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

inevitable.

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.

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.

Market 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!.