one-stop shop » for any company, local and international, interested to become MSC-status companies. The advantages for the companies to get such status is that they can benefit from the Malaysian Government’s Bill of Guarantees which offers the following incentives : freedom of ownership (meaning that a company with the MSC status can have 100% of foreign investment participation) ; freedom to source capital globally ; financial assistance and tax exemptions ; unrestricted employment of foreign and local knowledge workers ; a physical and information infrastructure in the MSC area. This infrastructure with its digital fibre optics network efficiency of 99.9% is supported by its backbone infrastructure with speed reaching up to 10 gigabit per second; no censorship of the internet.36 Another example which was given to the consultant but that he could not verify if it were true is the one of fixed/wireless access for broadband. In that case, 100% foreign equity can be granted. 36 The consultant does not understand why this last incentive has been explicitly mentioned, since the Malaysian authorities deny any filtering or screening concerning the internet access. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 35 51 To qualify for MSC status and its benefits, an applicant must fulfil six criteria: be a provider or a heavy user of multimedia products and services; employ a substantial number of knowledge workers; provide technology transfer and/or knowledge to Malaysia, or otherwise contribute to the development of the MSC and the Malaysia’s economy; establish a separate legal entity for the MSC qualifying multimedia business and activities; locate in a MSC designated cybercity [Cyberjaya ; Petronas Twin Towers ; Technology Park Malaysia ; KL Tower (the world’s fourth tallest telecommunications tower); UPM-MTDC (Universiti Putra Malaysia – Malaysian Technology Development Corporation) ; Kuala Lumpur City Centre]. If an applicant is unable to relocate immediately because of contractual obligations on existing premises, the applicant may apply the MDC for an extension of time ; and comply with environmental guidelines. Activities not eligible for the MSC status are : Manufacturing – Activity referring to the production of goods in large quantities, usually undertaken in a factory environment ; Trading – Activity of buying and selling especially off-the-shelf hardware and software ; consultancy – activity that is primarily providing professional advise and not tied to any new multimedia application developed in-house by the applicant. The key steps in the application process are as follows : formal application for MSC status must be submitted to MDC, with the following documents : application form (3 copies) ; processing fee of RM 2,000 payable (cheque/bank draft) to MDC (non refundable) ; three year business development plan (3 copies) ; three years audited report of substantial stakeholders (one copy) ; facilitation form (one copy) ; relocation assistance form (one copy) ; all applications will be acknowledged by the MDC within 3 days from the date of receipt ; within 15 days from the date of the acknowledgement letter, if any additional information or classifications is needed from the applicant, this will be conveyed in writing by the MDC ; if the original application is complete, or upon receipt of the information as required, a letter of completeness will be sent by the MDC to confirm that the application is deemed complete ; TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 52 the decision on the application will be conveyed to the applicant within 30 days from the date of the letter of completeness ; successful applicants will be informed about the benefits and other terms and conditions of the offer. Unsuccessful applicants will receive a written explanation stating why the application was not approved. Borderline applicants will be advised to refine their proposals and to re-submit their applications. The body that grants the MSC status is composed by Members of Ministry of Finance, Ministry of International Trade and the Multimedia and Communications Commission. Currently, there are 644 companies which have been granted the MSC status (sixtynine of them are European companies). Not all of them are, however, present physically in that Malaysian Silicon Valley, for very often the companies which have been granted this MSC status were already present in Malaysia (like Alcatel, Ericsson, Nokia, Siemens, Lucent Technology, NTT MSC). If a company has not been granted the MSC status by the « Multimedia Development Corporation », the FIC (or the MIDA if a manufacturer) will inform the company on the percentage of foreign investment authorised. Based on the recent MSC Impact Survey 2001, a total revenue of RM4.393 billion was generated by MSC-status companies of which the export value stood at RM 1.025 billion. The survey also showed that on average, about 26% of annual total expenditure by MSC companies had been in R&D and 209 intellectual property rights and copyrights had been filed or registered by 215 MSC-status companies. It should also be noted that a MSC Venture Corporation (MSC VC) was set up in 1999 as a wholly-owned subsidiary of the MDC. The MSC VC assisted MSC-status and potential MSC-status companies, particularly the SMEs to obtain venture capital funding. The MSC VC launched its first fund, the MSC Venture One, in June 1999 amounting to RM120 million. The fund targeted companies either at start-up, growth or pre-initial public offer (IPO) stages of development. By the end of 2000, MSC VC committed investments in 10 companies amounting to RM43 million. Section 3 – Terminal equipment and radiocommunications equipment 3.1. Import licenses A license is necessary to import telecommunications equipment. According to Siemens, there are no quotas. 3.2. Customs duties According to persons interviewed in an EU Member state Embassy, duties rights are weak including for terminal equipment. The applied tariffs for telecom products (HS TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 53 8517.11, 8517.19, 8517.30) are usually 15%. Facsimile machines and teleprinters (HS 8517.21 and 8517.22) are duty-free. 3.3. Standards There are no problems regarding technical barriers. It is easier to enter a product in Malaysia when one can demonstrate that the product has already entered in another country. According to Chapter III of Part VII of the CMA, the MCMC may designate an industry body to be a forum for technical standards. SIRIM is the entity which is responsible for the recognition of norms. The technical standards forum or the Commission may prepare a technical code which must include : requirements for network interoperability including, but not limited to the provision of certain network capabilities such as calling line identification capability and preselection capability; promotion of safety of network facilities. Such a code may also include, but is not limited to: a) the provision of network facilities, including requirements for qualified providers and installers; b) the provision of network services, including requirements for qualified providers; c) the provision of applications services, including requirements for qualified providers; d) the provisions of customer equipment and cabling, including requirements for qualified installers; e) the approval of customer equipment and other access devices; f) the adoption of technical standards promulgated by international bodies; and g) the promotion of electromagnetic immunity and compatibility. Section 4 – Establishment and operation infrastructures or services 4.1. The old regulatory regime of telecommunications Prior to the implementation of the CMA, licenses issued were service-specific and technology-specific. So there were licenses for domestic telecommunications services, licenses for mobile telephony services, licences for free to air television broadcasting, and so on. All other services that did not quite fit in these broad categories were lumped under value-added services licenses. In each case, the licenses specify the services that may be provided and the corresponding technologies and networks that may be used to support those services. 4.2. The current regulatory regime 54 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 The CMA has organised the communications and multimedia sector into just four economic markets, i.e. a market for network facilities, a market for network services, a market for applications services and a market for content. In other words, the approach is to organise the sector into technology-neutral and service-neutral markets in view to facilitate the introduction of new services using new technologies that are unavailable today without the need for complicating licensing. 4.2.1. The general principle A license is needed each time it is a commercial service. According to Section 126 of CMA, a license is needed to own or provide network facilities37, as well as to provide network services38 or applications services39. Exemptions can be determined by the Minister of Energy, Communications and Multimedia, however. It is the Minister of Energy, Communications and Multimedia who is competent to grant licenses, on the basis of the MCMC’s recommendation. 4.2.2. The categories and types of licenses granted In accordance with Section 126 of the CMA, there are two categories of licenses : Individual licenses. They are reserved for activities that are associated with significant national and socio-economic interest and a high degree of regulatory control is required. Their aim is to allow the MCMC to direct the provider to do that or that. For that purpose; the MCMC recommends the Minister to include, in addition to standard conditions, additional or special conditions to which the conduct of the activity shall be subject. The number of market participants could be limited under individual licensing. Class licenses. They are reserved for activities that have less impact and a lighter form of regulation is sufficient. The market forces are able to self regulate more effectively. Class licenses may just include standard conditions. There will be no restrictions on the number of market participants for activities under class licensing. According to Section 6 of the CMA, the notion « network facilities » means « any element or combination of elements of physical infrastructure used principally for, or in connection with, the provision of network services, but does not include customer equipment. 38 According to Section 6 of the CMA, the notion « network service » means : « a service for carrying communications by means of guided and/or unguided electromagnetic radiation ». 39 According to Section 6 of the CMA, the notion « application service » means : « a service provided by means of, but not solely by means of, one or more network services. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 37 55 These two licensing categories are each subdivided in four types of sub-licenses (or, as preferred to say the consultant, “in four markets to be submitted to either an individual or a class license ”), depending on the nature of the service which will be offered by the provider: Network Facilities Providers (NFP) are owners of facilities such as satellite earth stations, broadband optic fibre cables, switching equipment, radio communications and broadcasting transmission equipment, mobile communications base stations etc. They are the owners of national backbones and international facilities where significant investments are required. Concrete example. If a person wants to build or install facilities (dark fiber to sell the capacity or towers for mobile or any technology), this person needs an NFP. Network Services Providers (NSP) provide the basic connectivity and bandwidth to support a variety of application services. Network services enable connectivity or transport between different networks. However, a connectivity service may be provided by a person using network facilities owned by another. Concrete example. If a person wants to light up switches or carry bandwidth, this person will need an NSP. Application Services Providers (ASP) provide essentially the functions or capabilities which are delivered to the end-users. Concrete example. If a person wants to deliver a service (and if it does not concern infrastructure) as voice or data to end-users, this person will need an ASP. Consumers can be residential or business. According to the information obtained by the Consultant from the regulator, voice over IP needs an ASP. Content Application Services Providers (CASP) are a special subset of applications service providers. The provider is in addition owner of the information. Concrete example. If a person play with, manipulate the content transmitted, this person need a CASP. This is the case for broadcasting, cable and satellite TV. NFP and NSP generally fall under individual licensing for the following reasons : (a) they represent important national infrastructure assets, (b) they impinge on public and private property, (c) avoid to have too many duplications. CASP are also generally subject to individual licensing because of the social impact and public importance of mass media. They are also submitted to content requirements and the MCMC may designate an industry body to be a content forum in order to prepare a code dealing with offensive or indecent content.40 ASP are generally under class licensing to ensure that such operators have minimum regulatory barriers to promote greatest possible market activity and innovation but at the same time ensure competition in service delivery. 40 See Section 211 to 213 of the CMA. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 56 In the long term, a number of individual licences are expected to move across to the class licensing regime (it should be the case for PSTN telephony). Right now, an ISP or paging operator needs an ASP in the category of class license. It is RM 2500 (around USD 600). Voice over IP needs an ASP in the category of individual license. In 2005, there will also have the possibility of voice over IP in the category of class license. Content on the internet requires a class license. For fixed line and mobile service providers, an individual license is required but no license has been issued since 1997 in these services because the authorities regard the current number of providers as adequate. Finally, under the CMA, individual licenses are granted to any entity other than a foreign company as defined under the Company Act, 1965, an individual or a sole proprietorship, and a partnership. The class license is granted to any persons/entities other than a foreign individual or company. 4.3. The procedure to get an individual license or a class license 4.3.1. The procedure for the individual license Section 27 of the CMA establishes that a person must apply for an individual license in writing to the MCMC. The Commission may request to get, within a period of time, further information on the application. If not provided by the applicant within the period of time specified, the application is considered as withdrawn or as not further proceeded with. Within sixty days of the reception of the application, the MCMC submits a recommendation to the Minister of Energy, Communications and Multimedia specifying (a) whether the individual license should be granted or not, (b) the special or additional conditions which the individual license should be subject to in case of its granting and (c) the reason for its recommendation. If the minister grants the individual license, the MCMC informs the applicant by written notice. If the minister refuses to grant the individual license to an applicant, he inform himself the applicant by written notice. His decision must be motivated. If the minister neither grants nor refuses to grant an individual license within thirty days from the receipt of the MCMC’s recommendation, this silence should be interpret as a refusal, unless the applicant receives a written notice saying the contrary. An approval fee, to be determined by the Minister, will be payable upon the approval of the application. Four more things should be noted. Firstly, the special or additional conditions mentioned in the individual license may be modified, varied, revoked or further conditions may be added at any time by the Minister. Secondly, as the individual license is granted personally to the licensee, any change of ownership or any transfer to another party must obtain the prior approval of the Minister. Thirdly, the MCMC can recommend to the Minister the suspension or the cancellation of an individual TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 57 license under certain circumstances.41 Fourthly, renewal of an individual license must be done not later than sixty days before its expiry. Finally, the MCMC has the duty to maintain a register of all individual licenses granted. This register is made available to the public. 4.3.2. The procedure for a class license Unlike individual licensing, which requires a more elaborate process that includes the submission of business plans, etc., class licensing is pre-approved. New entrant need not apply for it. Under Section 45 of CMA, those who intend to operate under a Class licence are only required to register with the MCMC by submitting simply a registration notice to the MCMC. Upon registration, a registration fee, as prescribed by the Minister of Energy, Communications and Multimedia by notification in the Official Gazette, must be paid. The applicant can operate only once registered by the MCMC. The MCMC can recommend to the Minister to cancel the registration under certain circumstances.42 The person whose registration has been cancelled must cease the activity concerned. Here too, the MCMC will keep a register of all class licenses. This register is made available to the public. 4.4. The exemptions There is also a list of activities from each of the four economic markets that are exempt from licensing. Most of these activities are related to e-commerce because the idea is to encourage the growth of e-commerce by removing all regulatory barriers and costs to entry for activities. They are : private networks (installed for your own use – no commercial aim) is not subject to license. Only a permit from the local authorities concerned is necessary. It is the same for a transmitter (installed for your own use – no commercial aim). You just need a permit because of the use of radiowaves; web hosting; internet content services; electronic transactions services. 41 42 See to know these circumstances Section 37 of the CMA. See Section 47 of the CMA. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 58 4.5. Summary table Individual license Exempt/not licensed ♦ Terrestrial free to ♦ Interactive ♦ Incidental air content services content with conditional services ♦ TV/Radio access broadcasting ♦ Limited content services ♦ Subscription television ♦ Closed content applications ♦ Satellite services broadcasting ♦ PSTN Telephony ♦ Public IP telephony via Internet ♦ Public switched data services (eg. ISDN) ♦ Public payphone services ♦ Internet access providers ♦ Messaging services (e.g. paging, SMS) ♦ Directory services ♦ Telegram services ♦ Private payphones and card services ♦ Audiotext hosting services ♦ Access and ♦ Niche access connectivity and connectivity services services (e.g. trunk mobile) ♦ Bandwidth services ♦ Special purpose connectivity ♦ Cellular mobile services services ♦ Mobile satellite services ♦ Broadcasting distribution services ♦ Fixed links and ♦ Niche or limited cables purpose facilities (including trunk ♦ Radiocommunic mobile, paging) ations transmitters and links ♦ E-transactions services ♦ Call centres/OVR ♦ Interactive information services ♦ Web hosting/client servers ♦ Networked advertising boards and cineplexes ♦ Private network services ♦ Incidental network services ♦ LANDS ♦ Server-based client services ♦ Router internetworking ♦ Incidental facilities ♦ Private facilities ♦ Broadcasting and production studios 59 Class license licensing category CASP ASP NSP NFP TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 ♦ Satellite transponders, earth stations and hubs ♦ PSTN network control facilities ♦ Public payphone facilities ♦ Towers, poles, ducts, pits ♦ Customer premises equipment ♦ Internet crossconnect equipment (low impact network facilities and nominated network facilities) Source : “Multimedia Malaysia”, magazine issued by the Minister of Energy, Communications and Multimedia - Inaugural issue – Feb. 2001 Section 5 – Access and interconnection 5.1. Obligation to provide access According to Section 149 of the CMA, standard access obligations can be imposed for facilities and services which have been listed in an “access list”43 determined by the MCMC. Except in case of exemption determined by the Minister by order published in the Official Gazette, network facilities providers and network service providers provide access to their network facilities or network services, when listed in an “access list, to any other NFP; NSP; ASP or CASP when they make a written request for access on reasonable terms and conditions. The access must be provided in an equitable and non discriminatory basis. The technical standard and quality must be at least the same than those applied by the access provider for himself. The person who does not respect the standard access obligation commits an offence and is liable to a fine or to imprisonment or to both. 5.2. Obligation to register the convention established According to Section 150, a written access agreement for the provision of listed network facilities or network services must be registered with the MCMC. No written access agreement is enforceable unless it has been registered. According to Section 145 of the CMA « (1) The list of facilities and services which may be included in the access list, as determined by the MCMC … are a) network facilities ; b) network services ; and c) other facilities and/or services which facilitate the provision of network services or applications services, including content applications services. (2) The facilities or services listed in paragraph (1) c) do not have to be owned or provided by the licensees under the CMA. ». TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 43 60 5.3. Disputes A party to a dispute over the compliance with the standard access obligation may notify the MCMC in order to take a decision on the dispute. 5.4. Access forum According to Sections 152 and 153 of the CMA, the MCMC may designate a single industry body to be the access forum and make a written request to the access forum to prepare an access code. The aim of the access code is to provide model terms and conditions for compliance with the standard access obligations. The matters which the access code may address include but are not limited to : the time frame and procedures for negotiations and the concluding of access agreements; rate methodologies; protection of intellectual property; protection of commercial information; provisioning of facilities; and sharing of technical information. The access code may provide for different terms and conditions for the different network facilities and network services listed in the access list. The Consultant has been told that such an access forum with the industry has been created and that a code on interconnection is under preparation. This forum is still at the stage of discussions and is still trying to elaborate the code. If the industry cannot arrive to an agreement, the CMC will intervene. For the moment, there are guidelines but no regulations concerning interconnection. This situation should be changed with the code on interconnection. To end this section, it should be noted that there is no national roaming in Malaysia. This question is forecast for 2002-2003 and has been submitted in a forum for industry development. Furthermore, the concept of unbundling of the local loop does not exist. Nothing in the legislation is indicated about that because, according to the answer obtained by the consultant from persons interviewed within the MCMC, the licensing framework is a convergence framework. This contradicts what was said by Telekom Malaysia. According to Telekom Malaysia, there is a provision in the law concerning the unbundling of the local loop but it is not implemented yet. The consultant however has not seen such an explicit provision in the legislation. Section 6 – Access to properties and rights of way The rules concerning installation of network facilities and access to network facilities, etc.. are indicated in Part X of the CMA. 6.1. The rights granted to the operator concerning the matter 61 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 6.1.1. Inspection of land A NFP has the right to inspect any land to determine whether the land is suitable for his purpose of installing, or obtaining access to, network facilities. This right means : enter on and inspect the land; and do anything on the land that is necessary or desirable for that purpose (including making surveys, taking levels, sinking bores, taking samples, digging pits and examining the soil). 6.1.2. The means To carry out the installation of the network facilities, an NFP may : enter on, and occupy, the land; and on, over or under the land, do anything necessary or desirable for those purposes, including : constructing, erecting and placing any post or network facility; felling and lopping trees and clearing and removing other vegetation and undergrowth; making cuttings and excavations restoring the surface of the land and, for that purpose, removing and disposing of soil vegetation and other material; erecting temporary workshops and sheds and other temporary buildings; and levelling the surface of the land and making roads. In realising these activities, the NFP does as little damage as practicable. He will take all reasonable steps to restore the land to a condition that is similar to its condition before the activity began. 6.1.3. Non-discriminatory access A NFP or a public utility provide the NFP who requests it with non-discriminatory access to any post, network facilities or right-of-way owned or controlled by him. They can however deny the NFP who requests it access to his post, network facilities or right-of-way on a non-discriminatory basis where there is insufficient capacity, or for reasons of safety, security, reliability, or difficulty of a technical or engineering nature. The MCMC may regulate the rates, terms and conditions for access to any post, network facilities or right-of-way and provide that such rates, terms and conditions are just and reasonable. 6.2. The obligations imposed to the operator concerning the matter 6.2.1. Prerequisites to be fulfilled by the operator TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 62 A NFP may carry out the installation of network facilities if : a) he is authorised to do so by a network facilities installation permit issued by the MCMC. Conditions to which the issuance of such permit is subject are enumerated in Section 226 of the CMA (for example, prior approval of the proprietor or prior approval of any authority whose approval is required); or b) the network facilities are low-impact network facilities. The Minister may determine them on recommendation of the MCMC; or c) the network facilities are temporary network facilities for use by, or on behalf of, the Ministry of Defense for defense purpose; or d) the installation is carried out for the sole purpose of connecting a building or structure, or a line that forms part of a network facility. The installation of the network facilities may require the approval of the State authority, local authority or other relevant authority, if necessary. 6.2.2. Prior notice to the owner of land Before engaging in an activity in relation to any land, the NFP gives written notice of his intention to the owner of the land and, if the land is occupied by a person other than the owner to the occupier. The notice must contain a statement to the effect that if a person suffers financial loss or damage in relation to property because of anything done by the provider in engaging in the activity, compensation may be payable. The notice must be given at least 14 days before the provider begins to engage in the activity. Cases where a notice must be given and exemptions to a person’s right to be given a written notice are established by the CMA. They are given in Sections 221, 222, 223. 6.2.3. Agreement with public utility A NFP takes all reasonable efforts to enter into an agreement with a public utility that makes provision for the manner in which the provider will engage in an activity that is likely to effect the operations of the utility. Section 7 - Numbering and Electronic Addressing The rules concerning numbering and Electronic addressing are mentioned in Chapter 2 of Part VII of the CMA. 7.1. The general principle The control, planning, management and assignment of numbers and electronic addresses belong to the MCMC, which can delegate any or all of its functions. 7.2. The numbering and electronic addressing plan 63 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 A numbering and electronic addressing plan has to be developed by the MCMC. This plan, made publicly available for a fee decided by the MCMC, sets out rules which include, but are not limited to : a) b) c) d) e) f) the use of different numbers and electronic addresses for different kinds of services; the assignment of numbers and electronic addresses; the transfer of assigned numbers and addresses; the use of assigned numbers and electronic addresses; the portability of assigned numbers and electronic addresses; the requirements for network service providers and applications service providers to maintain a plan for assigning and reassigning numbers and electronic addresses; and the rates for the assignment and transfer of numbers and electronic addresses which may be imposed by the Commission ( art 180 CMA). g) 7.3. Number database and electronic address database The MCMC may appoint a specified person to manage or maintain an integrated public number database or an integrated electronic address database. This person shall provide non-discriminatory commercial access to the database on the same terms and conditions which it offers to itself. 7.4. In the practice For the moment, number portability does not exist in Malaysia. According to an interviewed industrial source, the telecommunications operators in Malaysia do not want it. It will allow customers to change easily from one operator to another and this will end finally in a price war between operators. Operators have invested for each customer. Concerning number assignment, the procedure is transparent. The only inconvenience is that it takes time. Section 8 – Universal service Universal service rules are mentioned in Chapter 5 of the CMA. 8.1. The system of universal service provision The Minister may direct the MCMC to determine a system to promote and widespread availability and usage of network services and/or applications services throughout Malaysia by encouraging the installation of network facilities and the provision of network services and/or applications services in undeserved areas or for undeserved groups within the community. The Minister may make regulations about that. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 64 In its determination of a universal service system, the MCMC includes the definitions of : “undeserved areas” and may have regard to (a) the level of competition in particular areas or places; (b) the availability of services in particular areas or places; and/or (c) the commercial viability of installing network facilities or providing network services or applications services in particular areas or places; “undeserved groups within the community” and may have regard to (a) the availability of services to such groups; and/or (b) any barriers to the use of available services. On this basis, the MCMC has decided that : Availability of basic telecommunications services on an equal access and affordability are the three basic principles of the universal service provision. Availability means network services coverage should be available nation-wide, whenever and wherever needed. Equal access means that customers should be treated equally; there should be no discrimination in terms of price, service and quality, regardless of the geographical location. Affordability can be translated as network services, which are affordable to customers (reasonable rate). Basic telecommunications services include basic voice applications services (including emergency call services and directory enquiries), payphone and other basic services such as internet. The universal service is devoted to target areas (mainly rural areas numerous in Malaysia and underdeveloped areas). A target area is a district which has less than 17% penetration rate. If there is only one operator in the target area or near a target area, this operator will be obliged to provide the universal service. In case of several operators in a target area, the universal service provider is chosen through a bid process. For that purpose, a universal service plan is submitted by the interested operator. The plan is evaluated and then the universal service provider is chosen. An advance of money is given to the universal service provider to roll out the service. 8.2. The universal service provision fund (USP Fund) A fund to be known as the “Universal service provision fund” (USP Fund) is created and is controlled and operated by the MCMC. The Minister may make regulations regarding contributions by licensees to the USP Fund and any other matters related to or incidental to the establishment and operation of the USP Fund. On this basis, two funds have been set up, beginning this year and ending in 2005 : A government fund of RM 1 billion. The government targets is to install internet and/or telephone lines in rural schools, rural clinics, police stations and agriculture stations. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 65 A MCMC fund of RM 1.1 billion, financed with contributions coming from the licensees, except content applications service providers. Its targets are basic services and linking internet in rural areas and isolated areas, even maybe in town. The technology envisaged for these targets when there are no fixed lines are wireless or VSAT technology. The objective is to increase the penetration rate in the rural areas from 11.7 telephones per 100 population in 2000 to 17.5 telephones per 100 population in 2005. Section 9 – Pricing principles 9.1. The rules Pricing principles are mentioned in Chapter 4 of Part VIII of the CMA. 9.1.1. The rate setting by communications providers Except as otherwise stated, a NFP, NSP, ASP and CASP may set rates in accordance with the market rates. In setting rates, a provider must respect the following principles : a) b) c) d) e) rates must be fair and, for similarly situated persons, not unreasonably discriminatory; rates should be oriented toward cost and, in general, cross-subsidies should be eliminated; rates should not contain discounts that unreasonably prejudice the competitive opportunities of other providers; rates should be structured and levels set to attract investment into the communications and multimedia industry; and rates should take account of the regulations and recommendations of the international organisations of which Malaysia is member. The rates charged to customers by the providers must be published. 9.1.2. The rate setting by the Minister On the recommendation of the MCMC, the Minister may intervene in determining and setting rates for any competitive facilities or services for good cause, or as the public interest may require. Furthermore, the Minister may, on the recommendation of the MCMC, determine special rate regulation regimes in the following cases : TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 66 where the rates are not set by the providers in accordance with the principles mentioned in point 11.1; for a particular group of persons or in a particular area. Finally, the Minister may make rules, to be published in the Official Gazette, to prescribe the level of rates to be charged for specified or classes of network facilities, network services, applications services or content applications services. These rule may include, but are not limited to : rules about the rates and variation of rates; rules about the publication or disclosure of rates; rate control mechanisms. 9.2. In practice In the practice, the consultant was told by the persons interviewed within the Ministry of Communications and Multimedia that : For fixed telephony, retail prices are regulated; for mobile telephony, prices are not regulated; for internet, prices are regulated if one use a special access number (three or four-digit short code). This special access number belongs to ISPs. It enables user to call the ISP from anywhere in the country but at a regulated rate of 0.4 US cent, that is to say at a price which is reduced compared to the normal PSTN tariff. In other words for internet, the consumer can choose between (a) dial the code and the price is regulated or (b) use the normal PSTN tariff of the ISP; satellite communications are regulated if part of the all fixed line system but not regulated for VSAT; finally, concerning international traffic, the MCMC has determined that the telecommunications companies must operate Parallel Accounting Rates and observe the Proportionate Return Rule. Parallel Accounting Rates require all the telecommunications companies to charge foreign telecommunications operators carrying international call traffic for termination in Malaysia the same or identical rates. This is to prevent foreign telecommunications operators playing off the local telecommunications companies against each other. The Proportionate Return Rule requires each telecommunications company to accept from foreign telecommunications operators only such proportion of international call traffic in bound to Malaysia as is equal to its market share of outbound international call traffic from Malaysia. Furthermore, the consultant has been informed that : a tariff rebalancing had been decided on 1st March, 2002 (in force 15 days later) for fixed line communications rates. This rebalancing reduces prices for international and national calls and increases prices for local calls (25 km from the telecom exchange) and the monthly fixed line rentals and border calls (Malaysia/Thailand or Malaysia/Singapore or Malaysia/Brunei with a maximum of 20 km from the borders. Beyond, it must be considered as international calls). The increase in call charges to border countries is due to higher settlement TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 67 charges with the operators in those countries. The Consultant has, however, found more precision on this tariff rebalancing in the New Straits Times (a Malaysian newspaper) dated 21st February, 2002 : Local calls (made within an exchange area of 25km radius) will cost eight sen for the first two minutes and four sen for each subsequent minute; an increase in payphone rates to 10 sen for every two minutes from 10 sen for every three minutes currently. between 23% to 54% reduction in national call rates and between 7% and 67% in international call rates; the only two ISPs with short codes, that is to say TMNet (1515) and Jaring (1511) maintained rates at 2.5 sen per minute (1.5 sen phone connection; 1 sen access). The other ISPs will be subject to the new rate for local calls of four sen per minute. These other ISPs affected by the new fixed line phone tariffs may, however, apply for four-digit short codes which cost cheaper and which will allow them to compete on equal grounds with TMNet and Jaring. The Government’s dissatisfaction over the current tariffs which have prevented Telekom Malaysia from making reasonable commercial returns from its services is at the origin of this tariff rebalancing. The company had long asked for such tariff rebalancing, considering that it had to subsidise its loss-making local fixed line charges with the lucrative long-distance and international call charges. Telekom Malaysia’s tariff structure had not been reviewed since 1982, with a minor adjustment in 1996. According to the consultant, this move for lower rates for international and national calls will reduce the possibility of price competition by other players. A reduction of tariffs for national and long-distance calls as well as for international calls whilst increasing tariffs for local calls without a consequent reduction in interconnect prices to levels more reflective of the cost of providing interconnection services particularly by the incumbent operator can affect other companies. Since this tariff rebalancing, Telekom Malaysia has announced its move to cut rates for international call charges (IDD), internet services and broadband leased-line (BLL): The company slashes international call charges by 66%, taking effect midJune, 2002 and gets rid of the practice of charging different rates for peak and off-peak hours. From now on, there is a single rate regardless of when a call is made. The new rates cover more than 230 countries for calls made from Telekom Malaysia's fixed line service. This reduction in IDD follows a previous one made in March and which saw a 67% reduction in IDD rates to 20 countries. The company said it will also cut the charges for its high speed broadband Internet access service, TMNet Streamyx, from July 1st, 2002. Business customers of TMNet Streamyx will get a price reduction of up to 63%, while residential users get unlimited usage for RM 88 (US$ 3.80) a month. Telekom Malaysia expects its TMNet Streamyx customers to grow by 10 times by the end of the year from a current 3,000 subscribers. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 68 The company also announced lower rates for its broadband leased-line service, taking effect mid-June, 2002. Telekom Malaysia’s move to cut rates seems a strategic move to grow its international segment and promote wider Internet usage. It can also be seen as creating favourable conditions for potential foreign companies to locate their operations in Malaysia and allowing existing companies to have higher volume of business communications for less money. Section 10 – Privacy, data protection and consumer protection 10.1. Data protection. The Ministry of Energy, Communications and Multimedia is in process of drafting a new piece of legislation on Personal Data Protection. The aim of the proposed legislation is: To regulate the collection, possession , processing and use of personal data by any person/organisation so as to provide protection to an individual’s personal data and safeguard the privacy of an individual; and To establish a set of common rules and guidelines on handling and treatment of personal data by any person/ organisation. The objectives of this draft law are: To provide adequate security and privacy in handling personal information; To create confidence among consumers and users of both networked and nonnetworked industries; To accelerate uptake of e-transactions; and, To promote a secure electronic environment in line with MSC objectives. 10.2. Consumer protection All participants in the communications and multimedia sector are subject to consumer protection provisions in the CMA. These provisions concerning consumer protection are indicated in Chapter I of Part VIII of the CMA. 10.2.1 The provider’s general obligations A person who provides any network service or applications services has to : deal reasonably with consumers; and adequately address consumer complaints. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 69 In case of non-respect of this obligation, a person commits an offence and is liable to a fine or to imprisonment or both. Any network facilities provider, network service provider or applications service provider who does not require an individual license, and is not subject to a class license, is deemed to have been exempted from such an offence. 10.2.2. The consumer forum The MCMC may designate an industry body to be a consumer forum. A consumer code can be prepared by such consumer forum or by the MCMC. This code must include model procedures for : a) reasonably meeting consumer requirements; b) the handling of customer complaints and disputes including an inexpensive arbitration process other than a court, and procedures for the compensation of customers in case of a breach of a consumer code; and/or c) the protection of consumer information. The matters which the consumer code may address may include, but are not limited to : a) b) c) d) e) the provision of information to customers regarding services, rates and performance; the provisioning and fault repair of services; the advertising or representation of services; customer charging, billing, collection and credit practices; and any other matter of concern to consumers. This consumer code should be published and notice of it shall be advertised in at least one national language and one English language national daily newspaper for at least three consecutive days. Currently, there exists a consumer forum with the industry, as well as consumer groups. During the forum, debates are running and recommendations to the MCMC are made. Here too, a draft consumer code is prepared. The last phase consists now in the submission of the draft to the public consultation. The MCMC revises the draft and if it comply with the national policy, the draft will be registered. 10.2.3. The provision of certain services imposed by the Minister The Minister may determine a list of required applications services. The list may include, but is not limited to : a) b) c) d) emergency services; directory assistance services; operator assistance services; services for disabled consumers. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 70 The Minister determines then the classes of network service providers who shall provide any or all of the applications services on the list. On that basis, the MCMC issue a direction mentioning the class of licensees to provide the required applications. 10.2.4. Resolution of consumer disputes The Commission may use any of its powers under the CMA in the resolution of complaints received from consumers in relation to matters of customer service and consumer protection including, but not limited to, the failure by a licensee to comply with a consumer code. The Commission establishes procedures or guidelines for the making, receipt and handling of complaints of consumers regarding the conduct or operation of licensees. Section 11 – Competition Currently, Malaysia does not have a general competition law and then does not have a competition authority. Nevertheless, anticompetitive behaviours and abuse of dominant market position is addressed by a number of other instruments. This is the case of the CMA which contains provisions on competition in the sector communications and multimedia. The MCMC has also issued competition guidelines and is in charge of controlling anticompetitive behaviour by the operators. 11.1. The anticompetitive behaviours forbidden to communications licensees Licensees are subject to three prohibitions : Prohibition on anticompetitive conduct. He is forbidden to engage in any conduct which has the purpose of “substantially lessening competition” in a communication market. Prohibition on entering into collusive agreements. He is forbidden to enter into any understanding, agreement or arrangement, whether legally enforceable or not, which provides for (a) rate fixing; (b) market sharing; (c) boycott of a supplier of apparatus; or (d) boycott of another competitor. Prohibition on tying or linking arrangements. He is forbidden, at any time or in any circumstances, to make it a condition for the provision or supply of a product or service in a communication market that the person acquiring such product or service in the communications market is also required to acquire or not to acquire any other product or service either from himself or from another person. 11.2. The role and the powers of the MCMC TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 71 The MCMC has the competence to control competition on the communications market in Malaysia. For that purpose, the MCMC has been given the following powers : To elaborate and publish guidelines. These guidelines are devoted to clarify the meaning of "substantially lessening competition” but also to clarify the meaning of a “dominant position”. These MCMC has since published two sets of guidelines on substantial lessening of competition and dominant position in the communications market : the conduct which may substantially lessen competition includes : predatory pricing; foreclosure; refusal to supply actual or potential rivals, bundling; parallel pricing; the factors to be taken into account when assessing a dominant position : pricing behaviour; supply behaviour; the distribution of market share and level of market concentration; the level of vertical integration in the market; the extent of barriers to entry; global technology and commercial trends; the degree of product service differentiation and sale promotion. Once the MCMC receives a complaint, it will conduct an investigation. These guidelines are not rigid and will be revised from time to time as needed. To determine that a licensee is in a dominant position in a communications market, as well as to issue direction to a licensee in a dominant position in the case where his conduct has, or may have, the effect of substantially lessening competition in any communications market, and to implement appropriate remedies. To authorise the conduct of a licensee if the MCMC is satisfied that the authorisation is in the national interest. For that purpose, a licensee applies for authorisation to the MCMC, prior to engaging into any conduct which may be construed to have the purpose or the effect of substantially lessening competition in a communications market. Before authorising the conduct, the MCMC may require the licensee to submit an undertaking regarding his conduct in any matter relevant to the authorisation. If the licensee subsequently withdraws the undertaking, the authorisation is deemed never to have been given. The MCMC maintains a register of authorised conducts. To seek an interim or interlocutory injunction against any conduct prohibited. Any person can do it too. The CMA does not mention who may issue such injunction. To give certificate to any person who requests it for leave to proceed to the court for enforcement of the provisions of the CMA related to competition, except in case of injunction. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 - 72 In other words, only the court, not the MCMC, will have the powers to impose fines or imprisonment. 11.3. The role and powers of the Minister The Minister of Energy, Communications and Multimedia may make rules, to be published in the Official Gazette, in respect of agreements between licensees and foreign network facilities providers and/or network service providers. These rules intend to prevent or mitigate : any conduct by foreign network facilities providers and/or network service providers which will, or is likely to lead to, a substantial lessening of competition in a communication market; or the misuse of market power in a communications market. Section 12 – Allocation of frequencies It is Chapter 1 of Part VII of the CMA which concerns frequency spectrum whose regulations are made by the Minister of Energy, Communications and Multimedia. On the other hand, it is the MCMC who is in charge of developing a spectrum plan. The latter defines how the spectrum will be used and defines also the methodology for assignment and reassignment of the spectrum (by auction or beauty contest, tender, at a fixed price determined by the Minister or the MCMC, etc.). The spectrum plan has to be made publicly available (including in an electronic media) for a fee decided by the MCMC. 12.1. The general rule No one is authorised to transmit in any part of the spectrum to provide a network service, unless : the person holds a spectrum assignment; the person holds an apparatus assignment; or the use of the spectrum is subject to a class assignment. In case of non-respect, the person commits an offence and is liable to a fine or to an imprisonment or both. The Minister may determine exemptions or determine that specified spectrum assignment and/or apparatus assignment may only be issued to particular persons or classes of persons. This information is published in the Official Gazette. 12.2. The issue of the assignments TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 73 All the three assignments mentioned in point 5.1 are issued by the MCMC (and not by the Minister). 12.2.1. The spectrum assignment A spectrum assignment is issued when a big sale on block of spectrum is concerned. This is the case for the 3G approach and the first spectrum assignment has concerned 3G. The licenses are granted for 15 years. The issuance of a spectrum assignment confers rights on a person to use one or more specified frequency bands for any purpose consistent with the assignment conditions. A spectrum assignment may be issued (a) only when the relevant frequency bands for spectrum assignment have been determined by the Minister and (b) only if it complies with the spectrum plan. A holder of a spectrum assignment may transfer any or all of his rights to a third party. The Minister however may make rules, to be published in the Official Gazette, for such transfer of rights. A spectrum assignment shall not exceed a term of twenty years. 12.2.2. The apparatus assignment An apparatus assignment is issued in the case, for example, of GSM operators. All of them have an apparatus assignment. A transmitter permit is needed because interferences are possible. The issuance of an apparatus assignment confers rights on a person to use the spectrum to operate a network facility of a specified kind at a specified frequency or in any specified frequency band or bands. An apparatus assignment shall not be issued (a) if it authorises the use of a spectrum determined for spectrum assignments and (b) if it does not comply with the spectrum plan. The holder of an apparatus assignment may authorise a third party to operate a network facility which is the subject of an apparatus assignment. The Minister may however make rules for such authorisation. An apparatus assignment is not valid for a period of more than 5 years. 12.2.3. The class assignment A class assignment is issued when the activity is confined to a particular spectrum part (for example, CB radio, walky-talkies that the user can use immediately under the condition that they have been prior approved by a certificate of conformity). The issuance of a class assignment confers rights on any person to use any frequency band or bands for a specified purpose. A class assignment shall not be issued (a) if it authorises the use of a spectrum determined for spectrum assignments and (b) if it does not comply with the spectrum plan. It should be noted that the Minister may, after taking into account the recommendation of the MCMC, determine that a certain spectrum is to be reallocated for spectrum assignments. 12.3. Exemptions TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 74 Exemptions are determined in the case of low impact or low potential interferences (for example, gate opener, remote control, kids toys, car lock, etc. ..). 12.4. Disputes The MCMC may resolve dispute over interferences. Section 13 - Dispute Resolution 13.1. Between consumers and operators and between operators The procedure to solve dispute between consumers and operators and operators between themselves is the following and foresees different levels. Any dispute regarding any matter of the CMA must be resolved by negotiation between the parties. If the parties to the dispute fail to reach an agreement, they may seek the resolution of the dispute by the MCMC. However, the MCMC can only intervene upon written notification of the dispute by one of the party. The MCMC may publish guidelines setting out the principles and procedures which it may take into account in resolving disputes. The decision taken by the MCMC is binding. If the parties are not satisfied with the decision taken by the MCMC, the parties have the right to appeal before the Appeal Tribunal. The decision of the appeal tribunal is binding and is not subject to further appeal. For example, in the matter of interconnection, two operators have to try to solve the problem themselves. If it is impossible, they try to solve their dispute with the MCMC and then if unsatisfied with the Appeal Tribunal. The MCMC may also resolve dispute about interferences. The consultant draws the attention on the fact that all the operators interviewed do not know the mechanisms to solve their dispute. They generally think that the only possibility to solve their dispute is by negotiation among them. Furthermore, it is necessary to remind too that, so far, the Appeal Tribunal has not been established. Nobody knows when it will happen. 13.2. Recourse against the MCMC’s decisions or directions 13.2.1. The Appeal Tribunal 75 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 According to Section 120 of the CMA, a person who is aggrieved or whose interest is adversely affected by a decision or direction (but not a determination) of the MCMC may appeal to the Appeal Tribunal, unless the matter is not subject to an appeal to the Appeal Tribunal as determined by the Minister. According to Part III of the CMA, this Appeal Tribunal may be established by the Minister of Energy, Communications and Multimedia. Any decision by this tribunal would be final and binding on the parties and would not be subject to further appeal. If created, this tribunal should be composed of : a chairman. The applicant must be a judge of the High Court. at least two other members. Certain requirements are also requested to be a member of the tribunal. The applicant must have a knowledge of or an experience in (a) the telecommunications and multimedia industry; (b) engineering, (c) law; economics or commerce; or (e) public administration. The Consultant does not know whether these qualifications or some of them are cumulative or not. It is difficult to say. It would be astonishing that someone could gather all these qualifications. Chairman and members should be appointed by the Minister for a term not exceeding three years. The appointment of the Chairman or of one of the member can be renewed or terminated any time by the Minister of Energy, Communications and Multimedia, notably for the following reason, among others more objective, which seems to the Consultant’s opinion of an arbitrary nature and could lead to any sort of abuses because of its vagueness: “his performance has been unsatisfactory for a significant period of time”. Furthermore, it should be noted that the Minister of Energy, Communications and Multimedia has also the right to make regulations on notably the tribunal members’ remuneration. So far, few initiatives have been done to create this Appeal Tribunal. The consultant has been told vaguely that this Appeal Tribunal was in its process of creation and that the selection of its members has begun. 13.2.2. Judicial review According to Section 121 of the CMA, a person affected by a decision or other action of the Minister or the MCMC may apply to the court for a judicial review of such decision or other action. On the consultant’s opinion, the determination is covered here. However, the person shall not apply to the court for a judicial review unless that person has exhausted all other remedies provided under the CMA. Section 14 – Prohibition of call back TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 76 According to Section 237 of the CMA, no person shall operate, or provide, or use, a call back service. A “call back service” means a service using any network facilities, network service or applications service that, though uncompleted call signalling or polling from a foreign location, or as a result of such other signalling arrangements as the MCMC may determine, enables a user in Malaysia to call a foreign point without paying the rate imposed by an authorised Malaysian network facilities provider, network service provider and/or application service provider for a call from Malaysia to such point. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 77 PART III : THE GATS COMMITMENTS AND BILATERAL AGREEMENTS Chapter I – The GATS Commitments Straightaway, it should be noted that Malaysian commitments on basic telecommunications services cover local, long-distance44 and international basic telecommunications services supplied over a public telecommunications network, facilities-based, using any kind of technology. Value-added services must be provided from channels or lines obtained only from licensed network operators. Broadcasting services are excluded. Section 1 – GATS commitments by sub-sector 1.1. Data and transmission services covering electronic mail, voice mail, on-line information and database retrieval, enhanced facsimile, code and protocol conversion For the above-mentioned services, no market access or national treatment restrictions have been imposed on two modes of supply (i.e. cross-border supply, consumption abroad). Foreign suppliers are thus free to enter the market and are guaranteed the same level of fair treatment as their domestic counterparts. Mode of supply “commercial presence” knows market access restrictions. Foreign telecommunications operators may only enter the market either through a locally incorporated joint-venture corporation with Malaysian individuals/Malaysiancontrolled Corporation or through acquisition of shares of an existing licensed VAS operator/corporation. Furthermore, aggregate foreign shareholding shall not exceed 30%. The licence shall specify the type of services to be provided and simple resale is not permitted. For this mode of supply, no national restrictions have been imposed. Foreign operators are thus guaranteed the same level of fair treatment as their domestic counterparts. Malaysia has not bound its action for mode of supply “presence of natural persons”, except as indicated in the horizontal commitments (see 2.1.). 1.2. Mobile data services, telex services and telegraph services For these services, the commitments are exactly the same as indicated in 1.1. 44 Malaysian’s GATS commitment uses the term “inter-exchange”... TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 78 1.3. Voice services (wired or wireless), packet-switched data transmission services (including frame relay services45), circuit-switched data transmission services, facsimile services, private leased circuit services and other telecommunications services including domestic/international satellite services and satellite links/capacities (inclusive of mobile satellite), satellite earth stations, international switching and other international gateway facilities, mobile services (analogy/digital cellular), paging services, trunked radio services and video transport services. are considered by Malaysia as basic All the above-mentioned services telecommunications services. For all these services, the specific commitments undertaken by Malaysia are exactly the same as mentioned in 5.1.1., except for mode of supply “commercial presence” which is slightly different when market access for mode of supply “commercial presence” is concerned. In that case, market access restriction is less severe. Foreign telecommunications operators can enter the market if they acquire shares of existing licensed public telecommunications operators. Foreign shareholding is allowed up to 30%. As in 5.1.1., no national treatment restrictions have been foreseen. Foreign operators are thus guaranteed the same level of fair treatment as their domestic counterparts. Section 2 – General rules concerning GATS 2.1. Horizontal commitments Though Malaysia has not bound its action for mode of supply “presence of natural person”, a commitment has been made with regard to market access and national treatment in favour of several categories of personnel : (a) intra-corporate transferees (senior managers46 and at least two specialists/experts by organisation47 provided their entry and stay do not exceed for both of them 5 years) and (b) other (specialists/experts48 as well as professionals49 provided their entry and stay do not “ … Frame relay services, as delivered by the telecommunications carriers, employ a form of packet switching analogous to a streamlined version of X.25 networks. The packets are in the form of “frames”, which are variable in length, with the payload being anywhere between 0 and 4,096 octets. The key advantage to this approach is that a frame relay network can accommodate data packets of various sizes associated with virtually any native data protocol …” Harry Newton, Newton’s Telecom Dictionary, 15th updated Edition, 1999, p. 350. 46 Defined as being persons within an organisation having proprietary information of the organisation and who exercise wide latitude in decision making relating to the establishment, control and operation of the organisation being directly responsible to the CEO and receive only general supervision or direction from the board of directors or partners of the organisation. 47 Specialists or experts are defined as persons within the organisation who possess knowledge at an advanced level of continued expertise and who possess proprietary knowledge of the organisation’s new service products and technology, research equipment and techniques or management. Additional specialists or experts may be allowed subject to market test and the training of Malaysians through an acceptable training programme in the relevant sector or sub-sector, provided that such persons are employees of the foreign service supplier and have been in the employment of that foreign service supplier for a period of not less than one year immediately preceding the date of their application for a work permit and he is to serve in at least a similar capacity. 48 Defined as persons who possess knowledge at an advanced level of continued expertise and who possess proprietary knowledge of the organisation’s products and services subject to market test and the employment of TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 45 79 exceed 5 years for both of them, and business visitors50 provided the stay does not exceed 90 days). They can enter freely the market to assist the provision of the service and are guaranteed the same level of fair treatment as their domestic counterparts. It should also be noted that for the following sector, Malaysia has undertaken commitments: A. Acquisition, mergers and take-overs In the framework of market access under mode of supply “commercial presence, acquisition of assets or interests of Malaysian companies and businesses, mergers or take-overs require approval. Approval is generally granted, except in circumstances where the proposed investment conflicts with the interest of the State. This rule applies to: Acquisitions of voting rights of a Malaysian corporation by any single foreign interest or associated group of 15% or more, or an aggregate foreign interest of 30% or more or exceeding RM5 million in value. Any proposed acquisition of any assets or interests by any means which result in ownership or control passing to foreign interest. Control of Malaysian corporations through any form of joint-venture agreement, management agreement, technical assistance agreement or other arrangements. B. Land, property and real estate In the framework of national treatment under mode of supply “commercial presence”, The acquisition, disposal or dealing of land, property and real estate is possible but submitted to approval. The approval, nevertheless, may be denied if the concerned operation is undertaken for speculative or non-productive purpose or for purposes which may conflict with the interest of the State. C. Incentives and preferences In the framework of national treatment under mode of supply “commercial presence”, incentives and preferences incentives are limited to eligible Malaysian-owned corporations engaged in service sectors promoted by the Government. Any measure and special preference granted to Bumiputra, Bumiputra status companies, trust companies and institutions set up to meet the objectives of the New Economic Policy (NEP) and the National Development Policy (NDP) shall be unbound. Malaysians as counterparts and/or training of Malaysians through acceptable training programmes in the relevant services sector or sub-sector. 49 Defined as persons who possess necessary academic credentials, professional qualifications, experience and/or expertise which have been duly recognised by the professional bodies in Malaysia and registered with those respective professional bodies. 50 Defined as persons not based within Malaysia, receiving no remuneration from a source located within Malaysia, who have been employed for at least one year by a foreign service supplier, whose entry and temporary stay is for the purposes of negotiating for the sale of services or entering into agreements to sell services for that service supplier and who will not engage in direct sales to the general public. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 80 Finally, corporations in which the Government has an interest shall, in acquiring services, give first consideration to service suppliers in which the Government has an interest. This requirement does not prevent the acquisition of services from other service suppliers where their services are competitive in terms of price, quality and delivery. 2.2. Additional commitments These additional commitments contain principles on: Competition. The regulatory body must take measures to maintain fair competition among network operators and safeguard the interest of consumers. Universal service. The regulatory body must take measures to ensure that network operators contribute to Universal service obligation, particularly the extension of services into rural and other underserved areas as stipulated in the licences. Public availability of licensing criteria. The regulatory body must take measures to advise other network operators on the licensed status of each network operator including terms and conditions pertaining to the operator’s licence which govern the right of the licensee to interconnect with operators. Independency of the regulator. The regulatory body must exercise its functions as stipulated under Section 3B of the Malaysian Telecommunications Act. Interconnection arrangements. Interconnection and access between network operators shall be considered on an equitable and non-discriminatory basis Charges for interconnection facilities and services provided by network operators shall be fair and equitable. The technical qualities of interconnection facilities and services provided by operators shall be of no less quality than that provided by them within their own network. Abuse by a domestic network operator of its market power is not allowed when it aims to limit access to essential facilities for interconnection. The network operator that provides the access connection to the customer should be allowed to tell him (the customer). The operators’ financial participation to the universal service must be proportionate to their market share. 2.3. MFN exemptions Liberalisation of measures affecting movement of foreign semi-skilled and unskilled workers into Malaysia may be carried out in a differentiated manner based on reasons including proximity, contiguous or regional, religious and/or cultural compatibility. The measure whose duration is indefinite is justified in order to maintain the arrangements under existing bilateral agreements and to ensure that the movement of foreign semi-skilled and unskilled workers contributes to the social stability and industrial harmony in Malaysia. This precision is important, both from the political and the technical point of view. It results from well known problems concerning ethnical balance in the country. It has nevertheless never been invoked in the course of this study. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 81 Waiver of measures in existing or future policies limiting foreign equity or interests in companies and businesses in Malaysia shall be carried out in a preferential and differentiated manner. The measure whose duration is indefinite would be applied to investments that match Malaysia’s specific development requirements with the abilities and facilities provided by foreign enterprises and their home countries. The objective is to maximise economic benefits of foreign participation in the Malaysian economy. Chapter 2 - Bilateral Agreements Malaysia, as a member country to the Association of South-East Asian Nations (“ASEAN”)51, is party to the EC-ASEAN Cooperation Agreement52 establishing economic cooperation between the parties. However, there are no Preferential Trade Agreements between the EC and Malaysia. The cooperation established by the EC-ASEAN Cooperation Agreement is quite general and none of its clauses apply specifically to the Telecommunications services sector. In general terms, the Agreement declares the commitment of the parties to the principle of MFN treatment and to study the means of overcoming trade barriers (in particular existing non-tariff and quasi-tariff barriers)53. It also provides for industrial and technological cooperation in the field of communications inter alia and establishes the commitment of the parties to encourage “investment promotion and protection arrangements which endeavour to apply the principle of nondiscrimination” and their “aim to ensure fair and equitable treatment and reflect the principle of reciprocity”54. 51 Other member States of ASEAN are Indonesia, the Philippines, Singapore and Thailand. OJEC L 144, of 10.6.1980, p. 2. Article 1 of the EC-ASEAN Co-operation Agreement. Article 3 of the EC-ASEAN Co-operation Agreement. 52 53 54 TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 82 PART IV : LEGAL ANALYSIS , SOLUTIONS OR RECOMMENDATIONS Malaysia seems to be a market where there are problems. A lot of questions are connected to the prices rather than to the regulatory system. This being said, European investors seem modestly interested by this market. This was obvious considering the number of enterprises which refused any kind of discussion. There is no obvious failure in the regulatory regime. Complaints are rather general, and not deeply substantiated. There are several problems that will be described here, but only three of them can be described as substantial. One concerns the rights of way, the second the dispute resolution settlement. The third is about the ISPs’ access to the market. Section 1 - Rights of way 1.1. Identification of the problem For fixed lines, it seems that there are so far no real problems as long as the operator takes all the costs incurred for laying cables. For mobile sites, things are different and there are complaints, notably from a telecommunications operator with foreign investment coming from the EU. Even if the operator owned the land, the permission must be granted to build the site (tower with a cabin and antenna for technical equipment). In 90% of the cases, the operator requests the permit but it receives no answer from the local authorities. So the operator builds the site without authorisation. The problem is that the local authorities can destroy it if they decide to do so. Therefore, a big risk is taken by the operator. Even Telekom Malaysia has this problem. Some sites have been dismantled and the big problem is that this disrupts the service. There is no continuity of the service, and this generates a bad image of the operator. This also creates insecurity for the business, and conseq uently increases costs. The MCMC is aware that mobile sites are built without permit. The reason is the lack of answer by the local authorities. 1.2. Legal analysis Sites are essential for the development of mobile networks. It is very difficult to develop them in Malaysia in the present lack of clear rules. This situation could be considered as contrary to Malaysia’s obligations in the GATS. According to Article III:1, “Each Member shall publish promptly and, except in emergency situations, at the latest by the time of their entry into force, all relevant measures of general application which pertain to or affect the operation of this TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 83 Agreement. “ These rules are presently not available, and this creates a lot of legal uncertainties. The situation is particularly dubious considering the obligations imposed to WTO by GATS Article VI. According to Article VI:1, “in sectors where specific commitments are undertaken, each Member shall ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.” The present system in Malaysia regarding the development of mobile networks certainly does not look “reasonable” or “objective”. This being said, one can not say that there is a discriminatory implementation of the rules between operators. According to Article VI:2 (a) “each Member shall maintain or institute as soon as practicable judicial, arbitral or administrative tribunals or procedures which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services. “ These tribunals and procedures do not exist in the field of mobile networks. According to GATS Article VI:3, “where authorisation is required for the supply of a service on which a specific commitment has been made, the competent authorities of a Member shall, within a reasonable period of time after the submission of an application considered complete under domestic laws and regulations, inform the applicant of the decision concerning the application. At the request of the applicant, the competent authorities of the Member shall provide, without undue delay, information concerning the status of the application.” This provision is presently not implemented. Section 2 - Dispute resolution 2.1. Identification of the problem According to an interviewed operator with EU foreign investment, a dispute has never been brought up to the court. There is no arbitration committee neither. In all cases, when there are disputes, operators are forced to solve it between parties and use political persuasion. Malaysian mentality is to solve conflicts by forging consent. The Appeal Tribunal which must solve disputes between operators and operators and consumers has not been set up, since the entering into force of the MCA. 2.2. Legal analysis This situation is not satisfactory according to different GATS provisions. According to Article III:1, “Each Member shall publish promptly and, except in emergency situations, at the latest by the time of their entry into force, all relevant measures of general application which pertain to or affect the operation of this Agreement. “ Though the Appeal Tribunal is essential for the implementation of the regulatory regime, its organisation has not yet been defined. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 84 According to Article VI:2(a), “Each Member shall maintain or institute as soon as practicable judicial, arbitral or administrative tribunals or procedures which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services. “ This provision is also violated. In addition, one could also invoke the first additional commitment of Malaysia in the 1997 GATS telecommunications agreement. The inexistence of a conflict resolution mechanism does obviously not help the regulatory body to “maintain fair competition among network operators. Thanks to this failure, the legal system becomes more “negotiation-oriented” and less “law-oriented”. Section 3 - ISPs obstacles 3.1. Identification of the problem In the beginning, in the internet service field, the Malaysian government issued licenses to 2 local ISPs : TMNet and Jaring. Both companies have got a special access number. This means that the end-users of Internet dial this special number (composed of 4 digits). With this special number, the end-user can access to lower telephone rates (instead of the rates applied to the normal PSTN line). The prices which are applied to this special code used to be 1.5 cents of ringit instead of 3 cents (which is applied to the PSTN line). Since March 2000 (i.e. since the tariff rebalancing), it is 4 cents for the PSTN line. The problem is that only these two ISPs have been granted this special code. The others cannot have it. The reason invoked by CMC for not giving such a code to the other ISPs is the following : this 4 digit code number is a temporary one. They will suppress it soon. The problem is that this temporary number has become a permanent temporary number. Here the policy is not transparent. The international bandwidth is expansive as already mentioned. An ISP has difficulty to get peering line. Peering lines : the ISPs need to be connected in order to transfer data. The peering lines connect the ISPs between them. For example, peering lines with Telekom Malaysia, Maxis, Jaring. Lighted fiber from Telekom Malaysia is expensive. Telekom Malaysia does not want to sell enlighted fiber (complaint by Jaring). Capacity of leased lines are not enough. Difficult to provide the service as faster as the ISP wants as already mentioned. These difficulties remain minor, except the first one. They could however, according to the consultant, impede the future development of foreign investors in the Malaysian market. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 85 3.2. Legal analysis According to GATS Article 9:1, “Members recognise that certain business practices of service suppliers, other than those falling under Article VIII, may restrain competition and thereby restrict trade in services.” It is clear that granting special access numbers, with preferential rates, to two ISPS is an abuse of dominant position. Furthermore, the additional commitments of Malaysia in the 1997 telecommunications agreement foresee that “charges for interconnection facilities and services provided by network operators shall be fair and equitable”. This is obviously not the case in the present circumstances. OTHER PROBLEMS Section 4 - The issue of interconnection There are minor problems. An interviewed operator complained that it was difficult to get an increase of capacity. Another one considers that it takes too much time to get the interconnection set up. Interconnection tariffs are regulated in the sense there is a ceiling price. The ceiling price is based on the cost. The operators are consulted and they recommend rates to the Ministry. Section 5 - Lease lines Concerning leased lines, there are few problems : An interviewed ISP is not able to offer its services as faster as it wants. There is a problem of capacity. Sometimes it takes several months before getting leased lines (even 7 months). Section 6 - Tariffs The issue of prices is important. Compared to other countries where there are more competitors for telecommunications infrastructures, prices are higher in Malaysia. For ISPs, international bandwidth is rather expensive. The call pass by the normal line of telephone and also by the 1800 number and the latest is also quite expensive. To get leased lines and Frame Relay in terms of international and domestic local access portion, there are difficulties. Prices are high. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 86 Section 7 - Unbundling of the local loop and wireless of the local loop The unbundling of the local loop has not been granted to an interviewed operator with foreign investment coming from the EU. This is the reason why the fixed service business cannot fly. The investment is too big. On the other hand, there is a small problem for the wireless local loop. The interviewed operator wants to use equipment of a certain vendor in different frequency ranges. It applies for a wireless local loop license. The government has granted to the interviewed operator a trial license. This means that the operator can use the frequencies for one period of time and if nobody complains and everything goes well, the government will grant definitively the license. The final decision has not been taken yet. Section 8 - Licenses Here too there are complains but from an interviewed operator with wholly foreign investment not coming from the EU. This interviewed operator requested two licenses at the time of the enactment of the Multimedia Communications Act for both activities : ISP and data transmission. The license for Internet was granted in 2000. But it has not been granted a license for data communications. For data communications services, the government does not issue licenses for foreign companies. So the interviewed company has no license for that and has to work together with local operators . Because the interviewed company has no license for data transmission, they cannot have their own infrastructure and they are obliged to lease infrastructure. The real problem here is that they do not have the choice. Telekom Malaysia is the dominant operator. No other local operator has an infrastructure on the whole territory. The territory covered is limited. So the interviewed company is obliged to lease Telekom Malaysia’s infrastructure. Telekom Malaysia imposes high prices and the interviewed company has no possibility to get competitive prices. Competition in the domain of infrastructure remains thus limited. This limitation will certainly have an impact on the long term development of the Malaysian market. This being said, the problem has been mentioned by the interviewed company, but not by operators connected to EU entreprises. Section 9 - Voice over IP The regulation scheme is not clear. According to the explanations of the CMC, if a company wants to provide voice over IP, it needs an additional license, that means an ASP license, the same as for data communications. The problem is that voice over IP is not categorised as an internet service but as a telecom service. TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 87 Section 10 – The Regulator According to an interviewed operator, the CMC depends heavily on the Ministry, but compared with the situation some years ago, things have improved. This is not enough however. The independence of the regulator has been contested by some operators, for it has not so far controlled properly the dominant position of Telekom Malaysia. The MCMC possesses the necessary powers, but does not implement them. According to the consultant, the situation here can be compared to some extent with the situation of the resolution of conflicts. From the legal point of view, the present organisation does not seem fully satisfactory. Some aspects could be considered as a very weak implementation of Malaysia’s commitments in the GATS 1997 telecommunications agreement. This being said, the number of complaints, and especially of substantiated complaints, remains weak. Section 11 - Money transfer One cannot easily transfer RM outside or more precisely one cannot transfer a big amount of RM without the consent of the Bank Negara (National Currency Authority). Even RM 1 million cannot be transferred to an account abroad. The reason is that the Malaysian government wants to control the outflow of RM to avoid speculation on the currency. So the companies are obliged to invest their money in the country, in the infrastructures for example. It is noticeable that this was reported after the government announced to the IMF the removal of the remaining levy on profit repatriation of portfolio capital TELECOMS MARKET ACCESS STUDY/HERA-CEEI/Malaysia - 08/2002 88