Malaysia OKs Higher Foreign Equity for Telcos, New ISPs

Posted on March 5, 1998 
Filed Under AsiaBizTech, Julian

By Julian Matthews

March 5, 1998 (KUALA LUMPUR) — The Malaysian government has raised the ceiling on foreign ownership of telecommunication companies to 49 percent from 30 percent, and granted four new Internet service provider licenses.

Energy, Telecommunications and Posts Minister Leo Moggie said the moves were aimed at further liberalizing the industry.

Foreign parties interested in acquiring stakes in local telcos must have proven track records and be able to add value to the companies they are buying into, he said. Analysts said raising foreign equity was a lifeline to local operators facing tight liquidity as a result of the region’s financial crisis.

Local telcos have found it difficult to raise funds to expand and upgrade existing networks because of the credit squeeze, rising interest rates and market downturn recently.

The number of competing operators has also aggravated the situation.

Apart from government- controlled Telekom Malaysia Bhd., Malaysia has six other operators competing on the same turf offering either fixed-line or mobile services or both.

The six are Celcom (M) Sdn., Bhd., a unit of Technology Resources Industries Bhd. (TRI), Binariang Sdn., Bhd., Mutiara Swisscom Bhd., Time Telecommunications Sdn., Bhd., a unit of Time Engineering Bhd., Mobikom Sdn., Bhd. and Prismanet (M) Sdn., Bhd., formerly Syarikat Telefon Wireless Sdn., Bhd.

At present, four foreign telcos already have interests in local telcos. Germany’s Deutsche Telekom AG has a 21 percent interest in TRI, Celcom’s parent company. US West Inc. has a 19.8 percent stake in Binariang. Swiss Telecom has a 30 percent stake in Mutia-ra Swisscom. And International Wireless Corp. has a 30 percent stake in Prismanet.

Industry sources say that Binariang is now being courted by Britain’s Cable & Wireless Plc., while Time Telecommunications is being wooed by Singapore Telecom Ltd. and Australia’s Telstra Corp.

There were about two million cellular mobile subscribers and more than 4.5 million fixed-line subscribers in the country as of the end of 1997. At least for one company, Binariang, the massive investments in satellite broadcasting, fixed- line and mobile services has begun to take its toll. Binariang recently halted new fixed-line expansion and retrenched 600 staff.

Binariang and Time Telecommunications have also shelved plans to raise funds through initial public offerings last year because of the weak share market.

Last month, the government also allowed TRI, Binariang, Mutiara and Time Telecommunications to offer Internet services from this June to make them more attractive to foreign capital injection.

Currently, only Telekom Malaysia and Mimos Bhd., a government- owned research institution, run Internet services with about 250,000 subscribers between them.

The liberalization of the industry began in the early 1990s, which gave rise to a number of operators all competing for the same pie.

A slew of licenses were issued on an ad hoc basis, mainly to politically- connected groups, for mobile phones and fixed-line networks, fiber- optic transmission, international gateways and satellite communications. In 1996, the government attempted to consolidate the industry by forcing the operators to merge. The rationale was that the Malaysian market, with a population of a mere 21 million, was not large enough to sustain so many operators.

The proposal was also to avoid duplication of resources, reduce high import of equipment and exposure by local banks.

The government abandoned the attempt after the operators balked, claiming they were already committed to infrastructure build up.

Market forces were left to decide their fates, and the recent financial meltdown may have already accelerated that process.

Published in Asia BizTech, Mar 05, 1998

by Julian Matthews, Asia BizTech Correspondent

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