Malaysian ISPs: struggling to keep pace

Posted on June 11, 1999 
Filed Under CNET, Julian

By Julian Matthews

Intel CEO Craig Barrett, on a recent visit to Kuala Lumpur, graded Malaysia’s Internet access performance a poor “C”.

He based this on the fact that the country had only two Internet Service Providers (ISPs) and a users-per-population ratio of 2.5 percent, compared to 15 percent in other countries in Asia.

Malaysia also received a “B Minus” for total international bandwidth which, at only 243 Mbps, lagged behind continent leader South Korea with 518 Mbps.

Barrett said Malaysia needed at least a four-fold increase in bandwidth to be that ideal natural data carrier that it aspires to be through its Multimedia Super Corridor initiative.

He noted that while the country was moving in the right direction strategy-wise, it still lacked widespread points of presence (POPs), strong players to enable the local market, and richer and more relevant local content.

Barrett’s report card had in effect graded Malaysia as an average slowpoke in the new global Internet economy, where only the fast survive and thrive.

In the last few years since the Net caught on in Malaysia, the services of the two ISPs, Jaring and TMnet, have often been found wanting. Irate subscribers have heaped a barrage of complaints including poor access, constant line drops, lack of technical support and missing mail.

Understandably, like ISPs the world over, neither was prepared for the initial explosive surge of interest in getting online by the public.

Can Malaysia feed its Web hungry?

Jaring, run by Mimos Bhd, began as a government-funded research institution with little experience in commercial ventures. On the other hand, TMnet, owned by state-controlled Telekom Malaysia Bhd, had its hands full competing with rival players for the more lucrative mobile and fixed-line telephone services.

As the two ISPs graduate from teething phase to full-fledged value-added providers, the number of users coming online is likely to continue to put unusual demands on their services.

Jaring currently estimates that it has 550,000 users, while TMnet claims 321,000 subscribers. Both expect to exceed a million users each by 2001, more than doubling the total subscription base in just 18 months.

Adding to the mix, Malaysia has shelled out ISP licenses to five more telco players which may introduce their services soon.

TMnet, which has borne the brunt of the complaints in recent months, said it plans to address the congestion problems by increasing the number of POPs nationwide by 20 percent.

“Plans are underway to upgrade the current international bandwidth capacity by 25 percent by year end to cater for expected growth,” said Abdul Majid Abdullah, general manager for Internet Access Services of Telekom Multimedia. “We are also increasing manpower in technical support from 12 persons per shift to 25, and we hope that this will alleviate the downtimes.”

Abdul Majid said that for more bandwidth-hungry applications, TMnet has begun offering a range of high-speed access modes which were rolled out this year, including Asymmetrical Digital Subscriber Line (ADSL) and HiS, a home Internet service developed with Ericsson.

Mohamed Awang-Lah, vice president of Mimos, said Jaring is also expected to double its international bandwidth this year in preparation for more commercial-driven applications.

One factor hampering expansion plans is the high operating costs of international connectivity. Malaysian ISPs, like their Asian counterparts, pay a premium for dedicated leased lines linked to the US-based networks. By contrast, American ISPs pay much less for domestic leased lines.

Unlike the split costs of non-Internet leased lines, Asians pay for the entire circuit to the US–the current reasoning being that US content is more voluminous and attractive.

“Eighty percent of our operating cost is telco related. About half of this is due to international connectivity, which we have to bear the full circuit cost for,” said Mohamed Awang-Lah.

Abdul Majid concurred with his Jaring counterpart that increased operational costs from connectivity was of “great concern as it affects TMnet’s bottom line”.

He indicated that Telekom Malaysia was still in the midst of negotiating either to reduce or share the cost.

World Wide Wait for Net access

On the domestic front, no one disputes that TMnet and Jaring’s access rates for dial-up subscribers are among the lowest in the region. See chart below.

Country / Provider Rate per minute Exchange Rate (Cost in RM)
Malaysia
(TMNet & Jaring)
RM0.025 RM0.025 cents (access & call charges)
Singapore (SingTel) S$0.05 2.2025 RM0.11 cents (no call charges 1999-2000)
US (AT&T) US$0.09 3.8 RM0.342 (package)
Japan(Shinshu) 3.3 Yen 31.81 RM 0.1037 (access charges)
Philippines(Pacific Int.) 1 Peso 9.99 RM0.10 (per block)

Corporate users, however, balk at the high cost of leased lines. Annual access fees for the dedicated lines cost from RM32,000 (US$8,421) for a 128 Kbps line to RM128,000 (US$33,684) for a 2 Mbps line. An additional 50 percent fee on the quoted rate is imposed for unlimited commercial use.

Many have turned to US-based networks for such services instead. Mark Chang, founder of online recruitment service Jobstreet and the Malaysia Online directory service, said cost and inconsistent technical support from local ISPs make US-based networks more attractive.

His solution for improving the ISP market is to add more competitors. “It is similar to the handphone business which saw better service and ease in congestion only after there were more competitors in the market,” he said.

Though announced a year ago, none of the licensed ISPs has taken the plunge yet. Industry analysts say the roll-out delays could be attributed to risks associated with the ISP business and payback time is known to be slow.

The telcos involved–Binariang Bhd, Celcom (M) Sdn Bhd, Mutiara Telecommunications Sdn Bhd, PrismaNet (M) Sdn Bhd and Time Telecommunications Sdn Bhd–also took a beating last year from the recession which stalled their expansion plans for a variety of fiber-optic, fixed-line and cellular services.

TMnet’s Abdul Majid, however, is against more players and feels the number of ISPs should be proportionate to Malaysia’s 22 million population. “Three ISPs would be ideal,” he said.

Malaysia’s struggling ISPs have also been blamed for the slow e-commerce take-off in the country.

Chang says the issue is more of buying habits and logistics rather than about technical lackings and security fears.

“The US buying public is used to using credit cards for phone orders, mail orders and TV sales. The logistics infrastructure to move product easily and cost-effectively is also there. It is easier for them to take it to the next level which is e-commerce. In Malaysia, we don’t have that history,” he pointed out.

Chang adds that the free fall of the economy and huge debts racked up by companies last year may have also stifled involvement in new and risky online ventures.

Another factor likely to impact the growth of the ISPs is the march of foreign portal players entering Asian markets. With their branding and marketing clout, wide experience and better content offerings, foreign players are likely to trample on local players still feeling their way around.

“Foreign players have a bigger ‘war chest’ and this will have an impact on local players. We must ensure that local players get access to lower infrastructure and software costs, and more venture capital funding,” said Chang.

Abdul Majid suggests local players should instead aim to form strategic alliances with their foreign counterparts, so as to gain a foothold and precious technical knowhow in a limited market.

Pivotal to the two ISPs development and survival is the Multimedia Super Corridor, which is drawing a wide variety of IT companies involved in Internet-related ventures. The question is whether Malaysia is ready for mission-critical service requirements that discerning corporate customers demand. Or will it fumble as it has in the past?

Intel’s Barrett says the market will grow to a billion computers linked to the Net in a few years time. That’s a market Malaysia cannot afford to ignore. Local ISPs claim they are ready to face the incoming e-commerce tide. Only time will tell whether they will capitalize on that wave or be all at sea all over again.

Published in CNet Asia, June 11, 1999: Pg 1 | Pg 2 | Pg 3

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