The following is an informative story about government granted monopolies and also the 5G story in Malaysia. It is written by FLK (psedonym) and thank you. My comments in blue.
Is D-g--l (D) another compensation story?
The formation of (D) appears to be doomed for failure from the word go.
Claiming the rationale for the formation was due to the coverage gap between urban and rural areas and the reluctance of telecommunications companies to serve only in areas that has limited yields, D was formed using the Single Wholesale Network (SWN) model whereby the spectrum would be sold to Mobile Network Operators (MNOs) at cost price as a way to keep 5G cheap and indirectly forces the telecommunications companies to cover the rural areas too.
OSTB - Monopoly Story No. 1 from 2003 :
Back in April 2003, the then Energy, Communications and Multimedia Minister Datuk Amar Leo Moggie, citing a greater need to boost deployment speed and physical cellular phone coverage after previous encouragement for MNOs to share infrastructure facilities failed, said regulatory intervention has to be made whereby an instruction was issued instructing all MNOs to rent and use telecommunications towers supplied by privately held A... Sdn Bhd for all their future needs.
Leo Moggie also said as A... is not competing in the downstream market i.e providing cellular phone service, there will be no conflict of interest. Moreso, the Ministry and MCMC will be introducing a set of regulations covering basic principles of tower sharing to facilitate sharing arrangements among rival players and determine the fees and rental terms for the towers.
An official from the Ministry went on to say some 3,000 more of these towers or base transceiver stations (BTS) will be built nationwide by the end of 2004 so that mobile phones can be used in all populated areas nationwide.
At that point, 40% or 9 million of Malaysia’s total population of approximately 24 million owns a mobile phone, doubled the T-----m Malaysia number of fixed line subscribers which was 4.8 million only.
The result from this government intervention was clear to everyone for as at May 2021, A--- only has 178 Towers, which they sold it to a fund managed by C----y Capital, a private equity fund from the US while e----o, which is part of the Ax---- group, has approximately 12,000 towers in Malaysia followed by the Y-L group which has close to 5,000 towers and few state backed towercos owning approximately another 3,500 towers collectively. Even O-K Bhd, a company listed on the Main Board of Bursa Malaysia has more towers than A--- with approximately 420.
An official from the Ministry went on to say some 3,000 more of these towers or base transceiver stations (BTS) will be built nationwide by the end of 2004 so that mobile phones can be used in all populated areas nationwide.
At that point, 40% or 9 million of Malaysia’s total population of approximately 24 million owns a mobile phone, doubled the T-----m Malaysia number of fixed line subscribers which was 4.8 million only.
The result from this government intervention was clear to everyone for as at May 2021, A--- only has 178 Towers, which they sold it to a fund managed by C----y Capital, a private equity fund from the US while e----o, which is part of the Ax---- group, has approximately 12,000 towers in Malaysia followed by the Y-L group which has close to 5,000 towers and few state backed towercos owning approximately another 3,500 towers collectively. Even O-K Bhd, a company listed on the Main Board of Bursa Malaysia has more towers than A--- with approximately 420.
From being named as the sole owner to build and own towers where MNOs will have to rent space on their telecommunications towers, it appears that the intervention by the government – using the justification that there is greater need to boost deployment speed and physical cellular phone coverage especially to the rural areas – failed spectacularly as apparently majority of the MNOs did not adhere to the instruction mandated to A---
The same reasons were also cited by the government of Tan Sri Muhyiddin when they rolled out D i.e greater need to boost deployment and physical cellular phone coverage for 5G.
OSTB - Monopoly Story No. 2 from 2007 :
During the same period as for the instruction for all telecommunication companies to rent towers from A---, the government also proposed the implementation and rollout of the Mobile Number Portability (MNP) project which was awarded, again to a little known company, T..G.. whose technology partners are UC and TT in 2007. MNP was described as the ability of customers to switch operators whilst retaining their mobile service number.
Similarly, MCMC cited the goals of the MNP project is to enhance competition, deployment of advanced technologies, lowering of costs and expanding the choice to users and stimulating economic development in Malaysia.
As with the current discourse being held on D and its SWN model, experts at that time discussing on the merits of the MNP model being awarded to T..G.. said it is beneficial for a single entity with no MNOs involved thus removing conflicts of interests and users can take advantage of an operator's better coverage, pricing, handset availability, subsidy and pricing. No one questioned whether all the MNOs were willing to share their network in the MNP model awarded.
Even after its implementation in 2008 where it was hoped that it will improve competition and quality of mobile services, the project failed to be a game changer, which some smaller telecommunication companies in Malaysia was expecting it to be. It achieved very limited take-up. The high level of rejection by the Donor Operator i.e the MNO losing the customer and relatively low consumer demand for mobile porting were significant disincentive for mobile users to consider porting their number to an alternative service provider. Thus, as at todate, prices still remained uncompetitive and quality of service has yet to improve.
As with the current discourse being held on D and its SWN model, experts at that time discussing on the merits of the MNP model being awarded to T..G.. said it is beneficial for a single entity with no MNOs involved thus removing conflicts of interests and users can take advantage of an operator's better coverage, pricing, handset availability, subsidy and pricing. No one questioned whether all the MNOs were willing to share their network in the MNP model awarded.
Even after its implementation in 2008 where it was hoped that it will improve competition and quality of mobile services, the project failed to be a game changer, which some smaller telecommunication companies in Malaysia was expecting it to be. It achieved very limited take-up. The high level of rejection by the Donor Operator i.e the MNO losing the customer and relatively low consumer demand for mobile porting were significant disincentive for mobile users to consider porting their number to an alternative service provider. Thus, as at todate, prices still remained uncompetitive and quality of service has yet to improve.
OSTB - Monopoly Story No. 3 from 2010
Outside of the telecommunication sector, Lembaga Kemajuan Ikan Malaysia (LKIM), an agency under the Ministry of Agriculture issued a directive compelling all fish and seafood importers to use a a more expensive food grade fish box from an LKIM appointed company in 2010. Originally conceived to be implemented in 2006, the implementation was shelved to 2010 after protests from the importers who threatened to stop all imports of fishes.
The justification given by the Ministry of Agriculture was that the boxes are equipped with a microchip which will help the Custom Officers to identify the contents and point of origin of the fishes imported.
This directive apparently was not implemented eventually as majority of the importers refused to comply with the directive.
The justification given by the Ministry of Agriculture was that the boxes are equipped with a microchip which will help the Custom Officers to identify the contents and point of origin of the fishes imported.
This directive apparently was not implemented eventually as majority of the importers refused to comply with the directive.
(OSTB - I want to claim some credit for convincing the Government to cancel that harebrained kotak ikan idea. This kotak ikan matter came up twice - once under Dato Mustapa Mohamed or Tokpa and another time under Ismail Sabri, hence the moniker "Ma'il Kotak Ikan" by some bloggers at that time. When the kotak ikan suggestion first came up under Tokpa I criticised it strongly and told Tokpa directly. I believe it was a scheme cepat kaya by some Umno cronies who wanted to corner the contract to supply the kotak ikan with the micro-chip inside. The normal styrofoam kotak ikan cost about RM15-30. The micro-chip kotak ikan cost easily RM200 each. That would have sent fish prices to the sky. Or killed the fish imports completely. We killed the idea during Tokpa. Then it popped up again under Ismail Sabri when he was the Minister responsible. We helped to kill the idea again. The fish importers were really ready to stop importing all fish.)
In all the above cases, instead of harnessing the power of markets to deliver wider social policy objectives, the government sought to intervene in private sector activities where these private firms typically make their investment decisions based on the information available in the market which will typically have better information than the government on feasible quality standards or market outcomes.
The intervention shown in all the above 3 cases resulted in goods or services continuously being provided at an inefficiently high cost or poor quality or not at all, as the government does not typically have access to prices as a signal of consumers’ preferences.
The main problem for the policy makers in the government is their information disadvantage. In order to design a policy as in the above cases, information is frequently needed from the existing competing firms who may have an incentive to strategically provide the information which is a disadvantage to the policy makers.
The intervention shown in all the above 3 cases resulted in goods or services continuously being provided at an inefficiently high cost or poor quality or not at all, as the government does not typically have access to prices as a signal of consumers’ preferences.
The main problem for the policy makers in the government is their information disadvantage. In order to design a policy as in the above cases, information is frequently needed from the existing competing firms who may have an incentive to strategically provide the information which is a disadvantage to the policy makers.
Rather than having a public monopoly providing a service which can create unintended distortions to competition, the government should just let the public and private suppliers compete in a market where consumers are given the right to choose their preferred supplier. Choice in the market relies on ‘active’ consumers and also requires sufficient opportunity for rivalry between suppliers.
Similarly as in the tower case and MNP project, for DNB to carry out its project, it necessitates huge funding. The Finance Minister – DNB is wholly owned by MOF – had in November 2021 claimed that the implementation of the 5G project by DNB would not involve any government guarantee or funding, indirectly or with permission, off-balance sheet as the cost of implemention will be financed through a combination of deferred financing to vendors, trade financing and working capital, as well as sukuk programmes that would be issued in the national capital market. DNB also confirmed publicly that they would securitise future cash flows from its wholesale business via sukuk programmes to finance all other network operating expenditure and to repay financiers when they become due.
In Malaysia, the issuance of sukuk programmes are governed and subject to the Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors are issued by the Securities Commission Malaysia (SC) under section 377 of the Capital Markets and Services Act 2007 (CMSA). Anyway, regardless of whether the issuance of the Sukuk falls within the Guidelines, the pre-requisite in preparing the program is that it must be rated by a credit rating agency registered with the SC.
In an asset-based sukuk structure, the overriding reliance of investors is on the credit strength of the obligor which is D. As D is a new setup without any historical background and financial and physical assets, sukuk holders will likely require collateral – which is likely to be in the form of a guarantee from the government - which can also reduce the rate that D will pay the sukuk holders.
The cash flows from the wholesaling of the spectrum to the various telcos will be used to service such profit distributions to the sukuk certificate holders. Effectively, this means that to fund the projected costs of RM15 billion expected to be incurred by D in setting up the 5G infrastructure, D must be certain and assured of the take up and the expected lease payments from all the mobile operators for the duration of the sukuk program.
The cash flows from the wholesaling of the spectrum to the various telcos will be used to service such profit distributions to the sukuk certificate holders. Effectively, this means that to fund the projected costs of RM15 billion expected to be incurred by D in setting up the 5G infrastructure, D must be certain and assured of the take up and the expected lease payments from all the mobile operators for the duration of the sukuk program.
With the exception of T----m who signed up, none of the existing operators has committed to lease from D the 5G spectrum on offer as at todate. In this instance, there would definitely be a shortfall on the amount to be raised from a sukuk. Would that be covered via bank loans or from Er----on?
If funding is from the banks in Malaysia, they have to comply with the Credit Risk guideline issued by Bank Negara Malaysia (BNM) on 27 September 2019. Unless BNM exempts lending banks from complying with the guideline issued by them, banks will insist for collaterals from D. Again, as D is a new entity set up for the purpose of implementing a nationwide 5G program, it has no asset except ownership of the 5G spectrum. In the alternative, is the government going to guarantee the loans from the banks to D?
If funding is from the banks in Malaysia, they have to comply with the Credit Risk guideline issued by Bank Negara Malaysia (BNM) on 27 September 2019. Unless BNM exempts lending banks from complying with the guideline issued by them, banks will insist for collaterals from D. Again, as D is a new entity set up for the purpose of implementing a nationwide 5G program, it has no asset except ownership of the 5G spectrum. In the alternative, is the government going to guarantee the loans from the banks to D?
As the CEO of D said in a recent comment to a mainstream media, D’s failure will have financial, legal and reputational implications for the country. Firstly, the government will be subjected to pay substantial amounts of claims and compensation, including early termination penalties of various types of contracts, for the entire operations of D.
My comments :
Kerajaan lesenkan satu lagi monopoli. Kali ini monopoli lesen 5G.
Negara kita Malaysia memang sudah jadi ibukota dunia bagi syarikat monopoli. Segala-galanya mesti ada monopoli (satu syarikat) atau oligopoli (beberapa syarikat sahaja).
Dan yang peliknya monopoli ini dilesenkan oleh Kerajaan. Maksudnya Kerajaan yang wujudkan monopoli. Monopoly approved by the government.
Dan mengikut penulis ini, dia memberi tiga contoh lesen monopoli yang sudah gagal dan merugikan rakyat. Rakyat yang rugi sebab terpaksa bayar harga yang jauh lebih tinggi dan juga rugi duit rakyat apabila syarikat monopoli (kepunyaan Kerajaan) tidak boleh hidup. Duit rakyat yang biayai syarikat kepunyaan Kerajaan itu pun jadi hangus.
Penulis ini cadangkan kita biarkan pasaran atau open market tentukan perniagaan dan industri kita untuk menawarkan pilihan yang lebih baik dan murah bagi pengguna.
Rather than having a public monopoly providing a service which can create unintended distortions to competition, the government should just let the public and private suppliers compete in a market where consumers are given the right to choose their preferred supplier. Choice in the market relies on ‘active’ consumers and also requires sufficient opportunity for rivalry between suppliers.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.
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