In September 2008, the Government of Malaysia entered into a public–private partnership agreement with Telekom Malaysia (TM) to build and operate a next-generation high-speed broadband (HSBB) network. TM is the incumbent fixed operator in Malaysia and is 30% Government-owned.
The most ambitious phase of the HSBB project involves the deployment of a fibre-based access network either to the cabinets or directly to 1.3 million homes and businesses across Malaysia by the end of 2012. This phase of the project is expected to cost the Government MYR2.4 billion (USD800 million, or USD600 per premises passed). As of November 2011, the HSBB had passed more than a million premises across Malaysia and over 200 000 customers had signed up to the service (over 10% of the total market).
The HSBB is a remarkably ambitious project for a middle-income country like Malaysia. The Government identified TM's crumbling network as a major impediment to broadband reaching its full potential in Malaysia. However, in Malaysia (unlike in Australia, New Zealand and Singapore), the incumbent operator has received government funding without being first structurally separated, which would prevent the subsidised entity from offering retail services. This constitutes a major risk for Malaysian taxpayers and for the telecoms sector as a whole, threatening to entrench TM's monopoly position for many years.
The absence of competition clearly results in high broadband prices, low bandwidth and a lack of innovation. For instance, Malaysia has much lower connection speeds than other middle-income countries such as Romania and Poland, as well as having a more concentrated market structure. This correlation between limited competition and low broadband speeds can also be observed in higher-income countries such as South Korea and Taiwan (see Figure 1).
Figure 1: Fixed broadband connection speed vs. competitiveness of the market [Source: Akamai, Analysys Mason, 2012]1
1SA = South Africa; CL = Chile; MX = Mexico; PO = Poland; RO = Romania; AR = Argentina; TW = Taiwan; KR = South Korea; MY = Malaysia; FBB = fixed broadband; HHI = Herfindahl-Hirschman Index
Strong regulation of access conditions and pricing is essential to prevent TM from being the only beneficiary of the Government's intervention, at the expense of the rest of Malaysia. As access regulation in Malaysia has so far been unable to create the conditions for the development of service-based competition, the structural separation of TM may be more effective.
The stakes are high: Malaysia is betting on becoming a knowledge-based economy and a regional hub for advanced services (such as data centres and cloud computing) to get out of the 'middle-income trap'. To achieve this, next-generation broadband and a vibrant competitive environment are of paramount importance. This requires that the Malaysian Government and the regulator work together to develop strong regulation, to ensure that the Government's visionary investment into the HSBB and TM's so-far remarkable execution in deploying the network benefits all Malaysians.
Analysys Mason advises regulators, in the Asia–Pacific region and across the world, on the design and implementation of national broadband plans, and has extensive experience in advising regulators and operators on access and price regulation issues. For more information, please contact David Abecassis (Senior Manager, Singapore), James Allen (Partner) or Matt Yardley (Partner). More information on our next-generation networks expertise.