Advancement in Telecommunication and Economic Growth - Case of Malaysia

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The JTM then was converted into Syarikat Telikom Malaysia Berhad (STMB) in 1987 under the newly adopted National Corporatization Policy to indicate that it was an autonomous firm. However, STMB was still fully owned by the government. So, STMB released 25% share to public which got the incorporation as a public listed company in 1990. In 1991, it was renamed to what now we know as TM -Telekom Malaysia Berhad. Telekom Malaysia's majority (75%) shares were held by the government including the “special share" (Bursa Malaysia; 2010) so as to ensure the resting of decisive power on the policy of government. With establishment of first private firm - Celcom in 1992 and after 1995 several private telecommunication service providers were already in the market.

1.3 Structural Change in Telecommunication Industry

The SEACOM cable was introduced in 1968 across the South China Sea to connect Peninsular Malaysia and Sarawak. Only in 1983, Datel, the Data Telecommunication System was introduced while in 1985, the first wireless phone called ATUR came in introduced by JTM.

It is important to note that the conversion from JTM to TM was not merely a name change. Suffered by the collapse of commodity prices and the huge fiscal deficit, adopted through the Structural Adjustment Program promoted by the World Bank, and guided by the privatization policy recommended under Reagan-Thatcher doctrine, the government was loosening out its autocratic control over the telecommunication industry by converting the sole government body of JTM into a public listing company of Telekom Malaysia. While government still had a veto power with the golden share making 75% of total equity, Telekom Malaysia’s operational power was allowed to be practiced by the private party selected through and working on market principles. Soon, a private company named Celcom was established which bought over the Cellular Communication of then Syarikat Telekom Malaysia Berhad in 1992.

This opened up the telecommunication market for private sector and the tremendous growth in wireless telecommunication was realized. Telekom Malaysia and the government now were more of a regulators while several private telecommunication industries thrived in the market. Telekom Malaysia now had competitor although had the regulatory power. As Lee (2001) notices, “..privatization and liberalization of the sector in the 1980s ushered in an era of regulatory reforms and competition in the sector. The market structure as well as the regulatory framework and institutions for the telecommunications sector continue to evolve.” No sooner, even the regulatory task was delegated to an autonomous body outside government. Sivalingam (2013) notices, “The role of the state changed from being the provider and regulator of telecommunications services to being the policy maker. The function of regulation was delegated to an autonomous body that was made more responsive to society and the providers of the mobile service. The providers now included privatized entities and private sector firms both domestic and foreign. While the government promoted private ownership and market competition to increase efficiency and reduce to network and form partnerships because of technological interdependence.”

The monopoly is said to be formally ended when Time Telecommunications was licensed for telco services in 1993. In the coming years of 1990s, licenses were subsequently issued for paging, cellular telephone, call box, satellite communications, even fixed land line network and other value added services. Subsequently, six more mobile wireless licenses were on place with two of them having fixed line service licenses too. In addition to Telekom’s wireless service, there were Mobikom, Celcom, Maxis, Mutiara Swisscom (later renamed to Digi), Sapura Digital and TimeWireless.

Some scholars have however noticed and higlighted that even these private firms were politically influenced, as Zita (2007) states - “Requests for licenses frequently by-passed the Jabatan Telekom Malaysia or JTM (Department of Telecommuincations) under the MEPT, going directly to the PM’s Office, with the JTM periodically not informed of licensing decisions until after the fact. Many notable political allies and personal associates of UMNO’s leadership were successful at obtaining licenses.” She exhibits few proof where Mobikom, a venture of Telekom and Sapura Holdings is a company chaired by person who is close associate of then Prime Minister; Celcom is owned by TRI (Technology Resource Industries) which actually was in part of Renong Group, the industrial arm of UMNO and Maxis owned by another close associate of then Prime Minister.

Sapura Digital was soon merged into Time Wireless to be called TimeCel, which Zita (2007) believes the absorption as a result of too many networks for limited population in the country. With the resulting of Asian Financial Crisis of 1997, the industries were collapsing while the telcos were saved through government resources and later merger practices. Bursa Malaysia (2010), illustrates - “The 1998 suspension of currency convertibility left TimeCel and Celcom deeply in debt. To manage the crisis the Government turned to the country’s pension funds, but only after rejecting a life saving bid from Singapore Telecom in 2000 for Time.dotcom. As a consequence about $65 million of Employees Pension Fund (EPF) was used to buy Time.dotcom shares. An IPO in 2001 designed to enable Time.dotcom to retire its debt was only 25 percent subscribed and pension fund money was again used as share prices collapsed, provoking a threat by Malaysia’s trade unions to picket the fund’s headquarters. Finally, in December 2002, Maxis stepped in to buy TImeCel for about $300 million.” Similarly, Celcom chose to get out of crisis by raising a $375 million Eurobond in 1999 but soon in 2002 was defaulted on payments. To avoid foreign creditors seizing Celcom’s assets, the Eurobond was redeemed for $494 million using another pension fund - PDN (Pengurusan Danaharta National) by the government. Telekom Malaysia, again with political influence made a hostile takeover bid for TRI. By 2003, the share swap were arranged effectively merging TM Cellular (renamed mobile cellular unit of Telekom) and Celcom.

Thus, following the response to financial crisis and competitive failures of the industry players, the government had taken to the rationalization of sector, because of which Malaysia went to having only three telco service providers which remains in place till today. Each service provider now has its own international gateway and trunk networks. “Telekom acquired Time.dotcom and Celcom [to be called TM Celcom]. Maxis acquired TimeCel. Telenor increased its minority position