Overview (June 2000)

Introduction
Licensed Activities
Scope of the Licensing Requirements
Problems with Convergence
Migration of Licences
Industry Self-Regulation
Conclusion

Introduction

The Communications and Multimedia Act 1998 (CMA), which came into force on April 1 1999, introduced a broad framework under which the communications, broadcasting and networked information technology industries are to be regulated. The aim is to regulate the industry on the basis that convergence of the various communications media has occurred

With rapid developments in the multimedia and communications industry, there is a need for a regulatory framework to support the main provisions of the CMA. In light this, the following regulations have been issued since April 1 2000:

• the Communication and Multimedia (Licensing) Regulations 2000;
  
  
• the Communication and Multimedia (Licensing) (Exemption) Order 2000;
  
  
• the Communication and Multimedia (Technical Standard) Regulations 2000; and
  
  
• a Communication Commission Notification of Issuance of Class Assignments.

This new legislation revoked a number of regulations, including:

• the Communication and Multimedia (Licensing) Regulations 1999;
  
  
• the Radio Communications (Exemption) Order 1994; and
  
  
• the Radio Communications (Specific Services) Order 1993.

Licensed Activities

On April 1 2000, subsidiary legislation was published in the Official Gazette (and therefore came into force). This additional legislation categorizes the industry into four new categories. Broadly, the CMA requires the following activities to be licensed:

• ownership and provision of 'network facilities', which is defined as 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;
  
  
• provision of 'network services', which is defined as services for carrying communications by means of guided and/or unguided electromagnetic radiation;
  
  
• provision of 'applications services', which is defined as services provided partly by means of one or more network services; and
  
  
• provision of 'content applications service', which is defined as applications services providing content.

The CMA affords the Communications Commission flexibility in deciding whether each of the above activities should be subject to individual or class licences or be exempted from the licensing regime altogether. Essentially, individual licences are intended to be more closely regulated than class licences.

The new Communication and Multimedia (Licensing) Regulations 2000 contains the following licensing matrix:

Scope of the Licensing Requirements

The much-awaited announcement of the licensing matrix gives the industry an indication of which activities are to be liberalized. Compared to the previous licensing regime, the scope of activities requiring licences under the CMA have been enlarged to encompass applications and networked information technology. In addition, the application of the CMA is extra-territorial. Consequently, all applications service providers who "will provide relevant facilities or services in a place within Malaysia" must be licensed.

The Communications Commission has announced that the grant of individual licences will be used as a means to control market entry. For existing operators, the implications are that entry into activities that are subject to individual licences will be limited, thereby reducing the number of potential competitors.

From the regulator's perspective, a balance needs to be struck between licensing a sufficient number of operators to provide consumers with real choice (thus increasing competition) and ensuring that the market can sustain the operators.

Realizing that excessive competition and duplication of infrastructure had resulted from the liberalization of the industry during the last decade, the government has promoted consolidation among licensees. Limited rationalization has taken place, resulting in five fully-fledged telecommunications operators who are licensed to offer fixed line, international and cellular services, as well as four broadcasters (including two pay-TV operators). In June 1998, the director general of telecommunications announced that the telecommunications operators were also allowed to be internet service providers.

In the age of convergence, it appears that networked applications are to be licensed as well. For example, providers of global IP telephony, whose services are accessible in Malaysia, may be caught by the licensing requirement. This raises difficulties, as foreign service-providers are ineligible to apply for licences under the CMA.

Operating without a licence is an offence punishable by a maximum penalty of M$500,000 and/or five years' imprisonment, plus a fine of M$1,000 for every day the offence is continued thereafter. Penal laws are generally not enforceable beyond the court's local jurisdiction (ie they are not extraterritorial). Therefore, prosecution will only apply where the alleged offender is within the jurisdiction or if there are extradition arrangements in place.

The Communication and Multimedia (Licensing) Regulations 2000 prescribe classes of persons who are ineligible to apply for licences, including foreign companies. However while the CMA expressly authorizes the provision of ineligibility criteria for individual licences, no such authorization has been made for class licences. The application of these ineligibility criteria to class licences may be ultra vires, and therefore null and void.

Standard and special licensing conditions are provided in the schedule to the CMA and in the Communication and Multimedia (Licensing) Regulations. A breach of the CMA or the licensing regulations may result in the imposition of criminal penalties and may be a ground for revoking the licence.

Problems with Convergence

Though purportedly based upon segmentation of the industry and on the assumption that convergence between the various media has occurred, the licensing matrix has unfortunately raised more questions than it has answered. In Malaysia's quest to be a communications hub, have we legislated ahead of our time? The use of new terms such as 'incidental network facilities', which is defined as "facilities which are subordinate and ancillary to the primary purpose of a network facility", creates even greater uncertainty. What, for example, is a 'niche connection service'? Yet again, we await clarification by way of ministerial guidelines.

Electronic transaction services are now exempt from the licensing requirement. Does this mean that e-commerce is exempt? You be the judge. 'Electronic transaction services' are defined as "applications services which utilize network services and information processing to conduct and achieve or support end-user or third-party transactions. 'Interactive transaction services' are also exempt; these are "electronic transaction services which involve end-user interaction and where information may be customized according to end-user specifications".

Internet service providers are not permitted to provide PSTN (public switched telephone network) telephony or IP telephony. How does this work in the present regime where telephone companies are also internet service providers?

It is also unclear where the statutory exemption under Section 129 of the CMA fits into the licensing matrix. Section 129 provides that an applications service provider who is not subject to a class licence under Section 126 shall be deemed to be exempt from the CMA's licensing requirements. Before the Communication and Multimedia (Licensing) Regulations were published, no class licences were issued and hence it was thought that applications services were not required to be licensed until the communications minister granted class licences. To add to the confusion, individual licences have now been prescribed, which do not make sense in view of Section 129 which exempts all applications services from the need to have a licence other than a class licence.

Migration of Licences

Little is known about how the new licensing regime will be implemented. Existing licensees (ie, those whose licences were issued pursuant to the previous legislation) may opt either to retain their licences or apply for substitute individual licences under Section 281 of the CMA. In the latter scenario, the minister may declare that an individual licence granted under Section 281(1) be subject to such general or standard conditions as the minister may determine to be in the national interest.

The Communication and Multimedia (Licensing) Regulations specify that the duration of a licence period shall be the residual term under the existing licence or 10 years, whichever is greater.

The explanatory statement to the Communications and Multimedia Bill specifies that the transitional provisions relating to licensing are intended to allow the minister and the commission to establish incentives for existing licensees to move to new licences under the new licensing regime. Paragraph 155 states that (i) such incentives may involve the application of other provisions of the CMA, including provisions on general licensing and the universal service provision system, and (ii) the incentives offered to licensees should benefit the licensee as well as assist in furthering the objects of the CMA. The intention is that no licensee should be worse off under a new licence.

Notwithstanding the consultative process involved in ministerial declarations, existing licensees have no assurance in the CMA that they will be no worse off under the new regime. However, the CMA does specify that no additional benefit or rights will be conferred on old licensees who do not migrate.

In various meetings with the industry, the communication authorities have communicated that incentives will be given to those licensees who migrate. It is not clear what these incentives will be. Now that the one-year moratorium on licensing has been lifted and a significant portion of the industry has already opted to migrate, the nature of these incentives becomes critically important. On the basis of the commission's regulations and statements, the following are some considerations to bear in mind.

Industry Self-Regulation

The CMA has introduced industry self-regulation by creating industry forums to prepare voluntary codes for the industry. However, the codes are not truly voluntary in two cases: (i) where the Consumer Code imposes standard licence conditions, and (ii) where the Technical Standards Regulations 2000 prescribe standard assignment conditions. Also, while Section 98 of the CMA provides that compliance with voluntary industry codes shall not be mandatory, the breach of any voluntary code may jeopardize the licence and the spectrum rights and may breach the CMA, entailing criminal consequences.

Conclusion

It remains to be seen whether the commission will be strict and consistent in the implementation of the new regulations and orders, and whether the new legislation will have a positive effect on the industry. For all intents and purposes, and in fairness to the communications companies, the commission should consider commercial realities and industry practices when implementing and enforcing these new regulations and orders.

For further information on this topic please contact Julian Ding at Zaid Ibrahim & Co by telephone (+603 257 9999) or by fax (+603 254 4888) or by email ([email protected]).

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