Telekom Malaysia

2001 CUSA – System Dynamics Group – Web address: http://www.unipa.it/~bianchi

Exploring Business Growth through

Scenario Planning at Telekom Malaysia Berhad ( * )

1. Telekom Malaysia Berhad: an introduction

Telekom Malaysia (TM) Berhad establishes, maintains and provides telecommunication and related

services under a license issued by the Ministry of Energy, Telecommunications and Posts of

Malaysia. Other business activities include printing and publications, consultancy and engineering

services, public telephone services, provision of mobile telecommunication services, investment

holding and other services relating to telecommunications.

Telekom Malaysia Berhad looks large, not only in the specific context of the Malaysian

telecommunications industry, but also in ordinary life. Since it opened in October 1996, the Menara

Kuala Lumpur 421 meters tower, it provided Malaysia a national landmark that places the country

as a qualified site in the world map in terms of tourism, telecommunications, and development.

Menara is the highest telecommunications tower in Southeast Asia and the 4th in the world. As a

source of pride for every Malaysian, it has become a “must-see” destination for every tourist with

( * ) Case written by Carmine Bianchi, Associate Professor at the Universities of Palermo and Foggia (ITALY).Scientific co-ordinator of CUSA-Systema Dynamics Group – [email protected] case should be used as a basis for class discussion rather than to illustrate "solutions" to problems.

2001 CUSA – System Dynamics Group – Web address: http://www.unipa.it/~bianchi 2

its observation deck and revolving restaurant at 282 meters above the ground. Undoubtedly, it was

the singular showpiece that symbolized the nation’s claim to leadership in the telecommunications

industry in the region. TM claimed a large stake in this national pride.

Aside from towering over the nation’s collective cultural psyche, TM has also been playing a

crucial role in the Malaysian economy. In a relatively small nation of a little more than 20 million

people, it is a big employer with more than 25,000 personnel. It has the largest capitalization on the

Kuala Lumpur Stock Exchange.

Like all giants, TM had its infancy. It was no more than a single 43 kilometre copper line traversing

the dense jungles of Perak that connected the British Resident’s office in Kuala Kangsar to his

assistant in Taiping. Several years after, it included the first submarine cable that connected

Province Wellesley with Penang. Through a merger between the Telecommunications Department

of Peninsular Malaysia and the Posts and Telecommunications Department of Sabah and Sarawak,

Jabatan Telekom Malaysia was born. Then it was privatized in 1987 as Syarikat Telekom Malaysia

Bhd and was subsequently given a 20-year operating license. Finally, in 1991, Telekom became a

listed company bearing its current name 1.

2. Telecommunications in Malaysia

The telecommunications component of Malaysia’s IT sector has been changing rapidly in recent

years. This is part of the restructuring and liberalizing processes that are underway in nearly all

regions and all countries of the world. TM, the country’s telephone system operator has begun the

liberalization process by going from government-owned status to commercial status.

Corporatisation started the process in 1987 and privatisation occurred in 1990; this has added new

accountabilities. “Telekom Malaysia’s company goal is ... to complete the network digitalisation

process by the end of the decade and take it to the final step of providing services not unequal to

those in developed countries by the year 2005. These ambitious goals inspired by Vision 2020 are

necessary to maintain the company's role and position as an industry leader. They are also key to

ensuring corporate growth beyond this decade” 2.

Malaysia has a target of attaining 30 telephones per 100 population; this includes rural areas. In

order to meet such a goal, it is estimated that it will take a doubling of the country’s gross domestic

product per capita from $3,000 to $6,000.

1 Asian Institute of Management - Eugenio López Foundation, Telekom Training College's Strategic Direction: Wean toWwin: a Learning case2 Telekom Malaysia 1993: 1992 Annual Report, Telekom Malaysia Berhad, Kuala Lumpur.


Malaysia’s basic telephone infrastructure is already very good, with telephone penetration rates of

25 per hundred in urban areas and an overall average penetration rate of 15 per hundred for the

entire country.

TM also has an extensive leased line service offering both analog and digital leased lines. Analog

lines officially support data rates of up to 14.4 Kbps, but these circuits are commonly used at 32

Kbps. By the end of 1995, the customer base for analog leased lines had risen to 37,476. Two forms

of digital leased lines are also available.

Digitaline, which is unmanaged, and Digitaline II which is managed. In both cases, the digital

leased circuits provide transmission speeds from 64 Kbps to 2 Mbps. As of October, 1996, there

were 312 Digitaline users and 1,590 Digitaline II users. ISDN has also been available since 1993.

During 1996, capacity was expanded to 4,000 lines with access at 96 locations in Malaysia. As of

October, 1996, there were 608 users of this service.

Another recent development in data communications in Malaysia was the launching of Telekom

Malaysia's COrporate INformation Superhighway (COINS) broadband network in July 1996,

providing a service based on SDH. Typical applications envisioned for the new service include high

speed data transfer, Internet access, interactive multimedia services, video on demand, and video

conferencing, with data rates of between 64 Kbps and 2 Mbps now possible. The COINS network

will also be used as Telekom Malaysia’s Internet backbone.

3. Main key-actors in Malaysian telecommunications

Jabatan Telekom Malaysia (JTM) is assigned the role in Malaysia for the regulation (i.e.,

enforcement, licensing, rates and tariffs) of the telecommunications industry. JTM is a government

unit within the Ministry of Energy, Telecommunications and Posts.

Within the context of Malaysia’s industrial master planning, JTM is concerned with keeping IT-

related prices down; for example, low costs are needed to access foreign data bases as in the case of

Internet.

Further, it is clear that if TM, as a dominant operating player in the country’s telecommunications

arena is unable to meet Malaysia’s various IT goals, then competitive actors can emerge in

Malaysia’s more open privatisation environment; new players can be licensed, thus by-passing

current providers of telecommunications services.

Recently, four new operators in wireless communications were licensed.


On 17 May 1994, Prime Minister Datuk Seri Dr. Mahathir Mohamad announced Malaysia’s

National Telecommunications Policy (NTP). The NTP was seen as providing a roadmap for the

development of Malaysia’s telecommunications sector for the next century, both domestically and

globally.

The Government believes a competitive environment needs to be created and in line with this, it

allowed more than one network operator to provide improved telecommunications services. For

domestic services, the NTP will outline the availability of high technology, cost-effective,

sophisticated and quality telecommunications services comparable with those of developed

countries. In the international arena, the NTP will ensure the country be a more competitive

telecommunications services provider and a market leader in the Asia-Pacific region as well as

worldwide. Therefore, the country must strive to become the regional and international

telecommunications hub in Southeast Asia.

NTP is intended to enable “Malaysian companies to invest in telecoms projects to prevent foreign

companies from monopolising the industry”.

Binariang Sdn. Bhd. announced that it will invest US$1.3 billion to establish its

telecommunications infrastructure system. This system will include Malaysia’s first

communication satellite system, the Malaysian East Asia Satellite, i.e., MEASAT-1.

In addition to Telekom Malaysia, Binariang and Cellular Communication Network Malaysia

(Celcom) will offer international telephone services; domestic long distance services are offered

by the same three operators, plus Time.

The wireless market has six main competitors: Celcom (who is the market leader), Maxis Mobile,

Digi Telecommunications, TMTouch and Mobilkom (both belonging to Telekom Malaysia).

Related to Malaysia’s more recent integrative phase of IT development, MAMPU is conducting a

telecommunications study for the public sector. Being explored is the prospect of developing a

government integrated telecommunications network (GITN). Also, MAMPU is exploring the

possibility of disseminating government and private information to be utilized both by the public

sector and the private sector. MAMPU's explorations include: (1) the search for cases of

computerized government-information centres, the information of which is accessible to the public;

(2) the nature of the management systems for such centres, i.e., whether private or public; (3) the

means of information dissemination from such centres; and (4) pricing for access to the information

of such centres. These are the kinds of operational questions that are critical in a more liberalized,

information age environment for Malaysia.


Similarly, the Ministry of Science, Technology and the Environment of the Government of

Malaysia is developing the Malaysian Science and Technology Information Centre (MASTIC).

MASTIC is to be operated as a division of the Ministry and it is to develop, collect and disseminate

science and technology information in direct support of Malaysia’s national economic development

plans and industrial technology strategies. After conducting client organization science and

technology needs assessments and evaluating such information availability and the information,

statistical and library systems services that should be provided, MASTIC is planned for

implementation in 1994. When fully operational, MASTIC will facilitate and strengthen Malaysian

industrial science and technology policy formulation, policy analysis and evaluation and the

resultant economic development outcomes. MASTIC therefore, is another critical element in

Malaysia’s capacity building for the information age and to enable it to compete effectively both

regionally and globally in the information-based industries that are driven by science and

technology.

4. Telekom Malaysia mission and fields of activity

Telekom Malaysia Berhad, which once owned Malaysia’s telecommunications landscape, now

faces growing competition with the opening of the country’s telecom markets. Telekom Malaysia

provides voice and data services to 4.4 million subscribers. Operations include TelCo, its core

telecom business; Telekom Multimedia, which develops new media businesses; and ServiceCo,

which oversees operational activities such as fleet and property management.

The company is also a leading Malaysian ISP.

Among Telekom Malaysia subsidiaries are units that publish phone directories, provide mobile

phone service, and operate fiber optic networks. The company also owns stakes in businesses in

nine countries in Asia and Africa.

Its mission is to be a World Class Telecommunications Company providing total customer care.

Since Corporatisation in 1987, it has progressively sharpened its capability to lead the

telecommunication industry in Malaysia. Being the pioneer in the industry, the market and customer

expectation from it have also been increasing. It is expected to provide modern and high quality

telecommunication services in a timely manner and at an affordable and competitive price to all

users.

The coming years will see rapid rise in customers demand for better service quality and cost

effectiveness. To meet this demand, no effort will have to be spared to improve TM services and


introduce new products using latest and most up-to-date technology to facilitate competitive edge in

business and satisfy social needs.

Finally, as the world moves towards script less and laptop transactions, TM will have be with its

customers to provide all communication facilities and at the same time remain committed to provide

you with total solutions.

Today TM offers a wide range of modern telecommunications services, including:

• subscription telephone services;

• national and international public packet switched services for transferring and accessing

information through computers (MAYPAC);

• circuit switching services used for the switching of calls between data terminals exclusively for

data transmission (MAYCIS);

• facsimile service (Telefax); data transmission services over the public switched telephone

network (Datel);

• a computer-based messaging service via electronic mail boxes and message delivery to telex or

facsimile terminal (Telemail);

• Telex; a mobile Automatic Telephone Using Radio (ATUR) services, this combines cellular

radio technology and computerized telephone exchange;

• Integrated Services Digital Network (ISDN), this is a high-quality, fast, higher volume one-line

integrated services system that can include voice, graphic, text and data communications such as

telephone, fax, telex, data transmission and computer networking without having to use separate,

multiple lines.

It also offers Telita, a videotex service. This provides the subscriber with a two-way, user-friendly

information retrieval and communication service by means of a telephone and a videotex terminal,

or adapted television set, or personal computer with applicable modem and software.

And, via joint venture, Hong Kong-based Hutchinson Paging, has introduced Malaysia's first

national radio paging service. It provides service in three languages, Mandarin, English and Bahasa

Malaysia.

5. Telekom Malaysia organisation structure

The company organisation structure is portrayed in the following chart.


Let’s analyse in more detail the main business organisational areas.

a) ServiceCo

Provides the umbrella for the non-telecommunications activities such as fleet management, property

management, security services and training, which supports the core business.

These activities are positioned as profit centres seeking business from other divisions on a

competitive basis. At the same time, they seek to develop a market outside TM to ensure a

diversified market base.

b) TelCo

Manages the core telecommunication business, where the focus is to achieve operational excellence

based on a customer segmented strategy. To ensure customer focus.

TelCo is divided into Strategic Business Units (SBU). The SBUs are tasked to meet the current and

future needs of a market segment.

TM’s new services are based on feedback from the respective SBUs as per customer demands.

c) Telekom Multimedia

Telekom Multimedia, the multimedia arm of Telekom Malaysia Berhad, was set up in 1996 to

venture into the Internet and multimedia solutions industry. Since November 1996, when it was


given an ISP (Internet Service Provider) license, TMNet has quickly grown to become one of the

largest and fastest growing ISPs in Malaysia with a customer base close to 1,000,000. Among

TMnet's product offerings are TMNet 1515 dial-up, TMNet 1525 ISDN, TMNet Direct, Netmyne,

TMNet Global Roaming, EastGate, and many others. Telekom Multimedia is also offering WAP

services that collaborate with its sister cellular companies, TMTouch and MOBIKOM.

Develops new media businesses with particular emphasis on network-enabled multimedia

applications.

Telekom Multimedia’s major focus is currently on value-added internet services, electronic

commerce services and smart cards. It is also involved in developing applications for distance

education, telehealth, financial services and broadband services.

6. The emerging competition in the Malaysian communication market

Once, at the beginning of the ‘90s, the Malaysian government ended TM’s monopoly, new players

promptly challenged its market dominance. Since then, the rules of the game dramatically changed.

With the playing field levelled, the competition relentlessly intensified. Although the financial

performance did not reveal a downward trend, specifically in the two years following the entry of

other players, the competitors may have gotten a much bigger piece of the cake.

Telecommunications accounted for 96% (telephone calls, 61%; telephone rentals, 19% & other

services, 16%) of TM’s 1999 revenues. This was the segment it traditionally dominated lopsidedly

since it pioneered the service. It was also the segment where the other players confronted immense

barriers since it was too costly to invest in the same infrastructures that TM already had. But even

this “last frontier” would soon be besieged ruthlessly by the competitors which would erase any

built-in advantage by TM.

Equal access (EA), introduced in January, has yet to threaten TM’s dominance. EA allows

subscribers to use alternative trunk and international networks. The EA threat was described as a

“damp squib” thus far. “Newcomers are finding it difficult to garner equal access customers

because an inconvenient switching procedure works to Telekom's advantage”. So far, about 76,000

out of about 4.3 million of Telekom’s fixed-line subscribers have signed up for equal access with

the other telcos 3. However, EA has progressed very slow till now.

3 CNET : Internet : Guidebook Latest Telekom Malaysia News on Bernama. From Bernama Website.


According to TM C.E.O. 4, “It’s not easy to explain why competitors have not moved very fast on

EA. I believe, they were not very well prepared, e.g. in order to be able to participate in EA, you

must have your own billing system for EA. This may take time to implement. There must be a

system of monitoring all the customers which have registered on your network. Otherwise there will

be a possibility that people who are not registered may, through using the EA facilities, take

advantage of your network. I think there were various concerns such as this which they were not

prepared for”.

“The other question is that, some of them may decide that there may not be such significant benefit

from EA. But one of the things that surely must have affected their plans is that, we were on the

aggressive a couple of months before EA. We had launched the TM Family & Friends programme

and similar programmes for business customers. As a result, they were taken off guard and a lot of

the type of promotions which they wanted to launch may in fact, be ineffective, or would have been

ineffective because of our preparation. Whether they will participate in a greater way in the future,

we don’t know. One of the interesting thing is which the Regulator decided that there should be

maximum discounts on tariff under EA”.

TM’s C.E.O. concludes: “There is no time limit for the tariff discounts - it can continue indefinitely.

TM do not rely on the floor prices which can be offered to our customers. We are cutting down on

production cost so that when the time comes, we can offer very competitive rates, whatever these

are, and still maintain our margin. This is a ruling which had been laid down by the Regulator and it

should be enforceable. All the other and similar rulings made by the Regulator have in the past been

enforced. The Regulator, over a period of time would streamline the discounts. What the Regulator

probably must have seen is that, there must be some kind of order in the Malaysian market in order

that all the players can benefit. The Regulator do not wish to have a situation of cut price

competition, as could easily happen in Malaysia affecting the health of any telephone company”.

There is public perception that TM may not fare well in a competition that has no tailored rule

favouring a single player. Fear of the EA policy, yet to take effect on January 1, 1999, began to

show on TM’s share prices.

For the 52 weeks ending 4/13/01, the stock of this company was down 30.7% to 9.35 Malaysian

Ringgits. During the past 13 weeks, the stock has fallen 12.6%. During the past 52 weeks, the stock

of Telekom Malaysia Berhad has outperformed the three comparable companies, which saw losses

between 39.3% and 65.6%.

4 Investor Relations Quarterly, issue 21, 1st quarter 1999


During the 12 months ending 12/31/00, earnings per share totalled 0.23 Malaysian Ringgits per

share. Thus, the Price / Earnings ratio was 40.65. Some Wall Street research analysts are hesitant to

recommend stocks that have sales of over US$1 billion and a P/E ratio of over 40. This is because

companies already this large may have some difficulty expanding quickly enough to justify such a

high P/E ratio. Earnings per share fell 15.8% in 2000 from 1999.

TM company is currently trading at 3.24 times sales. The three companies vary greatly in terms of

price to sales ratio: trading from 0.48 times all the way up to 3.31 times their annual sales. Telekom

Malaysia Berhad is trading at 2.24 times book value.

SUMMARY OF COMPANY VALUATIONS

Company Date P/EPrice/Book

Price/Sales

52 Wk% Chg

Telekom Malaysia Berhad 4/13/01 40.7 2.24 3.24 -30.70%

SmarTone Telecommunications HoldingsLtd

4/12/01 N/A 1.06 1.94 -65.64%

Okinawa Cellular Telephone Company 4/13/01 117.5 2.71 0.48 -62.74%

Cable & Wireless Optus Limited 4/12/01 47.8 2.76 3.31 -39.26%

The market capitalization of this company is 28.59 billion Malaysian Ringgits (US$7.52 billion) .

Closely held shares (i.e., those held by officers, directors, pension and benefit plans and those

shareholders who own more than 5% of the stock) amount to over 50% of the total shares

outstanding: thus, it is impossible for an outsider to acquire a majority of the shares without the

consent of management and other insiders. The capitalization of the floating stock (i.e., that which

is not closely held) is 12.18 billion Malaysian Ringgits (US$3.21 billion) .

The competition is more complex since the products are highly substitutable and, therefore, pricing

and better service could offset any advantage. The first case in point are the payphones, and

business and residential phones which used to be monopolized by TM, but now customers have

choices and this re-defined the level of competition. Being the giant and the dominant leader in the

industry may not always be advantageous. This was best illustrated by the second case in point,

which was the segment of cellular services. Although Telekom and Celcom were both granted

cellular services licenses in 1989, TM’s Atur 450 service actually lost customers. Its subscriber base

of 96,000 in 1995 decreased to 80,000 by the end of 1996. In contrast, Celcom’s subscriber base

phenomenally surged past 800,000 subscribers-


7. Merger scenarios in the Malaysian telecommunications industry

Industry players are reluctant to reveal their hand on consolidation moves, but analysts say telcos

have had discussions about “business combinations”. The signals given out have sometimes been

confusing, to say the least.

For example, Maxis’ controlling shareholder, T. Ananda Krishnan, while dismissing speculation

that Maxis was keen to acquire a stake in Time Telecommunications, also left a teaser. “Halim Saad

(chairman of Renong Bhd which controls Time Engineering) is a good friend of mine ... if we are

doing something, we will be doing it together”, said the low-profile tycoon in response to reporters’

queries at a recent function 5.

On possible merger combinations, SG Securities’ regional telecoms analyst Michael Millar believes

there will eventually be two main groupings, headed by Telekom and Maxis, and possibly one other

smaller niche player.

“Telekom and Maxis are in better financial shape than their rivals” said Singapore-based Millar.

Privately-owned Maxis has British Telecommunications (BT), which bought a 33 percent stake last

year, as a partner and is bolstered by the latter’s technical and financial support.

Millar views Maxis, Malaysia’s second largest cellular operator with about 600,000 subscribers, as

a more suitable partner for Time Telecommunications than Telekom. “Maxis is strong on the

cellular side but lacks Time’s fixed line infrastructure”, he adds. “A Telekom-Time tie-up would

result in a duplication of assets as Telekom already has a fibre-optic network through subsidiary

Fiberail”, he says.

Millar also sees TRI’s Celcom as a good match for Telekom. “Its cellular operations are still quite

weak. Given TRI’s strength in this area, a tie-up with Telekom will make more sense”, he adds. If

Telekom were to buy Celcom, this would give it a commanding position in the cellular market.

DiGi Swisscom may yet have an independent future, even though it suffered a body blow when

Switzerland-based Swisscom AG bailed out of DiGi and another Indian telco, purportedly to

refocus on its operations in Europe.

Swisscom had held a 30 per cent stake, worth US$243.6 (RM925 million) in DiGi Swisscom since

1996.

OCBC’s Lian said Digi Swisscom could possibly survive as a niche player by concentrating on its

cellular service. DiGi, which has about 300,000 subscribers, currently holds more than two-thirds of

5 CNET, Internet : Guidebook CNET in Asia - Matchmaking Malaysia's Telcos


the market share in the pre-paid sector. Its future will be considerably brighter if it manages to woo

a new foreign partner. Analysts say DiGi has been talking to several interested parties, including

Australia’s Telstra.

Lian says the merger process would move faster if the government provided prospective buyers

with incentives like tax break, and creditor banks agreed to write down the debts accumulated by

the ailing telcos.

Analysts are worried that the stronger telcos such as Telekom and Maxis may be pressured into

bailing out the weaker telcos. “I don’t discount that possibility”, said Shamsul Shamsudin, senior

analyst at Pesaka Jardine Fleming Sdn Bhd. Being state-owned, Telekom may have to take over a

weaker telco if the “government willed it”, she adds.

In the past, cash-rich Telekom has rescued loss-making cellular operators.

Telekom acquired TMTouch for US$167 million in 1996 and forked out US$48 million last year

for the remaining 43.5 percent in associate company Mobikom Sdn Bhd.

“The Mobikom deal was quite obviously a bailout”, says an analyst at another securities firm.

Turning around these ailing companies has been major headache for Telekom. Together, TMTouch

and Mobikom blew a hole in Telekom’s first half results, with a loss of US$52.6 million 6.

However the merger process plays out, analysts agree that the Telekom grouping will still rule the

roost, with the Maxis-led grouping playing a supporting role. Telekom currently benefits from a

fragmented industry where newcomers have a tough time trying to make a dent on the incumbent’s

fixed-line dominance.

With its competitors bogged down by debt restructuring exercises rather than expanding, the

recession has actually strengthened Telekom’s grip on the industry.

The utility giant has also moved swiftly to entrenched itself in the Internet business. Telekom

operates one of only two active ISPs in Malaysia, and its almost 350,000 subscribers at the

beginning of 1999 represented a 56 percent market share. Its subscriber base was expected to reach

425,000 by end-99. Only Maxis, among the other telcos, had announced plans to start providing

Internet access.

If Telekom will be able to play its cards right and is able to resist pressures to tie up with a partner

without obvious synergies, Malaysia’s remaining telcos will likely have to carry on playing

bridesmaid for years to come.

6 For more details, see next paragraph.


8. The Malaysian Basic Telephone Services Market.

Since it is the telephone network that historically has held the key to Internet costs, creating a

competitive basic services market will be key to bringing the cost of Internet access down. In many

countries, it is the high cost of access as much as the cost of subscribing to an Internet service, that

keeps prices high, and keeps the total subscriber base for Internet use low 7.

The creation of a competitive market for basic services will be a key to lowering the cost of

telephone calls for Internet connections. Currently about 60% of all charges go to the Telekom

Malaysia for the telephone call to the Internet, while the remaining 40% are for the cost of network

access. This is based on the special charge rate of 1.5 sen per minute charged to Internet users,

which is half what the normal rate is.

Malaysia has already set a course to create a competitive market structure for basic services. JTM

has issued a number of basic telecommunications services licenses to the following companies:

COMPANY DATE OF LICENSETelekom Malaysia Jan. 1, 1987

Binariang Mar. 1, 1993Time Telecommunications June 1, 1994Syarikat Telefon Wireless Dec. 24,1994

Celcom May 5, 1994Mutiara Telecommunications Jan. 18,1995

Fiberail Jan. 31,1995Basic Telephony Service Licenses In Malaysia

JTM has set a deadline of January, 1999 for full competition in Malaysia’s domestic and

international services markets to be in place.

At that point, Telekom Malaysia’s monopoly on local services will have ended and operators will

have "equal access" to each other's networks.

So far, only one company, however, Time Telekom, has launched its basic services, while

Binariang is just starting to advertise them.

9. Mobile Communication Strategies

On 14th May 1998,Telekom Malaysia entered into a conditional Sale & Purchase Agreement with

Permodalan Nasional Berhad, Edaran Otomobil Nasional Berhad and Sapura Holdings Bhd to

acquire the balance of 43.85% equity interest in Mobikom for a total cash consideration of

7 For more details on internet strategies in Malaysia see par. 10


RM182.7 million. This was based on a price of RM3.00 per share. Upon completion of this

acquisition, Mobikom will become a wholly-owned subsidiary of Telekom Malaysia.

Mobikom commenced business in 1993 and has an issued and paid-up capital of RM138.9 million.

The acquisition was done in order to provide critical mass to Telekom Malaysia’s cellular business,

increasing customer base to 420,000 active customers. Total market was estimated at 2.5 million.

Subject to approvals from the regulatory authorities, after such acquisition, TM decided to transfer

the entire share capital of Mobikom into TM Cellular. The business and assets of ATUR-450

service would have also been transferred into TM.

The business strategy for the domestic cellular business was driven by three key considerations; (i)

nationwide coverage with focus on appropriate technology in different areas; (ii) improving service

quality in terms of call quality and facilities available to subscribers; and (iii) providing cellular

services profitably, at the lowest cost and the best price.

Accordingly, Telekom Malaysia’s cellular business strategy after consolidation would have been as

follows :

1. In the current economic scenario of scarce financial resources, it was unlikely that PCN

services can achieve the same level of coverage as Mobikom and Celcom’s AMPS service or

ATUR-450 in the medium term. Telekom Malaysia therefore, felt that Mobikom’s AMPS

service would have continued to play a significant role in the Malaysian cellular industry.

2. Mobikom and ATUR-450 would have concentrated on retaining their existing subscriber base.

TM would have also sought to add additional AMPS subscribers in rural areas and small towns

where GSM and PCN-1800 were not yet available. There was substantial under-utilisation of

capacity in many areas in the AMPS network, and these subscribers can be added with

marginal capital expenditure.

3. A key task of the technical teams of Mobikom and TM Cellular would have been the

integration of the two networks, to the extent possible, including billing and customer care.

4. TM Cellular would have gained access to 2X11 MHz of frequency in the 800 MHz

spectrum. This will definitely enable TM to pursue wireless local loop applications using spare

spectrum where available.

Upon consolidation, Telekom Malaysia was expected to realise: (i) significant savings in

operational costs; (ii) significant savings in capital expenditure; (iii) development of common

marketing strategies, promotional plans and distribution of network; (iv) development of common


billing and customer care platforms; (v) reduced gearing and fund requirements; (vi) optimisation of

resources; and (vii) management focus.

During 1999 Telekom Malaysia has invested heavily in its mobile communications networks in an

effort to close the gap on rivals Celcom, Maxis Mobile and Digi Telecommunications.

By mid-1999 Telekom Malaysia’s GSM (TMT Touch) and D-AMPS (Mobikom) networks had

182,000 and 153,700 subscribers respectively as compared to Celcom’s 643,000, Maxis Mobile's

610,000 and Digi Telecommunications' 490,000. The national PTO's poor performance in the

mobile sector has led to speculation that it may move to acquire one or more of its competitors.

Further information on the Malaysian market can be found in CIT Publications’ Datafile of Asia-

Pacific Telecommunications.

10. Malaysian Internet players’ strategies.

Constraints on Internet Development in Malaysia.

The adoption of a technology into a new market always faces constraints.

With regard to the Internet, these include language barriers, income levels, the quality of the

telephone network, and the level of computerization in the country. Another key is whether or not

government policy regarding market structure supports the emergence of a competitive market for

services.

According to a survey conducted in 1997 by the Asian Technology Information Program, the

estimation of both the total base of personal computers in Malaysia, and the total sales (as well as

their growth rate) are useful basis to evaluate the potential Malaysian Internet market. In the

Seventh Malaysia Plan, there were an estimated 350,000 personal computers in Malaysia at the end

of 1995, up from 160,000 in 1990. That corresponds to an annual growth rate in the use of

computers of 17%, being the computer density of two computers per hundred persons.

MOBILE MALAYSIAN MARKET SHARES (mid 1999)

TMT Touch9%

D-AMPS 7%

CELCOM31%MAXIS

29%

DIGI24%


The survey remarked that sales of personal computers were about RM350m (US$140M) per year

and the market was growing at about 20% per year.

Based on the above figures and assuming that there is no mortality rate amongst PCs, it was

estimated the total PC base for Malaysia for the rest of the decade as follows:

END OF YEAR TOTAL PCs

1995 350,000

1996 425,000

1997 515,000

1998 623,000

1999 753,000

2000 908,000

Projected PC Base for Malaysia through Dec. 31, 1999

(Source: Asian Technology Information Program (ATIP): The Internet in Malaysia, January 1997)

Provided that even in those countries where the Internet use is high, such as the USA, only about

25-30% of all PCs were on the Internet at that time, and assuming that, by the end of the year 2000,

30% of all PCs in Malaysia was expected to be connected to the Internet, the survey estimated a

demand of about 300,000 Internet subscribers. The Seventh Malaysia Plan put forth the goal of

having 400,000 Internet subscribers by the year 2000. Based on the above estimates, which was an

attempt at a “best-case” scenario, this level of Internet use was considered difficult to achieve.

Conversely, an analysis done in 1998 by the U.S. & Foreign Commercial Service and U.S.

Department of State suggested that the potential market for the year 2000 would have been much

higher (i.e. more that one million subscribers).

With regard to Internet development and IT in general, there is a great deal to be said for Malaysian

markets. English is in widespread use, so software packages can be adopted without any need for a

costly, time consuming customisation process.

For a developing country, income levels in Malaysia are relatively high, with a per capita income of

US$4,400 per year; this has been increasing at about 8% annually.

The telephone infrastructure, especially in the cities, is also quite good and has reached close to

developed country levels.


Two important constraints exist to the development of the Internet in Malaysia, however. First,

unlike most other Internet markets in the region, and unlike most other Malaysian telecom markets,

the market for Internet is not yet fully competitive. Currently, only two ISPs have been licensed.

Second computers are not yet in widespread use in Malaysia. Although – as previously remarked –

the market for computers is growing quickly, at about 20% per year, the relatively small number of

computers in the country means that for the near future, that will become the key limiting factor to

future Internet growth.

The Malaysian national research and education network.

Until 1996, there was only one Internet Service Provider, the Malaysian Institute of Microelectronic

Systems (Mimos), a government research institute, which is currently being privatised. Their

service, called Jaring, began operations in 1992 as a research network, and later expanded services

to the commercial sector and to the general public.

Mimos has placed a high emphasis on developing Jaring for use as a Malaysian National Research

and Education Network. The concept consists of four component projects: Jaringan Ilmu

(knowledge network) set up in cooperation with the National Library, Jaringan Penyelidikan

(research network), linking government research institutes and educational institutions, Jaringan

Pendidikan (education network), linking Malaysian secondary schools to the Internet, and Jaringan

Awam (public network) to provide information facilities for the general public.

Each of the above projects involves progressive network expansion, generally involving four stages:

(1) planning, (2) a pilot phase, in which a test site is set up, (3) a trial phase in which a group of

selected locations are connected, and (4) the final stage of implementation in which the entire target

community for the network in question is gradually brought on line.

The development of the Internet in Malaysia: Mimos and Jaring.

The Jaring network began operations in November, 1992. Initially, Jaring’s subscriber population

grew rapidly, often at rates of about 15-20% per month. By the end of 1994, there were slightly

more than 1,200 Jaring subscribers, three quarters of these were individual accounts, with the

remaining one quarter associated with organizations.

By the end of 1995, this number had grown to 25,000. Some growth problems were reported, such

as long waits for users to make a dialup connection. In addition, Jaring curtailed or closed entry to

new users for several months from late 1995 to early 1996, and some observers reported an

informal freeze on new subscriptions.


Nationwide access to Jaring is provided through a series of Points of Presence (POPs) located in

Malaysia’s major population centres. There are presently about 70 such POPs around the country,

which are interconnected through a network of 64 Kbps or T-1 leased lines. At each POP, users

access the network through either dialup lines, leased lines (analog or digital), or in some cases

through X.25 and narrowband ISDN.

The first international link was a 128 Kbps satellite link between Mimos and the US which was

upgraded to a T-1 (1.536 Mbps) through US Sprint in November, 1994. This T-1 link remained the

only link abroad during the early high growth period of 1994 through late 1995. In March, 1996,

Mimos announced that it had increased its aggregate international Internet bandwidth to 3.5 Mbps

by adding an E-1 link to the T-1 link already in service. Both links connect to sites in California.

Just 10 days after the installation of the second line, the added capacity was almost completely in

use.

Also in March, 1996, Mimos announced plans to set up a T-3 link to the US by the end of 1996.

Due to the relatively low growth of Jaring since that time, as well as competition from TMNet

(Telekom Malaysia’s internet provider), that plan has apparently been abandoned. Instead, Mimos

has joined the Asian Internet.

Holdings consortium in which a number of regional ISPs are sharing resources to enable more

efficient routing and greater cost savings.

In September, 1995, Mimos sent out a request for proposals to companies interested in becoming

Jaring Access Service Providers (JASPs). The idea behind creating the JASPs was to allow private

sector organizations to become involved in the commercial end of Internet development in

Malaysia. 106 companies responded to the request. Six months later, in March, 1996, Mimos

announced that it had chosen a short list of eight companies to become Jaring Access Service

Providers. These were:

• Binariang, MRCB Telecommunications, the New Straits Times Press, Utusan

• Melayu, Sapura Holdings, Telekom Malaysia, Time Telekom, and the East

• Malaysian-based JASP Konsortium.

Several months of negotiations ensued (it was rumoured that any company signing a JASP

agreement would also have to sign a pledge to not become an independent Internet Service Provider

in competition with Mimos in the future). In July, 1996, five companies were finally selected to

receive JASP licenses. These were: Binariang, the New Straits Times Press, Time Media (a joint

venture between Time Telekom and Sapura Digital), Utusan Malaysia (a Malay language


newspaper), and Silicon Communications. The latter was the first, and so far the only company to

launch its Internet services in August, 1996.

At this time then, Mimos is no longer handling the business function of providing Jaring services.

Mimos still handles the actual process of adding new subscribers to Jaring, as well as managing the

network.

Apparently, there continue to be substantial delays before new accounts become activated.

Furthermore, a recent letter to the Computimes, indicated that, as of late October 1996, problems

remain in providing adequate numbers of modems and dialup lines to Jaring.

Mimos also announced a target of providing end-to-end connectivity of 2 Mbps for Internet

customers by the end of the decade. Other aspects of Mimos’ long term plans include expansion of

the Internet backbone to reach rural areas that do not yet have Internet connectivity.

Telekom Malaysia and TMNet.

In July, 1996, Telekom Malaysia was awarded the second Internet Service Provider license in

Malaysia. Although originally selected as a potential JASP, the company had been lobbying to

become an ISP for many months. Telekom has announced plans to invest up to RM100 million in

Internet infrastructure in the near future. Telekom Malaysia, began offering its Internet service,

called TMNet, on November 1st, 1996. Their system provides on line registration. New subscribers

get on line by first paying for the service at a local Telekom Malaysia branch, obtain software upon

paying, and then are registered on line. During the first three weeks of operations, TMNet reported

that they had signed on 5,000 subscribers.

The recently established COINS data communications network would have been used to provide

the domestic backbone for TMNet. Ten POPs were set up for Internet access in Malaysia’s largest

cities.

Size and growth rate of the Internet in Malaysia.

Malaysia’s two main Internet Service Providers (ISPs), Telekom Malaysia Bhd (TMNet) and

Mimos Bhd (Jaring), are facing the reality of improving their services to meet the demands of their

users. Improvements to the infrastructure include updating computer systems, international and

domestic networks, and modem capabilities. The table and figure below show the dramatic rise in

demand for Internet access in Malaysia.

YEAR INTERNET SUBSCRIBERS

1996 64,000


1997 205,000

1998 >400,000 (estimated)

2000 1,200,000 (estimated)

Source: Economic Report: 1997/98, Ministry of Finance

The following table shows that between October, 1995 and July, 1996, the growth rate of Jaring’s

subscribers population clearly fell significantly and that it later picked up again after July, 1996.

Although many factors were responsible, some of the most important ones include: network

congestion, the reorganization of Jaring to create JASPs, and competition with Telekom Malaysia.

Date Subscribers Monthly Growth

January 1, 1993 30 ---

January 1, 1995 1,200 17%

October 1, 1995 20,000 32%

January 1, 1996 25,000 8%

July 1, 1996 35,000 6%

October 1, 1996 50,000 13%

Growth of Jaring

INTERNET SUBSCRIBERS IN MALAYSIA

0200000400000600000800000

100000012000001400000

1996 1997 1998 1999 2000


Three weeks after the launching of TMNet, the Telekom’s help desk reported that they had signed

on 5,000 new subscribers, which corresponds to a 13% monthly growth rate for the Malaysian

Internet as a whole. Although it was too soon to know for how long this growth rate will be

sustained, at this higher growth rate, the Internet subscriber base in Malaysia was expected to

double roughly every six months, reaching 120,000 by June, 1997.

To further meet this demand, the government decided to increase the number of local ISPs. This

decision, announced in February 1998, gives interested fixed telecommunications line operators

until June 1, 1998, to submit applications for an ISP license.

Also, the government recently announced that foreign ownership in telecommunication firms could

have been increased from the mandated 49 percent to 61 percent for a period of five years. In order

to compete in a widening market, Telekom and Mimos, operators of the two existing ISPs, had been

planning to significantly increase their subscriber capacity and offer value-added services to the

Internet community. These services included locally generated content and customized e-mail

packages suitable for family or office use.

According to Survey Research Malaysia (SRM), a local branch of the American firm, AC Nielsen,

80% of Jaring subscribers are young, single males. SRM also reported that Mimos estimated the

Internet user population to be about 10% corporate and 1% connected through leased-lines. This

means that at least 72% of the subscribers are single males, indicating that the relationship of

subscribers to users must be close to one-to-one.

Having a competitive market structure for Internet services is essential to providing those services

at a competitive price. But with only two market players so far, the Malaysian Internet is still far

from any sort of competitive equilibrium.

JARING'S INTERNET SUBSCRIBERS

0

10000

20000

30000

40000

50000

60000

January1993

January1995

October1995

January1996

July1996

October1996


Prospects for The Malaysian Internet.

In spite of this high level of local interest and attention in the newspapers, the market structure for

the Internet in Malaysia remains only marginally competitive, with two government-owned firms

being the only ones allowed to operate in the market to date.

Malaysian Internet policy appears to be somewhat at odds with the very competitive market

structures in the rest of the telecom sector. While the government has goals of rapid Internet

development, actual network development is not yet very far along.

This is likely to have been the main reason why the country’s Internet has not developed further. A

monopoly-structured Internet run by a government department is unlike any other Internet market

structure in the region or any other telecommunications market in Malaysia.

Furthermore, the limitations placed on Mimos as a government agency, constrained by budget,

labour and goals, have hampered Internet growth, as the group has at times been slow to meet the

burgeoning demand for Internet services. In the recent past, Jaring users readily complained of the

difficulties of making a dial-up connection, which often takes nearly an hour, low throughput, and

the lack of sufficient international bandwidth to meet current demand.

Between September and November, 1996, the growth rate has picked up considerably and at the

end of 1997 it was almost triple what it was earlier in the year.

This is undoubtedly a result of the increased levels of competition which were occurring with the

entry of Telekom Malaysia as the country’s second ISP.

Current strategies in the Malaysian Internet Market.

Jaring, 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 8, 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.

TM sees its Internet business to be a crucial contributor for the next few years and will be pouring

more investments into it.

Speaking to reporters following the announcement, Wira Mohamed Said, CEO, Telekom Malaysia

said the company's strategic objective is to have the Internet and multimedia business to contribute

30 percent of revenues by the year 2004.

8 For more details on this issue, see the next paragraph.


“Internet and data services will become major contributors to revenue in future years, compensating

for the anticipated slowing growth in telephony revenue as we enter a new era in technology”, said

Wira.

Telekom Malaysia claims to have between 60 and 70 percent of the Internet business in Malaysia.

The telecommunications provider aims to have one million customers by the end of 2000 from its

current 400,000 customers.

Elaborating further on its Internet business plan, Wira said Internet Service Centres will be set up

by August/September timeframe in line with customer demand. In addition, the new TMNet-MSN

portal is planned to go live by mid 2000.

The company is also looking at providing broadband service to home and businesses by the end of

the year apart from building the wireless local loop infrastructure to rural areas.

“Our plan is to provide about RM1.4 billion of infrastructure investments to rural subscribers for the

next five years”, said Wira.

TM spent RM2.14 billion for network expansion last year where a significant part of this budget

was allocated to further development of Internet services.

As of today, the company has 4.433 billion fixed lines and 80,000 data circuits. The number of

fixed lines is expected to increase at a steady pace of at least 4,000 a year, on the basis of

development of new houses and new residential areas as well as the Internet boom, added Wira.

“When Telekom Malaysia started its Internet service, TMnet, in late 1996, there were just 25,000

customers” senior vice president (consumer & business), Abdul Halim Hussain said.

Abdul Halim also said that in Malaysia alone, there were almost two million Internet users, with

Telekom Malaysia being the largest Internet Service Provider.

Now the company targets one million clients by the end of the year 2000.

On August 2000 9, Telekom Malaysia’s chief executive, Dr Md Khir Abdul Rahman Overall, said

that Telekom Malaysia currently had a cellular market share of 19 percent based on an estimated

market size of 3.5 million.

Telekom Malaysia’s Internet services continued to lead with an accelerating monthly growth rate of

up nine percent per month for the first half of this year bringing the customer base to 572,000.

Todate, Telekom Malaysia’s Internet subscriber base stood at about 700,000.

9 CNET : News : StorySunday, April 08, 2001


Dr Md Khir said strong brand coupled with aggressive marketing and promotion had firmly

established TmNet as a major Internet Service Provider (ISP).

Telekom Malaysia, he said currently commanded between 65 and 70 percent of the internet access

business in Malaysia.

11. Rising problems associated to customers complaints

Telekom customer complaints on unfair billing: internet users 10

Telekom Malaysia should take a policy decision to be customer-friendly by setting up a Consumers’

Council to deal with the many problems and complaints of both Telekom and TMnet users.

The time has come for Telekom Malaysia to take a policy decision to be customer-friendly by

setting up a Consumers’ Council to deal with the many problems and complaints of both Telekom

and TMNet users.

Telekom and TMNet’s ingrained customer-unfriendliness could be seen from the latter’s reaction to

the first instance of hacking into the TMNet homepage last Tuesday, when it virtually blamed

TMNet users for not being careful about their ID and passwords in allowing such “vandalism” to

take place, when it was the TMNet’s own lax security which was at fault. It was only after the

second hacking within 12 hours of the statement by Telekom’s TelCo chief operating officer, Dr.

Abdul Rahim Haji Daud that “the incident would never occur again” that TMNet was less liberal

with its blame on others for its woes.

What should be a matter of national concern is that complaints by both Telekom and TMNet users,

whether about unfair billing, slow connections or dialup problems had not been given prompt,

proper or satisfactory attention.

For instance, I have received a desperate email complaint from one Telekom and TMnet user from

Muar, Anthony Joseph, which typifies the problems faced by users.

Anthony said that when he subscribed for TMnet in November 1996 he was offered a second line

without having to pay a deposit and connection fee.

He took up the offer and used this new line almost exclusively for TMnet 1515 access. He also

made a few national calls from it but the bulk of all his calls were made from his old line which he

had been using since 1981 in the past 17 years without any grouses or complaints regarding the

phone bill.


It is the new phone which is in question. The January bill for his new phone showed 2,600 units

(RM78.00) as Panggilan Tempatan when at most it would be RM10.00 as he used his old line for

almost all his local and national calls.

All his attempts since January 20 to resolve the problem, whether at Kedai Telekoms or with the

Telekom offices were of no avail as they were not taken seriously.

From Jan. 21, he also disconnected the phone from the new line and decided not to manually dial

out from it and to use it only for the internet 1515 connection, as well as drastically reducing his

internet connection since then.

However, when he received his bill for February 1997, again he was billed a staggering RM77.91

for Panggilan Tempatan for the new line. When he again complained to Telekoms, he was told that

the print-out for an itemised account of his local calls had been misplaced.

Up to now, Anthony is still being given the “merry-go-round” by Telekom and TMNet.

Telekom and TMnet must be able to attend to the numerous complaints from their users throughout

the country with despatch and satisfaction if Parliament is not to step in to ask the government to

form a statutory users’ council to protect the interests of the users.

Telekom and TMnet should be able to form a Consumers’ Council comprising representatives from

the users to monitor the quality, efficiency and fair billing of its services.

Telekom customer complaints on unfair billing: uncollected credits 11

Telekom Malaysia Urged To Waive Telephone Arrears Telekom Malaysia has been urged to waive

the so-called arrears of telephone calls purportedly owed by subscribers over the past five months

since January this year until the company could authenticate these calls and explain why

management faults should be made at the expense of the subscribers.

DAP Secretary for Miri branch Tony Chai makes the above call while responding to countless

complaints made against the privatised Telekom Malaysia over the demand for payment of the so-

called cellular phone and trunk calls which the company claims left out in its previous billings.

Recently some subscribers have been shocked to receive bills amounting to as much as thousands of

ringgit.

10 From: DAP Malaysia: SG Media Statement by Lim Kit Siang - Parliamentary Opposition Leader, DAP Secretary-General and MP for Tanjong in Petaling Jaya on Tuesday, 25th February 1997

11 From: Sarawak DAP Homepage: Bulletin Media Statement by Tony Chai, DAP State Publicity Secretary cumSecretary for Miri Branch in Miri on 16 June, 1998


Tony chai also appeals to Federal Post, Energy and Telecommunication Minister Datuk Leo

Moggie to look into this matter and rectify the company billing system to prevent occurrences of

similar mistakes in the future. He adds that in an effort to assist the affected telephone subscribers to

pressurise Telekom Malaysia to waive these charges, the “Telephone Subscribers Rights Committee

of DAP” has been specially formed by the party today. Headed by Chong Kon Fatt and Hii Yu Huat

and with the backup of a panel of party legal advisors, affected subscribers can seek help through

the committee based at the party head office here.

At the end of 1999, generally, of the total bad debts, the amount which were owing by other

broadcasting and telecommunications operators was about RM200 million.

At the onset of the recession at the beginning of 1988, TM tried to anticipate problems with the

payments. It was formed a special task force and in fact a number of staff was transferred from their

other duties to work in our credit management unit and as a result of this effort. TM has managed to

contain bad debt to the present level. It could have been worse if TM we were not prepared to take

strict action. TM is continuing to enforce this condition very strictly. If the enforcement is

successful, the amount of bad debts should be kept to the minimum, unless the economy deteriorate

whereby many could not afford to subscribe to the telephone service. But this is unlikely to arise

because for the residential, the cost of a telephone for most customers is a very small amount of

their household budget. They will continue to use the telephone. TM noticed that customers would

keep their phone as long as they can afford to pay, for which they are willing to forego other

luxuries.

The faults repair process: a new system to reduce the time to fix faults 12

Telekom Malaysia’s 4.3 million customers will enjoy quick and efficient telephone repairs with the

introduction of a new fault testing repair service known as Sistem Pembaikan Kerosakan Telefon or

Sipikat.

Discussing SIPIKAT, Abdul Halim Hussain, Senior Vice-President of Consumer and Business, said

that the use of a combination of automated field testing and dispatching methods had resulted in

over 90% of customers faults being cleared within two hours.

He explained: "When a customer reports a problem about his telephone service, for example no dial

tone, the operator who receives the complaint enters the appropriate details into a terminal for a

report system called STAR-RE (RE means recently reengineered).

12 From: March 09 , 1999 11:59am - Quick Repairs with New Telekom System, Kuala Lumpur, March 8 (Bernama)


“This pending report appears in the SIPIKAT Bureau and almost immediately, the bureau

technicians call for an automatic test which will tell them where the fault is, and just as importantly

where it isn’t.

“Given this immediate information, along with the essential data on the identification of the outside

plant facilities (wires) that lead to the premises of the faulty telephone, the field engineer can

immediately go to the trouble spot and fix the fault”.

To-date, 19 exchanges are equipped with this capability. This amount only covers 10 percent of

Telekom Malaysiaís 4.3 million customers.

About 120 exchanges in the Klang Valley, Penang and South Johore are expected to be equipped

with SIPIKAT by end of the year.

Since its introduction, he said more than 90 percent of telephone faults were fixed within two hours.

To date, he added, 19 exchanges had been equipped with Sipikat and another 120 exchanges - in the

Klang valley, Pulau Pinang and south Johor - are expected to be upgraded progressively with this

capability by year end.

The vast improvement with Sipikat, he elaborated, is in the system’s ability to forward the

information given by a complainant to the field technician, via his pager, who will be strategically

placed in various locations.

“The reaction from both customers and staff have been overwhelmingly positive”, Abdul Halim

said.

He explained that phone lines are highly complex in the way they work and this had often been

overlooked.

“There are lots of points where something can go wrong”, he added.

He expressed the confidence that Sipikat will help to improve Telekom’s services and productivity,

besides keeping the cost of telephone service at an affordable level.

“This assures that Telekom Malaysia customers are in the race for getting the world’s best

telecommunications service”, he asserted.


A tele-service centre to handle customers enquiries and complaints 13

Telekom Malaysia Bhd plans to increase the number of workstations handling the TM1050 one-

stop tele-service centre to 300 over the next three years due to tremendous response, said its senior

vice president (Consumer and Business), Abdul Halim Hussain, today.

At present, the 124 workstations provided at three centres in Senai, Taiping and Kuching handle an

average of 80,000 calls a week.

Of this, about 45 percent of the calls are made to the centre at Senai, 35 percent Taiping and 20

percent Kuching.

“Over the past six months, the three centres received a total of 1.2 million enquiries”, he told

reporters during a media tour to the TM 1050 centre here.

The TM1050 line, which entertains enquiries and complaints on Telekom Malaysia services, was

established in October last year.

Any Telekom Malaysia fixed line subscriber can obtain assistance by simply dialling 1050.

Abdul Halim said 132 highly-trained staff operate the workstations from 8.30 am to 10 pm daily

while an Interactive Voice Response will provide standard information on products and billing after

that time.

The whole system cost some RM20 million and about RM16 million of that was spent on computer

hardware and software.

Abdul Halim said the new service was prepared to handle about 30 percent of Kedai Telekom's

activities by the end of the year.

The TM1050 service, which provides offerings similar to those available at the Kedai Telekom, is

an alternative to “doing business”. For instance, customers can apply for new phone lines via

TM1050 instead of going to Kedai Telekom.

“Customers now have choice. They can use TM1050 instead of having a physical presence in Kedai

Telekom”, he said, adding that customers often want fast and efficient services.

Abdul Halim said the company expected a 50 percent rise in the TM1050 service usage.

13 From: Telekom Malaysia to expand TM1050 Servicetelekom Malaysia news April 14 , 1999 18:08pm By HamzahJamaluddin & Leslean Arshad


12. Telekom Malaysia’s Strategies in the Internet business

Telekom interest in Jaring draws flak 14

Telekom Malaysia Bhd should not take over Internet Service Provider (ISP) Jaring as consumers,

both individuals and businesses, will be disadvantaged by the move, information technology

industry leaders said today.

USJ.com.my founder and administrator Jeff Ooi said that consumers will feel cheated if an ISP with

a good record and reputation is taken over by one which reputedly already suffers from an image

problem among consumers.

It looks like a forced marriage to me and I can’t find any valid reasons for the take-over; he told

when contacted.

Ooi was referring to a statement by Telekom Malaysia yesterday that the company had launched a

preliminary assessment on the possibility of acquiring Jaring.

The statement to the Kuala Lumpur Stock Exchange read that the company would make an

announcement as soon as a firm decision had been made on the matter.

Ooi said that in a free market, competitors like Jaring and Telekom’s own ISP, TMNet should be

allowed to compete with one another.

There will there be an incentive to achieve excellence and this will benefit consumers, he added.

He also said that in the event Jaring needed to be tied up with another Internet service provider, it

should be with a world-class strategic partner.

Networking company Comets Technology vice-president K Kathiravan said that the take-over was

not a good move as it would enable Telekom to conquer everything.

TMNet’s services are not up to par as that provided by Jaring. This could be due to bad

management and if this is allowed to creep into the merger, Jaring’s service and quality will drop,

he said.

A similar view was also expressed by ISL Services senior business recovery manager Sri Shanker,

who noted that although Telekom had a good infrastructure in place, it lacked management

expertise to provide a good service.

They don’t have enough technical people and they work in a typical bureaucratic manner, he said.

14 From: ZDNet Asia – by K Kabilan, Thursday January 11 2001


He added that it was well known in the industry that Telekom’s services were bad and of poor

quality.

I know of a few big multinationals that have changed their entire phone and Internet systems from

Telekom to other providers, he said.

Meanwhile, DAP chairman Lim Kit Siang said Telekom should not be allowed to take over Jaring

as the move would not help increase the rate of Internet penetration in the country.

He said that based on the track record of TMNet, the acquisition of Jaring should be opposed as it

would hinder any prospect of Malaysia being in the front rank of the world’s connected societies.

What the country needs is to have more ISPs so that Internet users have more choice and better and

cheaper service, he said.

Lim said that Malaysia was reported in the Asia Pacific Telecommunications Indicators 2000 to

have a low Internet penetration rate of just 6.9 percent.

He said that the average penetration registered by Hong Kong, South Korea, Singapore and Taiwan

was 23.7 percent and for Australia, Japan and New Zealand, it was 22.9 percent.

The government recently said that the number of Internet users in the country is expected to

increase from the current six percent of the population to 25 percent over the next five years, said

Lim.

He, however, added that this projected target by the government was unrealistic as it was too

ambitious.

He said Malaysia should follow the example of Ireland which achieved a penetration rate of more

than 40 percent last year, up from 33 percent in 1999 and just five percent four years ago.

Telekom Malaysia Builds First ASEAN 10 Gbps IP Backbone with Juniper Networks M40 Routers

Sunnyvale, CA - November 7, 2000 - Juniper Networks, Inc. (Nasdaq: JNPR), a leading provider of

next-generation IP infrastructure systems, today announced it had secured a contract to supply

TMNet, the ISP arm of Telekom Malaysia Berhad, with Juniper Networks® M40™ Internet

backbone routers.

TMnet has already installed M40 routers for the core IP backbone at three points of presence in

Malaysia—Kuala Lumpur, Penang and Johor Baharu. The triangular network backbone will have a

10 Gbps capacity with four 2.5 Gbps (STM-16/OC-48c) connections in each POP operating at wire-

rate speeds. Further nationwide expansion will take place in upcoming months.

TMNet has close to 1 million business and consumer subscribers throughout Malaysia. This new IP


backbone, HyperNet, will provide premium service and accessibility for next-generation

applications such as Voice over IP (VoIP), distance learning, and video on demand.

”We’re the largest premium ISP in Malaysia and are well on our way to becoming one of the largest

ISPs in Asia. To be able to sustain this growth we needed an IP infrastructure that is reliable,

scalable, and of high quality. Juniper Networks routers addressed those needs”, said Acting Chief

Operating Officer of Telekom Multimedia Abdul Majid Abdullah.

With the M40 routers in place, TMNet will have the fastest IP backbone in the country, offering fast

access to current customers as well as the necessary high capacity infrastructure for the expected

ADSL network planned for later this year.

“The roll-out of this high-speed IP backbone enables TMNet to provide its customers with the latest

in Internet technology”, said Charles Will, managing director, Asia Pacific, Juniper Networks. “By

using Juniper Networks M40 routers, TMNet increases the number of value-added services that

they offer their customers, further differentiating them from their competitors”.

Telekom's planned acquisition of Jaring needs scrutiny 15

The Malaysian Communications and Multimedia Commision (CMC) may need to review the

impact that Telekom Malaysia Bhd's planned acquisition of the Jaring service would have on the

Internet access market, industry sources said.

The company has confirmed in a statement to the Kuala Lumpur Stock Exchange that “a

preliminary assessment is being carried out by the company on the possibility of acquiring Jaring'”.

Observers have commented that a Telekom buyout of Jaring could lead to the company assuming

an overwhelmingly dominant position and severely weaken the competitive positions of its rivals in

the ISP business.

Jaring, run by Mimos Bhd, and Telekom’s TMNet service are the country’s two main ISPs. Jaring

currently has over 500,000 subscribers, while TMnet is believed to have close to a million

subscribers.

The local market has only recently seen the introduction of additional competition from several

ISPs run by other telcos, although the Malaysian Government had issued these ISP licences in

June 1998.

15 From: ZDNet Asia - By Raslan Sharif 12 January 2001


Observers said it would be difficult to estimate the total Internet access subscriber base Telekom

would have by acquiring Jaring, due to the fact that a considerable number of Internet users are

believed to have both Jaring and TMnet accounts.

However, it is believed that “unique'” subscribers to the combined entity would still far outnumber

those of the other, fledgling ISPs.

Telekom Malaysia also controls the network facilities through which the large majority of

Malaysian use to make regular telephone calls, giving the company a definite advantage in access to

both existing and potential Internet subscribers.

“I think that the CMC needs to take a serious look at this, especially as there are anti-competition

laws in force”,' said an industry observer.

“(This) is not good news for promoting Internet access in the country,”' said Lim Kit Siang,

chairman of the opposition Democratic Action Party (DAP).

“What the country needs is to have more ISPs so that users have greater choice, better and cheaper

service”, he said in a media statement.

The Communications and Multimedia Act 1998 contains provisions that regulate competitive

practices in the industry. Specifically, Section 133 of the Act states that “a licensee shall not engage

in any conduct which has the purpose of substantially lessening competition in a communications

market”. In addition, Section 139 (1) allows the CMC to “direct a licensee in a dominant position in

a communications market to cease a conduct in that communications market which has, or may

have, the effect of substantially lessening competition in any communications market, and to

implement appropriate remedies”.

In February 2000, the CMC issued two guidelines - Guideline on Dominant Position in a

Communications Market (RG/DP/1/00(1) and Guideline on Substantial Lessening of Competition

in a Communications Market (RG/SLC/1/00(1).

This was followed by an information paper - Process for Assesing Allegations of Anti-Competitive

Conduct (IP/Competition/1/00(1) released later that month which laid out the process that the CMC

“would adopt when assessing allegations of anti-competitive conduct”.

It is not clear if the Telekom’s proposed acquisition of Jaring constitutes such an anti-competitive

conduct as the CMC has declined to comment on the move for the time being.

Both Telekom and Mimos officials could not be contacted for this story.


Proposal to buy Jaring not a monopoly 16

Energy, Communications and Multimedia Minister Leo Moggie on Friday said the proposed

acquisition of Jaring by Telekom Malaysia would not necessarily lead to “monopoly”.

He said the question of a monopoly should not arise as users have many ISPs in the country to

choose from.

“It is up to Telekom Malaysia to determine its business plan. We will leave it entirely to Telekom

and Jaring as we do not know whether they would finally conclude the deal”, he told reporters after

launching a virtual exhibition platform, Myvirtualexpo.com.my here.

The provision of Internet service in the country is not restricted to just Jaring or TMNet as there are

other companies capable of offering the service to the Malaysian public, he said.

With this, there is no issue of not having choices, he added.

Telekom had recently announced that it was close to acquiring Jaring and emerging as the number

one ISP in the country.

The proposed move, however, has been opposed by various parties saying that it would lead to a

monopoly and that it would be unhealthy for the promotion of Internet penetration in the country.

Moggie further added that there was room for other ISPs in the country amid the growing market.

“At the moment, we have about six ISPs. Our regulatory bodies are quite open as we encourage

companies to set up their ISP businesses by applying for license”, he said.

He said these ISP companies are not only given the approval to open a service for Internet access,

but also the convenience of using the existing system and infrastructure available in the country.

They are also given the flexibility of governing their own business plan

as long as they result in the best and quality products, Moggie said. “We would like to see better

quality ISPs which could offer speedier access without any complaints of congested lines”, he

added.

Turning to the latest development on the Third Generation services, Moggie reiterated that the

introduction of the 3G services will only take place towards the end of the year 2002.

At the moment, he said the government was still looking at the feedback received by the Malaysian

Communication and Multimedia Commission, which has yet to make a formal presentation to the

government.

16 From: CNET-News : StoryWednesday, April 18, 2001- Proposal to buy Jaring not a monopoly By Bernama,


“We would be sufficiently comfortable with the existing technology that we have such as the

General Packet Radio Service (GPRS) that can support the number of functionalities for 3G

content”, he said.

“We still have sufficient time because our target is by the second half of 2002, and there is no need

to hurry”.

However, Moggie said by targeting the commercial use of 3G technology by the second half of

2002, it would be necessary to decide on the policy framework sometime this year.

To another question, Moggie said efforts were already being made to add more computer vendors to

the list of vendors who have their products sold through Pos Malaysia and Bank Simpanan Nasional

(BSN).

Telekom Acquisition of Jaring Draws Criticism 17

Telekom Malaysia’s plan to acquire Jaring, is drawing fire from local surfers.

A majority of Malaysian Internet users expressed their concerns that the proposed deal from

Telekom would stifle competition, deprive the users of a viable alternative ISP, and potentially

reduce the service level of the ISP arm of Telekom--TMNet.

Two weeks ago, Telekom issued a statement to the Kuala Lumpur Stock Exchange that it was

assessing the possibility of acquiring Jaring, the ISP owned by Mimos Berhad.

Jaring and TMNet are the two largest ISPs in Malaysia with a combined user base of close to 1.5

million subscribers.

One reason behind the opposition was concern that Telekom would have less incentive to upgrade

its Internet service once it took over Jaring.

Other feedback stated that TMNet is already struggling to cope with its existing congested Internet

infrastructure, not to mention if it were to handle an additional half-million users at one time.

For those users who concurrently use TMNet and Jaring so that they have alternative lines, they are

unhappy about losing a good alternative ISP.

There are other ISPs that have been established since the Malaysian Government issued new ISP

licenses in 1998. These ISPs are: Maxis Communications; NTT MSC; Time dotCom and Digi

Telecommunications.

Malaysia.CNET.com Friday, January 12 2001 Kuala Lumpur.17 From: Asia ISP News, Telekom Acquisition of Jaring Draws Criticism - By Raymond Hor Malaysia Correspondent,Asia.internet.com, January 22, 2001


However, these ISPs have yet to develop a subscriber base comparable to that of Jaring and TMNet.

The government's initial reaction to the acquisition was to focus on the potential of the industry to

absorb the negative impact of consolidation. According to Malaysia’s Energy, Communications and

Multimedia Minister Datuk Amar Leo Moggie, the proposed acquisition would not

necessarily lead to a substantial void of competition in the local Internet service market.

“The government has given out new ISP licenses and we already have other ISPs, it is up to

Telekom and Mimos to determine their business plans”, said Moggie.

He also pointed out that there is plenty of rooms for the local ISPs to maneuver as demand for

Internet access was growing rapidly.

According to estimates by IDC, Malaysian Internet users have increased from 580,000 in 1998 to

over two million users last year.

More ISPs could be set up in the future as the government encourages companies to apply for ISP

licenses, Moggie said.

Telekom takeover of Jaring under review 18

The Malaysian Communications and Multimedia Commission (CMC) will review Telekom

Malaysia Bhd’s planned acquistion of Internet service provider Jaring once it receives a proposal on

the deal from the parties concerned.

CMC chairman Tan Sri Nuraizah Abdul Hamid said that any industry-related matter that comes

before the CMC would need to be looked into.

However, she said that the CMC had yet to receive any submission on the proposed acqusition of

Jaring.

“There is no proposal before us... it is still just talk”, she told reporters at a ceremony last week to

mark new licences issued by the CMC.

Nuraizah also indicated that the acquisition might need the approval of the CMC, Malaysia’s sole

telecommunications regulatory body.

“We will look at whatever proposal comes before the CMC... this will allow us to (make) the

necessary recommendations and advise the Energy, Communications and Multimedia Minister

accordingly”, she said.

Telekom Malaysia’s planned takeover of Jaring has raised considerable opposition from the public.

18 From: ZDNet Asia - By Raslan Sharif, 6 February 2001


The company, which operates the TMNet Internet access service - a Jaring rival - confirmed that it

was undertaking a preliminary assesment of a possible acquisition in its reply to a Kuala Lumpur

Industry observers have said the move could lead to a near monopoly for Telekom Malaysia in the

ISP market. Mimos Bhd, which operates the Jaring service, said it will take into account all views

from the public before making a decision on the proposed acquisition.

The company is aware of the public outcry over the matter and appreciated their views, said Mimos

chief operating officer and senior vice-president Dr Mohamed Awang-Lah.

“No timetable has been set for the proposal”, he said last week at a signing ceremony between

Mimos and Global E-Comz Sdn Bhd.

The CMC is empowered by provisions in the Communications and Multimedia Act 1998 to prevent

or deter anti-competitive conduct in communications markets.

Last year, the CMC released several guidelines on defining a dominant position in a

communications market, and the types of activities that could lead to a substantial lessening of

competition.

The CMC also issued an information paper that laid out the steps it would take to assess anti-

competitive conduct. The CMC indicated in the paper that any assessment of alleged anti-

competitive conduct could last up to a total of 240 days before it comes out with a decision on any

course of further action.

The entire process would include a 30-day preliminary assessment phase and would extend from

there if the CMC “finds grounds to believe that the law has been contravened”.

Meanwhile, the CMC issued 27 communications-related services licences to several companies last

week.

They included 19 Content Application Service Provider (CASP) Individual Licences, which were

granted to companies involved in the broadcasting industry, including Measat Radio

Communications Sdn Bhd, Natseven TV Sdn Bhd and Sistem Televisyen Malaysia Bhd.

The new licences were given out as part of a migration exercise to the new licensing regime

introduced with the enforcement of the CMA.

Eight other companies received Application Services Provider (ASP)

Individual Licences, which allow them to provide services such as PSTN (Public Switched

Telephone Network) telephony, IP (Internet Protocol) telephony and public switched data.


The new licensees include Mimos, Weblink Communications Sdn Bhd and FSBM Net Media Sdn

Bhd.

CMC officials said that most of the companies were looking to provide Voice-Over-IP (VoIP)

services.

Services provider licences allow companies to offer services only, not to own and operate the

network facility required to deliver those services. For the latter, they would need separate network

facilities provider licences.

The CMC said the move to separate the two licences was to discourage the duplication of expensive

network infrastructure and instead channel private sector investments into providing more, and

more innovative, services that would ride on existing network facilities.

They claimed that existing network facilities were currently “under-utilised”.

The licensing regime for ISPs has also undergone the same transformation, with foreign companies

like NTT MSC Sdn Bhd and MCI-Worldcom Malaysia Sdn Bhd being given ASP Class Licences

that allow them to offer Internet access services, but not to own and operate their own network

facilities.

Another telco may bid for Jaring 19

Mimos Berhad, the government’s information technology research arm, did not discount the

possibility of another local telco making a bid for Jaring, the former’s Internet Service Provider

(ISP).

Its chief executive officer Dr Mohamed Awang Lah said, “We can’t stop anyone talking to us”. He

added that there were network operators who were also interested in Jaring.

In a report early last month, the country's largest telco Telekom Malaysia had began a study about

the viability of purchasing Jaring from Mimos.

“We don’t have any new information on this ... there are so many factors to think of in a situation

like this”, Mohamed told a press conference Tuesday after Jaring launched j-band, its broadband

Internet access service here.

Telekom takeover of Jaring under review (b) 20

19 From: From: ZDNet Asia - By Sreejit Pillai, 7 February 2001

20 From: From: ZDNet Asia - By Sreejit Pillai, 7 February 2001


Jaring acquisition won’t be monopoly: Minister Telekom's planned acquisition of Jaring needs

scrutiny Telekom has near-monopoly if ISPs merge

When pressed by reporters, he said he could not disclose any details on the negotiations between

Mimos and other parties over the sale of Jaring as “it is privileged information”.

Touching on its j-band services, Mohamed said Megan Phileo Promenade located in the city along

Jalan Tun Razak (Tun Razak Road), is the first building in the country to offer this Jaring service to

tenants. The service will be soon be available at all other Phileo-owned managed properties

including Megan Phileo Avenue and Phileo Damansara.

Mohamed said j-band services would soon be available in other buildings within the Klang Valley,

Johor and Penang in the second half of the year.

J-band is based on Symmetrical Digital Subscriber Line (SDSL) technology and provides up to

2Mbps upload and download speed, which allows users to have access to real-time interactive

multimedia and broadcast, video conferencing, video streaming.

Services come in two packages: j-band Silver (1Mbps speed) and j-band Gold (2Mbps speed), with

rates as low as RM3,500 monthly for the first package and RM4,500 for the second.

Customer comments on internet service, about Jaring taking-over by Telekom Malaysia 21

It is such a nonsensical idea to have a very inefficient operator take over Jaring. Although Jaring

service is not fantastic, it is much better than Telekom’s ISP. I terminated my TMNet account and

switched over to Jaring. If the takeover goes ahead, it's back to square one for me. Furthermore,

Telekom provides really, really bad fixed lines services with a "don't care" attitude.

James Yip

I totally disagree with the takeover of Jaring by TMNet. The services (if any) provided by TMNet at

the moment, leaves much to be desired. My personal experience with TMNet is that, they never

reply your mails; their global roaming does not work; and it is probably easier for me to get a call

to the Prime Minister (PM) than to get a connection to TMNet. And one thing I am sure of is that

the PM will not simply drop my line. If TMNet is to allowed to take over Jaring, it will be the

greatest scandal ever to happen in this century.

Bruno Vun

21 Malaysia.CNET.com - Readers' Feedback


If Telekom Malaysia were to take over Jaring, then will there be a tomorrow for Malaysian ISPs?

Please! Telekom Malaysia can't even provide proper 24 hours (don't even think of 24x7x365 from

them) support, and some of its front line NOC support team have problems in even understanding

the terms "Trace Route" or "Node"!

For those who are currently using TMNet products and services, I guess you will definitely agree

with the point that its support, services and commitment to work are of low quality, where support

is the most important feature we are looking for. Imagine this kind of support culture being added

into Jaring; how then would the BIGGEST ISP in Malaysia fare?

Overall, to combine TMNet and Jaring under the same company is not good for the country not

only in terms of business but more so, in heralding the "destruction" of IT.

Mingsen Tan

In my opinion, Jaring's record as a Service Provider ranks among the top in the world. TMnet's

record is somewhat less esteemed.

Dave Collet

I strongly object to Telekom taking over Jaring. Jaring is the most reliable Internet service provider

in Malaysia in my opinion. Well, at least it still believes in service.

On the other hand Telekom does not know how to provide any service to its clients. I used to

provide computer services for small offices and home computer users some time ago. Sometimes I

would encounter certain problems with my client's TMNet accounts, so I would naturally try to call

TMNet for help. I have to say that nobody from TMNet's help desk has ever picked up my call

before. On the other hand, if I were to call Jaring's help desk, I would get instant help over the

telephone.

Let's talk about emailing TMNet or even Telekom for any help, support or enquiries. I have never

gotten any reply from them before. If I were to email any enquiries to Jaring, I would get an email

reply within one day, sometimes even on weekends and public holidays. Please tell me how anyone

can replace such excellent service.


With this sort of business attitude and ideology, do you think that Telekom is fit to take over Jaring,

one of our best Internet service providers in Malaysia ?

Colin Chow

It would be sad to allow such consolidation since Jaring is providing such a wonderful service

which is far lacking by Telekom's TMNet. It would be hard to believe Telekom could upkeep the

service after the takeover considering its previous record as a telecommunications service provider.

Aaron Timothy Kah

I believe the No. 1 issue is whether TMnet is able to provide subscribers better service. Putting all

the eggs in one basket can be a bit risky. So let Jaring be as it is, as I am satisfied with their service.

Annonymous

They (TMnet) just don't know how to manage the ISP network. I had a very bad experience with

TMnet: What happened was, it was late at night and I couldn't get connected to TMnet; the modem

got connected but it just couldn't establish the network. I sent an email to tech support but received

no reply. I had to re-send and remind them at least 5 times and the last email that I sent was

strongly worded. Even then, they replied using a generic answer which wasn't even relevant to my

question. All I can say is, I am pissed off with the service that TMnet is giving to their customers.

For this reason, I cancelled my TMnet account right away.

This does not happen to Jaring; their tech support team is very dedicated to the service, always

responds to whatever questions we ask. Telekom Malaysia must learn how to serve customers

better!

Richie

Yes! Another monopoly act within the country. Increase toll rates, water and electricity bills, EPF

computer purchase scheme only through Pos Malaysia, and now, worst! They (whoever it is) are

trying to profit from the Internet which is supposed to enrich people's lives at minimal cost.


Allen

So far TMNet has not proven to the end users to be efficient and accessing the Internet with TMNet

has been real frustrating and almost a challenge to even get through. With such services, it will

definitely make people give up on anything to do with the Internet. Maybe Telekom Malaysia should

consider sticking to what they do well and not be an ISP!!! Which I should say, they are a big

FLOP!! As we are dependent on ICT, and we do not want to stay on the back-end of the ICT race, I

think Jaring is still the best ISP, even though there is room for improvements, and Telekom

Malaysia should improve the quality of every household's phone line before venturing into

something so high tech!!

May

13. Telekom Malaysia’s last three-years performance (1998-2000) and future

strategies.

13.1. Industry Overview 22

The telephony industry experienced a growth rate between 13 and 14 percent in the year 1998. The

industry was expected to expand by more than 10 percent in 1999. The basic penetration rate for

fixed lines was better than anticipated at a rate of 21 lines per 100 people in 1997. The national

telephone penetration rate is expected to increase to 25 telephones per 100 people by the year 2000.

For mobile phones, the national average penetration rate is 3.5 lines per 100 people.

Under the Seventh Malaysia Plan (1996-2000), the telecommunications sector continues to be given

emphasis. The GOM is working to turn Malaysia into the high technology hub of Southeast Asia

through the creation of the Multimedia Supercorridor (MSC). The MSC with its state-of-the-art

telecommunications facilities will create numerous opportunities for the telecommunications

industry, especially in fiber optics, ATM, and ADSL. The MSC project will cover a period of ten

years and will have opportunities not only for laying new infrastructure, but also upgrading the

telecommunications network over the designated period.

Malaysia is rapidly upgrading its telecommunications infrastructure to meet the demands of its

extraordinary growth and to enable value-added services such as electronic commerce, interactive

distance learning, video-on-demand and interactive multimedia content. The country is looking for

and purchasing state-of-the-art equipment and technology. Unlike many countries in the region, the

telecommunications sector in Malaysia has been privatised, making it a highly competitive market.

22 Source: US Department of Commerce Office of Telecommunications Technologies


A total of 17 companies have been issued licenses by the Ministry of Telecommunications to

provide various value-added services, while 5 companies were issued international gateway

licenses.

13.2 Financial Results (December 1998) 23

Cellular business

With regards to cellular, TM is testing its two cellular businesses in various ways. Firstly, it has two

main cellular networks and feels to be able to obtain significant savings by both companies sharing

facilities and resources. In Malaysia, the cost of the infrastructure is quite expensive and major part

of the cost saving which is RM70 million per year will come from the sharing of infrastructure.

If the two companies can share the infrastructure, the next question is why don’t they merge?

There is a possibility that this may happen, but again it depends on the strategic direction that TM

intends to take in the future. It is now testing the dual-band-mode phone which uses both the

Mobikom network and the Telekom Malaysia’s GSM 1800 network. This is expected to be of

tremendous benefit to Telekom Malaysia and to its customers because a customer could get a good

quality digital service with such a hand phone, and should he go to rural areas, these are very well

covered by Mobikom and therefore he would get a good service in the rural areas from Mobikom.

Should this happen, obviously it maybe desirable to merge the operations of Mobikom and

TMTouch. Nothing has been decided so far, but decisions should be made over the course of the

next few months.

Overseas Investments

As far as overseas investment, the company is very careful. Generally, investments such as those

that have been made in developing countries are investments with quite long gestation period.

Under the circumstances that it is facing, it has to look for investments which have higher and faster

returns, with a shorter gestation period. These opportunities cannot be found easily and therefore,

we do not think that we will make any new overseas investments in the near future.

Revenues

The breakdown of revenue for business and residential is in the region of 45% and 33% respectively

for 1998. The total telephony contribution i.e. business and residential is 78%. The contribution

from cellular is approximately 9% from the total revenue.

23 Investor Relations Quarterly Issue 21, 1st quarter 1999 - 1999 Strategies and Targets


Lines Connected vs. disconnected

The net growth for line connections in 1998 is approx 161,000 However, the line disconnection is

about half a million, after taking into consideration of removals and transfers.

Accounts Receivable

The account receivable in 1998 was RM2.2 billion (net level) and around 80% was attributable to

telephone customers.

Traffic

In terms of volume of IDD minutes, it is in the region of 250 million minutes for incoming and

outgoing.

There is a lot of IDD traffic channelled through cellular. There are also other competitors which

includes call-back and the IP telephony which presently, TM has no idea of gauging. But the

management thinks TM still has a significant market share in international which is about 70%.

As for domestic long distance, TM has lost market share to cellular operators and we they probably

have about 10% of the market share for national long distance.

TM Mobile Companies Profitability

With regards to cellular losses, Mobikom suffered a loss of about RM40 million - this figure was

consolidated into our accounts. TM Cellular also made losses in 1998 and that figure is

substantially higher.

The cellular business in Malaysia is very tough. There is a lot of subsidisation, the cost of acquiring

customers is very high and the average revenue per paying customer is low. From the management

point of view, in order to be profitable, a cellular company needs at least 350,000 to 400,000

customers. Having said that, both Mobikom and TMTouch are quite a long way from being

profitable. TM has taken various steps to reduce costs and continue to improve the value added

services for both Mobikom and TMTouch. Certainly TMTouch has a good reputation for reliability

in those areas where it covers. However, being a PCN network there are areas which are not

covered, especially those out of town.

Labour

In the past labour cost has been increased from 6-7% per annum. In 1999 TM foresees that the

increase of labour cost will be lower which is expected to be 4-5% However, it has been included in

1999 Business Plan some provision of voluntary retirement programme. Separation programmes are


classified as labour costs. There should be an increase in labour cost this year, even though the

management expects should achieve a reduction in staff numbers.

Equal access

As far as the EA is concerned, there will undoubtedly be greater marketing efforts in order to

counter any efforts by competitors. But the main item in TM’s marketing strategy is in labour cost

and overhead cost which already have been incurred by the firm.

The management does not foresee any increase in that part of marketing cost. The increase will be

in advertising and promotion which will be relatively insignificant compared to the amount it has

already been spent in the past. Other costs are discounts on tariff in order to maintain our subscriber

base. The management foresees that not everyone will take advantage of the discount plan offered

even though they have registered for discount plan. TM feels that the losses in revenue incurred

through the discount plan will not be substantial.

Tariffs

As for tariff re-balancing, TM has officially submitted its proposal last year and it is not known

when it will receive serious consideration. First of all, as of 1 April 1999, there will be a new

regulator, the Malaysia Communications and Multimedia Commission. Secondly, it would also

depends on the timing of the election because it is not practical to allow increase in cost before a

general election. The management feels the firm will have to wait the year 2000 before any serious

consideration is given to our proposal for tariff re-balancing.

The firm does not see, however, tariff issues as critical in the competitive battle with other

operators. It is important, instead, to continue efforts to reduce cost of production, so to be able to at

least maintain margins, if required to participate in any price reduction exercise.

13.3. Strategies and targets for the year 1999 24

Marketing initiatives

TM has stepped up marketing and promotion activities to defend and win back customers. The

introduction of TM Family & Friends and TM Business Circle have proven to be effective. These

loyalty programmes enable customers to avail of discounts from 5-12% on domestic and

international calls. To date it has attracted over 1 million subscribers. The company feels to be able

to sustain a very high market share for the fixed line service.

Low cost producer

24 Investor Relations Quarterly Issue 21, 1st quarter 1999 - 1999 Strategies and Targets


In order to maintain its position in a competitive market, TM must be able to provide services at

lower cost. There are many ways Telekom Malaysia aims to achieve this objective. For example:

• Incorporation of new technology to the existing network.

• Increase utilisation of existing network so as to benefit from economies of scale.

• Increase call success rate and other quality targets.

• Focus capex and new investment in areas which can generate early cash returns so as to

preserve shareholder value.

• Reduce bad debt to below 2% by effective credit controls.

Cellular rationalisation and expansion

• As for cellular, the ongoing rationalisation is expected to be completed by 2000. The process

is expected to save the company RM70 million per year. TMTouch will continue its network

expansion and increase its subscriber base through aggressive marketing and prepaid

service. As at March 1999, it has over 35,000 prepaid subscribers since its launch in mid

December. As for Mobikom, its network will be digitised in phases.

• The firm expects an increase in its cellular market share from 18% to 25% in 1999.

Broadband & IT initiatives

TM is also encouraging customers especially business customers to move to high end products for

example, higher capacity broadband such as COINS for data transfers and ISDN for internet

connections.

13.4 Financial Results (December 2000)

Telekom Malaysia Berhad reported sales of 8.82 billion Malaysian Ringgits (US$2.32 billion) for

the year ending December of 2000. This represents an increase of 12.5% versus 1999, when the

company's sales were 7.83 billion Malaysian Ringgits.

However the company’s FY00 results were below expectations. Net profits were some 20% below

our forecast and 17% lower than the consensus estimate. While revenues were in line, Telekom’s

bottom line was dragged down by higher operating expenditure. Unexpected provisions for staff

voluntary retirement expenses and shortfall in the retirement benefits funding were incurred in

4Q00, amounting to RM172m. Associate contributions were also significantly lower falling to a

loss of RM20m for the year compared to a profit of RM201m in FY99. An exceptional loss of


RM184m was also incurred in 3Q00, coming mainly from a provision for the impairment of

Mobikom’s assets. Depreciation and interest expense were within expectations. However bad debt

provisions were lower than expected at just RM486m or 5.5% of revenue.

Fixed-line revenue will stagnate.

Fixed line revenues will continue contributing the bulk of Telekom’s turnover going forward. Direct

exchange lines (DELs) rose by 4.6% to 4.637m lines in FY00. Revenue pressures at its fixed line

division will continue increasing with growing competition in the international (IDD) and national

long distance (STD) segments, from the mobile operators (offering IDD and STD discounts) as well

as from the introduction of voice over internet protocol (VOIP) services. On the flip side, Telekom

has not been able to increase local call tariffs, a politically sensitive issue (STD and IDD revenues

were suppose to subsidise local call costs), although it submitted a tariff rebalancing proposal to the

government last May. We are forecasting a slower 3.9% rise in DELs for FY01.

Mobile division going nowhere.

Telekom’s mobile division recorded a loss of RM560m in FY00. Its subscriber base surged by

122% to 953,000 at end FY00, an average monthly increase of 43,667 new subscribers. We expect a

slower rate of increase to 1.25m subscribers in FY01 as Telekom consolidates its

network. The rapid growth has been achieved by heavy discounting, giving rise to substantial

subscriber acquisition costs. Telekom is now trying to migrate all its analogue network (Mobikom

and ATUR) subscribers over to its digital TM Touch network. The target is to phase out the

analogue networks by 2002. We do not expect Telekom to be able to reverse its mobile losses in the

next two years.

Telekom needs to reinvent itself.

Telekom needs a major overhaul if it is to assume its position as an industry leader. It low free float

also renders it vulnerable to the forthcoming move to free float weighted MSCI indices. Telekom is

an uncompelling investment proposition and remains at best a market performer.


Telekom Malaysia Berhad currently has 25,442 employees. With sales of 8.82 billion Malaysian

Ringgits (US$2.32 billion) , this equates to sales of US$91,185 per employee.

Sales Comparisons (Fiscal Year ending 2000)

CompanyYear

EndedSales

(US$blns)Sales

Growth

Sales/Emp(US$)

LargestRegion

Telekom Malaysia Berhad Dec 2000 2.320 12.5% 91,185 N/A

SmarToneTelecommunicationsHoldings Ltd

Jun 2000 0.377 -4.3% N/A N/A

Okinawa Cellular TelephoneCompany

Mar 2000 0.253 16.3%3,414,709

N/A

Cable & Wireless OptusLimited

Mar 2000 2.106 29.9% 257,116 N/A

Dividend Analysis

During the 12 months ending 12/31/00, Telekom Malaysia Berhad paid dividends totalling 0.10

Malaysian Ringgits per share. Since the stock is currently trading at 9.35 Malaysian Ringgits, this


implies a dividend yield of 1.1%. This company's dividend yield is higher than the three comparable

companies (which are currently paying dividends between 0.0% and 0.7% of the stock price).

During the same 12 month period ended 12/31/00, the Company reported earnings of 0.23

Malaysian Ringgits per share. Thus, the company paid 43.5% of its profits as dividends.

Profitability Analysis

In 2000, earnings before extraordinary items at Telekom Malaysia Berhad were 705.17 million

Malaysian Ringgits, or 8.0% of sales. This profit margin is lower than the level the company

achieved in 1999, when the profit margin was 10.5% of sales.

The company's return on equity in 2000 was 5.6%. This was a decline in performance from the

6.8% return that the company achieved in 1999. (Extraordinary items have been excluded).

During the fourth quarter of 2000, Telekom Malaysia Berhad reported earnings per share of 0.04

Malaysian Ringgits. This is a drop of 27% versus the fourth quarter of 1999, when the company

reported earnings of 0.05 Malaysian Ringgits per share.

Financial Position

As of December 2000, the company's long term debt was 7.56 billion Malaysian Ringgits and total

liabilities (i.e., all monies owed) were 13.69 billion Malaysian Ringgits. The long term debt to

equity ratio of the company is 0.56.

Company YearLT Debt/

EquityTelekom Malaysia Berhad 2000 0.56

SmarTone Telecommunications HoldingsLtd

2000 0.00

Okinawa Cellular Telephone Company 2000 N/A

Cable & Wireless Optus Limited 2000 0.43

A detail of main indicators of past and planned future performance is reported as follows.

FIVE YEARS GROUP FINANCIAL HIGHLIGHTS

Ringgets / in millions

1995 1996 1997 1998 1999 2000 2001 (*) 2002 (*) 2003 (*)Operating revenue 5.252 6.416 7.165 7.980 7833 8.816 9.360 9.787 10.084Profit before tax 1.933 2.388 2.376 1.668 884 1.251 1.970 2.066 2.042Profit after tax 1.573 1.893 1.846 1.017 820 705 1.181 1.245 1.226Total shareholders’ funds 10.921 12.068 11.346 12.025 12.621 --- --- --- ---Total assets 18.021 19.993 24.205 25.819 25.808 --- --- --- ---Total borrowings 3.511 3.624 7821 7.899 8.059 --- --- --- ---(*) Expected


GROWTH RATES OVER PREVIOUS YEARS1995 1996 1997 1998 1999

Operating revenue 16.9% 22.2% 11.7% 11.4% -1.8%Profit before tax 15.4% 23.5% - 0.5% -29.8% -47.0%Total shareholders’funds

14.1% 10.5% - 6.0% 6.0% 5.0%

Total assets 22.3% 10.9% 21.1% 6.7% 0.0%Total borrowings 61.6% 3.2% 115.8% 1.0% 2.0%

RATIOS

1995 1996 1997 1998 1999Return onshareholders’ funds

14.4% 15.7% 16.3% 8.5% 6.5%

Return on total assets 8.7% 9.5% 7.6% 3.9% 3.2%Debt equity ratio 0.3 0.3 0.7 0.7 0.6Dividend rate 15.0% 17.5% 12.0% 10.0% 10.0%

CUSTOMER BASE

1995 1996 1997 1998 1999 2000 (*)Residential telephone 2.410.523 2.738.201 3.052.203 3.226.879 3.258.044 3.308.929Business telephone 921.924 1.033.113 1.170.839 1.157.269 1.172.755 1.191.071Public telephones 99.225 137.707 172.465 188.839 162.276 ----Telex 6.764 4.548 4.095 3.406 3.196 ----Leased circuits 37.476 40.898 46.269 50.636 61.280 ----Maypac 2.749 2.847 2.815 3.742 2.835 ----Toll Free 889 1.009 1.780 1.102 1.295 ----ISDN - 1.949 4.576 8.866 18.089 ----Total access lines 3.332.447 3.771.314 4.223.042 4.384.148 4.430.799 ----Total access lines per 100population

17.0 18.4 20.1 20.4 20.1 ----

(*) Estimated

NETWORK CAPACITY (‘000)

0

2.000

4.000

6.000

8.000

10.000

12.000

1995 1996 1997 1998 1999 2000 2001 2002 2003Operating revenue Profit before tax Profit after tax

CUSTOMER BASE (Total Fixed lines)

3.000.000

3.500.000

4.000.000

4.500.000

5.000.000

1995 1996 1997 1998 1999 2000

CUSTOMER BASE

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

3.000.000

3.500.000

1995 1996 1997 1998 1999 2000

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

Residential telephone Business telephone


1995 1996 1997 1998 1999Kilometers cable pair 27,114 28,333 29,551 29,878 30,069Fibre kilometers 57.2 60.9 90.7 119.7 172.1Exchange lines 5,489 5,916 6,414 7,190 7,337International gatewayexchange

11.1 22.1 22.1 32.9 33.0

PRODUCTIVITY

1995 1996 1997 1998 1999Number of employees 28,846 27,516 27,484 27,089 25,442Number of access lines peremployee

116 137 154 162 174

SOURCES OF GROUP REVENUE - YEAR 1998

Business45%

Residential 33%

Mobile 9%

Leased Line7%

Others6%

Business

Residential

Mobile

Leased Line

Others


Business41%

Residential 33%

Mobile 9%

Leased Line8%

Others9%

Business

Residential

Mobile

Leased Line

Others


Business38%

Residential 31%

Mobile 12%

Leased Line8%

Others11%

Business

Residential

Mobile

Leased Line

Others

SOURCES OF GROUP REVENUE - YEAR 2003 (budget)

Business34%

Residential 28%

Mobile 20%

Leased Line8%

Others10%

Business

Residential

Mobile

Leased Line

Others


QUALITY OF SERVICE

1995 1996 1997 1998 1999Total faults report per line 0.60 0.46 0.39 0.38 0.46Total complaints per 1,000lines

7.0 6.8 7.1 13.2 10.2

Leased circuits faultrestoration (within 24 hours)

95.0 95.8 92.4 98.0 97.3

1995 1996 1997 1998 1999

Number of lines 3.332.447 3.771.314 4.223.042 4.384.148 4.430.799 Total faults 1.999.468 1.734.804 1.646.986 1.665.976 2.038.168 Number of complaints 23.327 25.645 29.984 57.871 45.194

-

0,100

0,200

0,300

0,400

0,500

0,600

0,700

1995 1996 1997 1998 1999

0

2

4

6

8

10

12

14

Total faults reportper line

Total complaints per1,000 lines

-

500.000

1.000.000

1.500.000

2.000.000

2.500.000

1995 1996 1997 1998 1999

-

10.000

20.000

30.000

40.000

50.000

60.000

70.000

Total faults

Number ofcomplaints


14. Questions for further analysis

1. Analyse the dynamics of past performance and try to give an explanation of key-variables

behaviour over time for the period 1998-2000, according to a feedback perspective.

In particular, concerning the unfair billing problems:

Ø focus on different variables impacting on perceived quality of service and policies

undertaken by main decision makers in the company, concerning the following areas

§ Commercial;

§ Infrastructure;

§ Customer service (on-line assistance, service maintenance & faults repairing 25, etc.);

§ Billing.

Ø Analyse available resources, policy levers, constraints, and focus inter-relationships between

main decision areas, including the financial implications of observed dynamics.

Ø Investigate on main trade-off relationships between the above decision areas and try to give

an explanation to following behaviour associated to fixed telephony traffic:

25 A rescue task force of two people is necessary, on average to fix a fault. A maximum of four hours/day overtime perstaff can be worked.

Traffic

Days

0 200 400 600 800 1.000

500.000

1.000.000

1.500.000

2.000.000

2.500.000

Days

Day

s

Normal time to fix a fault1

Perceived actual time to fix a fault2

0 200 400 600 800 1.0000

2

4

6

1 2 1

2

1

2

1

2

1

2

1

2


Ø According to the same approach analyse, then, the problem of the quality of line and

Internet service.

2. Develop, then, your own Telekom Malaysia Berhad’s dynamic scenario to explore alternative

strategies for the period 2001-2003 in different company businesses.

Ø Make your own hypotheses about the potential market, related to different strategic business

areas (SBAs).

Ø Analyse main trade-off relationships associated to interdependencies between different

SBAs and responsibility centres.

Ø Investigate on main feedback loops and – for each decision area – trace policy levers,

resources available, shared resources with other responsibility units.

Ø Assess the volume and cost of resources that will be needed in the future by different

decision areas.

Ø Discuss the business resource allocation process.

Ø Make an evaluation of possible customers reactions to your policies and performance

according to different indicators, and analyse possible competitors’ policies/reactions,

according to different hypotheses

Ø Build a business plan.

Total maintenance staff

Days

0 200 400 600 800 1.000

4.700

4.800

4.900

5.000

5.100

Days

Rin

ggits

Implicit extra financial costs on AccountsReceivable1

0 200 400 600 800 1.0000

1.000

2.000

3.000

4.000

1

1

1

1

1

1

Telekom Malaysia

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Transcript of Telekom Malaysia