Rule of Three

Whenever I traveled to Malaysia, I found it so similar to India. In places
like Malacca, one feels almost at home. Because of market similarities, the
Malaysian cellular story has always been interesting. Too much competition has
been hurting even the strongest players. The five full-service players–each
having cellular, international gateway and domestic fixed-line licenses–are
still vying for a share of the Malaysia’s market, making consolidation

Malaysia started analog mobile services in 1985 and at one point of time had
seven mobile operators. The first merger of a GSM operator with Telekom Malaysia
(TMB) took place quite early, leaving six in the fray. Now there are five
operators. By the end of the previous year, mobile penetration in Malaysia–with
a population of close to 24 million–was around 25 percent and should be around
28 percent now.

The biggest operator Maxis, formerly known as Binariang, with about 29
percent of the market share, had BT as a shareholder till BT decided to quit its
Asian investments. The second major player TRI-Celcom, controlled by Tajudin
Ramli and Deutsche Telekom, had a market share of 27 percent. In a recent
development, TRI-Celcom has agreed to merge its mobile phone business with that
of TMB, the terms of which are being worked out. The third cellular operator
DiGi, with around 1.1 million subscribers, is Malaysia’s leading GSM 1800
mobile network service operator and claims to be the market leader in pre-paid
services. DiGi tries to tailor its services to suit customers’ lifestyles,
work and play. Norwegian partner Telenor has offered to increase its stake in
DiGi from 32 percent to 61 percent. The local incumbent Telekom Malaysia is the
fourth player, with a market share of 16 percent.

It is interesting to note that the five mobile operators signed an MoU in
November 2001 on the sharing of the telecom infrastructure to optimize and
consolidate their respective resources.

K Gupta

Consolidation is not to be seen as
a market-driven activity only,
it’s an economic necessity

After months and years of speculation, Malaysia’s smallest cellular firm
Time dotCom, with less than the critical mass number of a million subscribers
(actually around 600,000 subscribers), recently agreed on the sale of mobile
operations to Maxis, bringing an end to its woes. A win-win deal for all parties
concerned, the sale marks what is likely to be the final phase of the market’s
consolidation. Analysts expect the number of operators to be cut to three with
the advent of 3G.

3G to Necessitate Consolidation
The recent allocation of two (out of three planned) blocks of 3G spectrum to
Telekom Malaysia and Maxis subsidiary is being viewed as accelerating the
long-needed and an advocated consolidation process of the telecom industry in
Malaysia. The number of five mobile operators was always considered a large
number for a population of about 24 million. Malaysia is considered as one of
the most proactive governments within the Asia-Pacific region–keen to promote
technology as a driver to future economic prosperity. It is noteworthy that the
government has avoided the temptation to use the 3G licenses as a means to raise
billions, as in many other countries. Licensees will be required to pay only RM
50 million ($13 million) as an assignment fee.

Share of Mobile Operators in Malaysia
(end 2001)

The Rule of Three is becoming increasingly relevant for telecom business. To
quote its proponent, telecom strategist, Prof Jagdish Sheth, from his famous
book by the same name: “Because only three players are needed to create a
balance of power, the fourth player becomes expendable in the market’s push
toward efficiency.” He cautions, “The Rule of Three does not apply
when naturally occurring competitive forces are thwarted by regulatory and
protectionist impediments.” Need we say more!.

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