Applications Service Market
There have been several significant developments in the telecommunications sector this year, and the Malaysia Communications and Multimedia Commission (MCMC) has led the way towards greater competition, liberalization and efficiency in the exploitation of resources in the local telecommunications market. The MCMC's initiatives have been particularly influenced by the pro-competition provisions of the Communications and Multimedia Act 1998.(1) The year's most notable developments are outlined below.
On November 5 2001 the MCMC issued an announcement(2) stating that the 3G spectrum will be allocated to just three network facility providers(3) in order to minimize unnecessary investment and duplication in large-scale infrastructure, while maintaining a healthy level of competition. Bidders that do not possess individual network facility licences may be considered on a case-by-case basis, subject to meeting the necessary requirements.
The 3G spectrum will be allocated through a restricted tender process, during which the government will apply the following criteria in selecting candidates:
- the degree of sharing in existing infrastructures;
- performance guarantees;
- evidence of good performance and corporate experience of the relevant company, consortium or joint venture company partners;
- the level of technology transfer and foreign ownership in the company;
- the level of research and development undertaken, alongside efforts to cultivate local research and development;
- the proposed network service and roll-out plans backed by service coverage guarantees. A penalty criteria will be included for failure to fulfil the promised roll-out plan;
- the financial strength of the applicant and its shareholders;
- comprehensive plans and programmes for providing consumers with access to a choice of content and application services;
- the availability of seamless domestic roaming to 2G and vice versa;
- if foreign partners are involved, the level of technology transfer and foreign ownership including a clear statement regarding investment and strategic partnership; and
- the potential and willingness to manufacture 3G equipment, and the development of software applications in Malaysia within a specific timeframe.(4)
The successful bidder of the two 15 megahertz spectrum blocks will be entitled to hold the spectrum for 15 years at a cost of M$50 million, payable in instalments. The price of the 3G spectrum in Malaysia is considerably lower than that of 3G licences paid by Western European telecommunications companies that are now experiencing difficulties in recovering their high costs given that 3G services have yet to be commercially launched there. The government took this example into account in determining the manner in which the 3G spectrum should be allocated.
The announcement to grant the 3G spectrum to just three network facility providers is widely perceived as a move to consolidate the five major telecommunications companies currently operating in Malaysia. The MCMC's decision on allocation is a result of the public consultation that took place following publication of its discussion paper entitled "Concepts and Proposed Principles on the Implementation of Mobile Cellular Services in Malaysia" and industry consultations through the 3G Joint Working Group, formed by the MCMC in 2000.(5)
Tender documents are expected to be issued by the MCMC in February 2002 with further details on the requisite criteria that will be used to determine the 3G spectrum allocation. The MCMC has stated that the spectrum will be issued by July 2002. It is hoped that the successful applicants will launch the 3G service by the end of 2003. This timeline is intended to enable local content and applications developers to produce quality applications and content when the service is finally introduced.
In August 2001 the MCMC announced that it will conduct a study to determine the appropriate market size for future voice-over internet protocol (VoIP) services, which will form the basis for future policy changes.(6) In October 2001 the minister of energy, communications and multimedia stated that his ministry will continue to allow the liberalization of last-mile connections for application service providers providing VoIP but not core network services. The minister has also indicated that the application services market will be further liberalized in 2005, when the provision of application services will only require class licences, which are regulated less strictly than individual licences issued under the Communications and Multimedia Act. The liberalization of applications services is likely to provide the impetus for more players to penetrate the market, which in turn will enhance competition and consumer choice.
The facilitation of the efficient allocation of resources (eg, skilled labour, capital, knowledge and national assets) is among the national policy objectives enshrined in Section 3 of the Communications and Multimedia Act. Accordingly, the last quarter of 2001 has seen the Ministry of Energy, Communications and Multimedia and the MCMC emphasizing the efficient use of resources such as telecommunications towers and spectra.
On October 15 2001 the minister of energy, communications and multimedia stated that the MCMC will issue a guideline concerning the usage of spectra. Since spectra are a scarce resource, unused frequencies and numbers will be reclaimed by the MCMC and dormant licences will be withdrawn; the government does not wish unproductive companies to deprive other players in the market.
On November 2 2001 Malaysia's five major mobile telephone players signed a memorandum of understanding to share telecommunications towers. The scope of the memorandum encompasses:
- the exchange of towers or sites;
- the sharing of costs to build new towers; and
- the rental of towers or sites at an agreed commercial rate.
Currently 350 sites are shared by mobile telephone operators and it is hoped that the memorandum will facilitate a faster, more cost-effective expansion of network coverage. The signing of the memorandum comes at a time when the government has voiced its concern about the fact that there are as many duplicated sets of telecommunications towers as there are service providers, and that the proliferation of towers at the same sites (as well as unnecessary duplication of network infrastructure) indicates that resources are not being managed effectively.(7)
Numbering and electronic addressing plan
Numbers and electronic addresses are seldom considered to be scarce resources. However, the haphazard and unmanaged allocation of numbers and electronic addresses may lead not only to wasted and unused numbers, but also to unnecessary costs and time incurred by missed or misdialled calls. The MCMC has appointed consultants to propose strategic and operational plans and regulations to address this issue, and has sought industry feedback.(8) A public consultation will take place in 2002.
In October 2001 the MCMC outlined its role in leading industry development by way of facilitating and promoting growth in the sector in its Framework for Industry Development for the next five years.(9) The framework, which was produced after consultation with 13 industry players, will be updated every five years to take into account the industry's dynamism. The main aims of the framework are:
- to upgrade network capabilities;
- to improve service quality and choice for customers;
- to manage resources efficiently; and
- to regulate the industry efficiently.
The Framework for Industry Development maps the MCMC's future development of the communications and multimedia industry. The MCMC's initiatives in 2001 demonstrate its proactive approach and committment to assisting the industry to achieve greater competition, in order to enhance consumer choice and the more efficient utilization of resources.
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 email ([email protected]).
(1) See 'Competition' in New Licensing Framework Heralds More Choices for Consumers.
(2) See '3G Licence Guidelines' in New Licensing Framework Heralds More Choices for Consumers.
(3) 'Network facility' is defined in the Overview (November 2000).
(4) See MCMC's Statement on Implementation Of 3rd Generation Mobile in Malaysia at www.cmc.gov.my/preleaseframe.htm.
(5) See Commission Seeks Industry Input.
(6) See 'Liberalization of Application Services' in New Licensing Framework Heralds More Choices for Consumers.
(7) See MCMC's Statement on Implementation Of 3rd Generation Mobile In Malaysia at www.cmc.gov.my/preleaseframe.htm.
(8) See Commission Prepares for Numbering and Electronic Addressing Plan.
(9) See www.cmc.gov.my/publications/FID_ENG.pdf.