Govt Reverses Telecom Merger Directive

Posted on September 1, 1996 
Filed Under Julian, Nikkei Electronics Asia

by Julian Matthews

The Malaysian government has decided to abandon its plans to force telecommunication service operators in the country to merge. Instead, the go-ahead has been given for all operators that have licences for telecommunication services to proceed with their infrastructure build-up and let market forces decide their fates.

In January 1996, the government announced that the telecommunications industry would be rationalized, given the sudden rise of new players in the industry. Since 1991, when the government privatized national carrier Telekom Malaysia Berhad and liberalized the telecommunication industry, licenses had been issued on an ad hoc basis, mainly to politically-connected groups.

Left out in the cold under the government’s January plan were three companies. One, Time Telecommunications Sdn Bhd, had already completed 80% of its US$600 million optical fiber network and signed on 6,000 corporate subscribers.

The company could not launch its international services, a lucrative revenue earner, and was losing potential customers with the uncertainty of its future.

The second, Mutiara Telecommunications Sdn Bhd, which launched its digital Personal Communications Network service in May 1995, had invested about US$320 million into its network already and garnered about 55,000 customers.

The third company, Syarikat Telefon Wireless Sdn Bhd, which operates a wireless fixed phone service based on the Radio in Local Loop (RiLL) technology in the northern region, was already set to expand its service nationwide beginning with the states of Johor and Pahang.

Worry Spurs Consolidation

With the merger deadline nearing, two operators decided to solidify their positions by selling stakes to foreign players.

In May, Mutiara Telecom publicly challenged the government plan by announcing that Swiss Telecom PTT had signed a preliminary agreement to purchase 30% of the company for US$300 million.

Swiss Telecom director Andre Kaser said he saw the tie-up with Mutiara Telecom as an important platform to venture into the region. “Asia’s growth in demand for telecommunications services over the coming years is expected to continue, even beyond the growth rates of the economies,” he said.

Kaser added that Mutiara Telecom was an obvious choice because it had licences to operate a variety of services including international gateway, domestic fixed-line, very small aperture terminal (VSAT) satellite, radio paging and value-added interactive voice and data services.

Two weeks later, Celcom’s parent company Technology Resources Industries Bhd (TRI) signed an agreement to sell a 21% stake in the company for an estimated US$560 million to Germany’s Deutsche Telecom AG.

Company executives explained the TRI-Deutsche Telekom tie-up gave the local company a presence in Europe and in turn provided clout for the German company to extend its reach in Asian markets.

TRI, through subsidiary Celcom, currently has about 70% of the local cellular market and offers both analog and digital services. It has a customer base of about 750,000 with a monthly growth rate of about 24,000 a month.

Despite the government’s about-face on its original plan, the looming threat of losing out appears to have yielded some results. On June 14th, Telekom Malaysia signed an agreement to acquire Malaysian Resources Corp Bhd’s subsidiary, MRCB Telecommunications Sdn Bhd, which operates a cellular mobile service using the 1800MHz Personal Communications Network (PCN) technology, for US$256 million.

Telekom Malaysia already operates an analog mobile service with about 100,000 subscribers and has a 30% stake in Mobikom Sdn Bhd, which operates a dual-mode cellular service, with about 220,000 subscribers.

Two days after the government abandoned its plans to force a consolidation in industry, Time Engineering Bhd signed an agreement to acquire stakes in the cellular and payphone businesses of the Sapura Group for US$480 million in new shares.

Under the deal, Time Engineering said it would pay about US$300 million in shares for a 75% stake in PCN mobile operator Sapura Digital Sdn Bhd and about US$180 million in shares for a 75% stake in payphone operator Uniphone Sdn Bhd. Sapura Digital’s PCN mobile service has about 40,000 subscribers while Uniphone has a network of about 80,000 payphones.

With the move, Time Engineering, together with subsidiary Time Telecom, has transformed itself into a formidable player in the business, posing a bigger threat to Telekom Malaysia.

One stock analyst says as a result of the buy-outs and alliances, Telekom Malaysia stands to lose out the most. “While the other operators can choose to serve the more lucrative urban market, Telekom Malaysia, by virtue of being 70% state-owned, is still obliged to spend money on infrastructure developments in rural areas,” he said.

He adds that the competition from now onwards can only intensify. “The government’s aborted plan in the long term will only delay an inevitable bruising shakeout in the industry,” he said.

Published in Nikkei Electronics Asia, Sept 01, 1996

by Julian Matthews, Malaysian correspondent

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