Broadband Issues (5)

G. Sharmila
KiniBiz
September 12, 2014

A perennial problem is that relative to income, broadband prices are still high in Malaysia. With industry experts and analysts saying that prices are not going to come off anytime soon, can measures be taken to remedy the current situation?

“I like the dreams of the future better than the history of the past.”- Thomas Jefferson

Human beings like the idea of the future because it brings fresh starts and the possibility of righting past wrongs. In the context of broadband pricing, all Malaysians are doubtlessly looking forward to the day when broadband prices become more affordable. In an utopian world, this would mean broadband would become more affordable, as affordable as water and electricity is to us today.

While we’re in an utopian frame of mind, let’s think about what today’s broadband landscape would be like if our government had used Singapore or South Korea as benchmarks on how to rollout a national broadband initiative.

It is indisputable that the National Broadband Plan has resulted in higher broadband penetration in the country, compared to pre-HSBB (High Speed Broadband). And while Telekom Malaysia (TM – the company that owns and operates the HSBB infrastructure) has played a key role in this achievement, the fact remains that the burden of fulfilling the NBP goals rests on one company.

The result of having a single, dominant player as opposed to multiple players building and operating broadband infrastructure is that the market is not as competitive as it could have been.

What should have been done

One may argue that Singapore and South Korea also started out with single broadband players. In the case of Singapore it was SingTel and for South Korea, the dominant player was the then-named Korea Telecom.

However, the respective governments wanted to make broadband available to all their citizens, hence they encouraged other players to come in and build broadband infrastructure and offer broadband services. With more industry players in these markets, competition soon drove prices down, spurring more people to subscribe to broadband services.

“Perhaps a better strategy (for HSBB) would have been for a single, unbiased entity to build and operate broadband infrastructure and then for service providers to lease infrastructure from this entity. But this leads to another issue: who would run the entity?” a telco analyst highlights to KiniBiz.

“If the government had wanted to promote real competition, it would have adopted a model similar to that of Singapore,” says a regional telco analyst who declined to be named. He pointed out that what Singapore did was liberalise its telecommunications sector early on to allow more players into the broadband space.

To the uninitiated, what Singapore did was to liberalise the telco sector in 2000 and wean off the support it had been giving to state-owned SingTel as well as new entrant StarHub. The structure of Singapore’s National Broadband Network (NBN) was such that a private consortium partially funded by the government laid the all-fibre network.

This was labelled NetCo. and on top of this network, a service provider operating company (OpCo) was set up to provide wholesale and backbone services. This was also a private consortium with government funding. Finally, a fully competitive retail service provider layer was added with many operators providing retail broadband services to the end user.

This open access policy by the Singaporean government has resulted in competition, leading to more than 20 service providers today providing various broadband services nationwide.

“The problem in Malaysia is that today equal access is not there, service providers have to commercially negotiate pricing with TM,” the analyst adds.

For now, there is no reprieve for Internet users in Malaysia as mobile Internet prices are still fairly high. “The telcos are pretty comfortable and are not prepared to sacrifice their profit margins as data margins are still low. Hence it will take time for mobile Internet prices to come down,” says the analyst.

To drive down the prices of fixed broadband, the government has to encourage more competition, the analyst says. However, this will be a gradual process and it is hard to say when prices will start coming off and what the catalysts for this will be, he adds.

The government has to encourage more competition

Malaysia should have done something along these lines to encourage competition and drive prices down. Instead of only providing subsidies to Telekom Malaysia or TM to provide HSBB services, it could have opened it to others as well, providing them with similar subsidies.

Critics charge that TM’s cost of rolling out HSBB was way too high. According to sources, TM’s cost of rolling out HSBB was RM7,000 per premise for 1.1 million premises or RM8.7 billion. Compare this to South Korea, which spent some US$50 billion on 44 million users, which brought the cost per user to about US$1300 (RM4,167) per user. However, it is difficult to obtain exact numbers as TM declined to share its pre- and post HSBB subscriber numbers in its email responses to KiniBiz.

Malaysia could have also adopted something similar to Singapore’s NBN model, whereby an infrastructure company can be set up to build and operate broadband infrastructure. All telcos will have a stake in this company, which will be partially funded by the government but have an independent board.

What can be done now

These measures should have been taken four years ago but they were not. So what can be done now? Perhaps for HSBB phase two, more competition can be introduced.

Another, more controversial, option is for the government to sell its stake in TM to a consortium of telcos, who will then be able to get fairer wholesale prices from TM and in turn be able to afford to lower their costs of providing broadband as well. (Note: as of September 9th, Khazanah Nasional Bhd owns a 28.9% stake in TM, the Employees Provident Fund 14.1% and Skim Amanah Saham 11.7%).

The government can chose to directly subsidise this infrastructure company if it wants to bring the price of broadband down but the difference is that all those who ride on the infrastructure will be equally subsidised instead of just TM which uses subsidies to push its own profitability up.

What either strategy will accomplish is a more open marketplace for all levels of broadband players and achieve the broadband goals of the nation at the same time. One hopes that this will be done soon for the target is to achieve 95% broadband penetration by 2020 and it is going to be tough to attain that if broadband prices don’t drop drastically.

Malaysia simply cannot afford to have broadband rates that are several times higher than in those countries such as South Korea and Singapore whose per capita income is already several times Malaysia’s.

Cheap broadband provides an impetus to overall economic growth and therefore incomes by enabling higher productivity, better business processes and more knowledge-intensive operations.

Malaysia had better make this available to its citizens as quickly as possible as part of its strategy to climb up the income ladder quickly and become a globally competitive nation. It is no time to delay this due to lack of political will and considerations of patronage and protection.