Why broadband access will continue to be pricey

Broadband Issues (4)
G. Sharmila
September 11, 2014

Telekom Malaysia’s monopoly over the provision of basic broadband infrastructure and its drive for profit, is likely to keep broadband prices in Malaysia high. Only a drastic change in scenario, which is unlikely to happen, will make a difference.

While Telekom Malaysia (TM) has been lauded as the ‘national broadband champion’, particularly after the implementation of phase one of the HSBB (High-Speed Broadband) initiative, many will say that it is not.

TM itself argues, in an e-mailed response to KiniBiz, that there is little room to bring broadband rates down and maintains that there are special circumstances in Malaysia which makes broadband rates here higher than in other countries.

It is now four years since its fibred broadband service Unifi has been introduced, yet prices of the service are still high and so are prices of its Streamyx broadband service, which runs using ADSL (asymmetric digital subscriber line) technology on copper lines.

In our previous article, Malaysian Communications and Multimedia Commission chairman Mohamed Sharil Mohamed Tarmizi and Fadhlullah Suhami Abdul Malek of the Performance Management and Delivery Unit attributed our slower-than-our-neighbours’ broadband speeds to less demand for such speeds over here. They also said that the reason that broadband is so costly in Malaysia is because of our demand for foreign content, which leads to higher international bandwidth costs and hence higher prices to the end consumer.

But back to TM. One can argue that Streamyx packages should cost much lower than they do today, considering that Streamyx was introduced in 2001. Today, an 8Mbps (megabits per second) Streamyx package bundled with TM’s IPTV (internet protocol tv) service HyppTV costs RM160 a month. In Singapore, SingTel offers a similar ADSL service at 15Mbps with IPTV channels worth S$51.90 (RM131.34) a month.

The comparison doesn’t stop at ADSL services. A 10Mbps fibred Internet package offered by Maxis Bhd costs RM148 a month, whereas a 10Mbps Unifi package by TM costs RM199. A 15Mbps fibred broadband package by Time dotCom Bhd costs just RM179.

So, where did things go wrong for TM’s services to be priced as high as they are? As owner of the country’s largest broadband infrastructure network, can’t it afford to bring prices down further so that Malaysians can enjoy broadband at more affordable prices?

The point we are trying to get across here is economies of scale. During the announcement of TM’s second quarter results on August 27th, its group chief executive officer Zamzamzairani Mohd Isa said that to date, the company has 1.58 million Streamyx customers and more than 685,000 Unifi customers.

It is telling that Streamyx, a copper-based servicetm-unifi-logo-thumbnail, still outnumbers Unifi, the fibred service by more than two to one, implying that the HSBB has not truly taken off yet despite the RM11.3 billion already spent on HSBB infrastructure.

An industry insider KiniBiz spoke to said that TM’s high prices are due to various factors. “TM has a lot of legacy infrastructure, such as old telephone exchanges and copper lines which it it is still paying to maintain. The other reason is that the company itself is bloated, what with over 20,000 employees when other telcos like Maxis are much leaner,” he said.

“They have not yet recouped their investment in the first phase of HSBB and the second phase is upcoming and they will need to invest in that at well. It’s not fair to ask them to reduce prices with them being a profit-seeking entity,” a telco analyst with an investment bank told KiniBiz.

However, the analyst did admit that full-blown competition among players is needed to bring prices down, but he does not see that happening in the near future. “The alternative for the public is to use mobile broadband, however it has yet to be as stable as fixed broadband,” he added.

What TM says

In an email response to KiniBiz on what TM is doing to make broadband services more affordable, its group chief executive officer Zamzamzairani Mohd Isa said that the company has “the most comprehensive and holistic Internet and broadband value offerings for all Malaysians across a spectrum of affordability”. Going forward TM will still focus on delivering more value in line with growing needs of customers, he added.

On the high cost of broadband, he said that that it should not be treated as an apple-to-apple comparison with other countries. “There are many factors that influence the costs of deploying network infrastructure in a particular country, which include the geographical factors as well as the size of the country. In Malaysia, with rural areas and mountain ranges covering a significant percentage of the country, it makes establishing a fully-connected nation a challenging task,” he said.

“TM had adjusted the pricing for our Streamyx broadband packages in 2010 with the introduction of our Unifi high speed broadband offerings and in line with the government’s announcement of the National Broadband Initiative.

“We don’t have plans to raise our broadband prices but will continue to offer more value-added services to enhance our existing offerings hence providing better service experience besides continuously embarking on special promotions to increase the broadband usage and take-up,” he added.

On competition in the local broadband space, the industry insider KiniBiz spoke to said that TM is monopolistic in nature because it has a two-week head start for the rollout of HSBB services in new areas, where during this period other players leasing access from TM are not allowed to market their services.

TM’s Zamzamzairani however denied such claims. “That’s not true. There has been no discrimination in the offering of TM HSBB infrastructure for all players. The moment HSBB infrastructure is declared available in the respective areas, all players inclusive of TM will have equal opportunity to provide their services based on a first-come-first-served basis.”

“From an infrastructure perspective, TM is positioned as a neutral service provider by encouraging other local network operators, application service providers, Internet service providers and other access seekers to ride on both its BAU (business-as-usual) and HSBB network infrastructure,” he added.

For now, there does not seem to be a solution to bring greater broadband affordability to Malaysians, except time, namely time in allowing market forces to gradually bring prices down as companies like TM need time to recoup their infrastructure investments.

So, while things are the way they are now, they do not have to be the same forever. In our next article, KiniBiz looks at some steps that could be taken to bring broadband prices down and change the local landscape forever.

  1. #1 by Noble House on Monday, 15 September 2014 - 3:14 am

    To cater for Unifi, one has to spend anything between RM400-600 to redo the entire wirings to be paid to an “appointed contractor”. Mind you, this is for a private dwelling in question. On top of that, you are charged for the calls made to a “special number” each time you report a fault.

    The term “monopolize” refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition. A monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. There are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. Monopolies tend to become less efficient and innovative over time, as in most cases, becoming complacent domains because they do not have to be efficient or innovative to compete in the marketplace. In addition, monopolies often skyrocket their prices to turn a profit, and since there is no competition, consumers have no choice but to continue paying.

    A competitive market means that there are a lot of companies that sell the same product. With this conditions, if a company raise the price, consumers will easily find another company, losing all profits as dictates by market force.

    So the question: Is a purely competitive firm a price taker? Indeed it is!

  2. #2 by yhsiew on Monday, 15 September 2014 - 7:55 am

    “but will continue to offer more value-added services….”

    Do customers need these value-added services or not?

  3. #3 by Bigjoe on Monday, 15 September 2014 - 8:32 am

    From the start, TM should never have been given a up-front whole contract on HSBB – they should have been subsidized on per-subscriber basis – the old AT&T telco formula. It was ridiculous no one actually brought it up and shows how our consumer movement is not led by people who understand modern consumption.

  4. #4 by Bunch of Suckers on Monday, 15 September 2014 - 10:00 am

    Don’t brand deregulation and competition as the sole factors!!!

    S Korea, China and other nations where deregulation are not the contributing factor; yet their broadband is much advanced and efficient than Bolehland.

    It’s type of infrastructures and quality of tools, managements, maintenances, engineers, technicians and etc that contributing to low prices and quality services..

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