New Licensing Framework Heralds More Choice for Consumers

Licensing
Competition
New Broadcasting Licences
Duplication of Facilities
Liberalization of Application Services
New Investments
3G Licence Guidelines

The minister of energy, communications and multimedia has issued individual licences to licensees that have opted to move to the new telecommunications licensing regime. Most of the telecommunications and broadcasting companies (which were all licensed under the previous legislative framework) have received new individual licences pursuant to the Communications and Multimedia Act 1998. The online register of licences can be accessed at the Malaysian Communications and Multimedia Commission's (MCMC) web site at www.cmc.gov.my.

The conditions of the Communications and Multimedia Act 1998 apply to all individual licences. Conditions include (i) a requirement to notify the minister of energy, communications and multimedia of any joint ventures or consortia into which the licensee enters with any other licensees after the granting of the licence, and (ii) the provision of an indemnity by the licensee to the minister against any claims or proceedings arising from any breaches or failings on the licensee's part.

Licence fees are fixed at 0.5% of the licensee's gross turnover, less rebates for:

• obtaining value added procurement from small and medium-sized enterprises;

• research and development;

• provision of skills and training; and

• local content and production.

The fees are subject to a minimum of 0.15% of the gross turnover of the licensee's preceding financial year or M$50,000, whichever is greater.

Competition

New licensees and those licensees that have migrated to the new legislative regime will be subject to the pro-competition provisions of the Communications and Multimedia Act. Section 133 of the act prohibits licensees from engaging in any conduct that has the purpose of substantially lessening competition in a communications sector. The act also prohibits anti-competitive practices such as collusive agreements involving rate fixing, market sharing and boycott of a supplier or competitor. The act empowers the MCMC to determine whether a licensee enjoys a dominant position, and the MCMC may order that licensee to cease any conduct which has (or may have) the effect of substantially lessening competition and implement appropriate remedies.

Not all licensees from the previous legal regime have chosen to migrate to the new licensing framework. Under Section 276 of the act, old licences continue to have effect provided that they are registered with the MCMC within 12 months of the date on which the act took effect (April 1 1999). The non-compulsory migration of licensees has resulted in an anomalous situation where old but registered licensees that have not migrated to the new regime appear to be regulated neither by the act nor the repealed legislative framework, because the former has repealed the latter.

The act empowers the minister of energy, communications and multimedia and the MCMC to regulate licensees. A 'licensee' is defined as a person who either holds an individual licence or undertakes activities that are subject to a class licence granted under the new act. The definition does not appear to extend to licences issued pursuant to the previous regime. It would be interesting to see how the MCMC would deal with an 'old' licensee that has not migrated to the new licensing regime and is in breach of a condition of the old licence.

New Broadcasting Licences

Following the switching of the old licensees to the new regime, there now appear to be barriers to entry.(1) The minister has indicated that no new individual CASP licences will be issued for:

• satellite broadcasting;

• subscription broadcasting;

• terrestrial free-to-air television; or

• radio broadcasting.

However, content applications delivered through the Internet are exempt, as are closed content, limited content and incidental content applications services.

Duplication of Facilities

The licensing policy also indicates the government's concern over possible duplication of infrastructure and wastage of capital. As such, licensed network facilities providers are limited to the facilities stated in their respective licences. This policy statement may be indicative of the minister's reluctance to grant new individual network facilities licences without evidence that such concerns can be overcome.

Liberalization of Application Services

All holders of individual licences for applications services (including the five major groups of telecommunications companies (telcos)) that switched to the new regime may provide voice-over internet protocol (VoIP). Following the act's recognition of the need for competition in the communications sector, the MCMC has issued 15 licences to non-telco companies, enabling them to provide applications services including:

• VoIP;

• public-switched telephone network (PSTN);

• cellular telephony; and

• public-switched data services.

This represents a significant step towards greater liberalization of the Malaysian telecommunications market and the advent of more choice for consumers.

Recently the MCMC has issued clarifications regarding the licensing of VoIP services following complaints about the operation of these services by unlicensed operators. Under the act, providers of VoIP services must obtain an individual application service licence in advance. The MCMC has stated that individual licences encompass any originating calls made from a personal computer or telephone through the PSTN involving multi-stage access dialling to an internet protocol network. The MCMC added that computer and computer-based internet telephony (which do not involve circuit switching) are exempt from the licensing requirement. In addition, the MCMC is conducting a study to ascertain the appropriate market size for future VoIP services. The study is expected to form part of the basis for future policy changes.

New Investments

There has been much speculation in the domestic telco market about tie-ins between local and foreign telcos. Telenor Asia Pte Ltd's proposed increase of its existing 30% stake in DiGi Telecommunications Sdn Bhd to 61% is significant because it confirms speculation that the permitted maximum level of foreign investment in Malaysian telcos is more than the usual 30% of the local telco's equity shareholding.

The Foreign Investment Committee's approval of Telenor's proposed increase in stakes in DiGi (one of the major players in the post-paid mobile telephone service sector) is viewed as a positive development by the local telco industry. Telenor's acquisition of DiGi is subject to two conditions imposed by the committee. First, DiGi is to have at least a 30% indigenous (bumiputera) equity shareholding and must reduce its foreign equity interest to 49% before December 31 2006. Also, the Ministry of Energy, Communications and Multimedia and the Malaysian Securities Commission must approve the acquisition. During July 2001 the minister of energy, communications and multimedia had been reported as stating that the ministry did not object to foreign participation in the Malaysian telco sector provided that the commission approved the deals. Compliance with the commission's rules is a condition of licences issued under the Communications and Multimedia Act.

Singapore Telecommunications International is reported to be interested in acquiring shares in two of Malaysia's largest mobile telecommunications service providers, Celcom (Malaysia) Sdn Bhd and Maxis Communications Bhd. The injection of capital by foreign telco players may benefit local telcos in intensifying their efforts to introduce new services (eg, general radio packet services) in order to create more choice for consumers, thus attracting more subscribers. The interest of foreign telcos in the local communications markets is an encouraging sign that the liberalization measures introduced through the act (as outlined in Liberalization of Multimedia Industry Will Increase Competition ) are attracting foreign investment, bringing not only much-needed funds in a capital-intensive industry but also foreign technical expertise.

3G Licence Guidelines

The Ministry of Energy, Communications and Multimedia is reported to have stated that guidelines on 3G licences will be finalized at the end of 2001. According to the minister, although the procedural arrangements will be ready by then, the government may not issue the licences immediately because the ministry is aiming to devise a procedural arrangement by the year-end. Malaysia appears to be taking a 'wait and see' position before issuing 3G permits. The ministry's cautious stance may have been influenced by the enormous sums of money spent in the bidding war in western Europe by telcos for the licences to provide 3G services. Justification of that high expenditure is difficult in the face of 3G not being as successful as had been anticipated. Thus, Malaysia has plenty of time to learn from other countries' experiences. The minister is reported to have stated that Malaysia is in no rush to develop its 3G sector as commercialization of 3G services is anticipated to occur only in 2003 or 2004.

For further information on this topic please contact Sharon Suyin Tan at Zaid Ibrahim & Co by telephone (+603 257 9999) or by fax (+603 254 4888) or by e-mail ([email protected]).

Endnotes

(1) Direction 3 of 2001.