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VoIP Competition Intensifies

The government's effort to liberalize the voice-over-Internet protocol (VoIP) market has met with a sudden explosion of service providers competing in a rapidly shrinking space. In addition to the six major telecom companies providing the service, an estimated 15 other licensed providers, and 10 to 12 unlicensed providers, have emerged within the last two years.

Several providers have joined forces to convince the industry regulator - the Communications and Multimedia Commission (CMC) - that there is "sufficient competition" in the market, and to bring the issuing of more licenses to a halt.

"The VoIP industry here need not go down the same 'big bang' experience suffered by Hong Kong and Singapore," said Laurence Lau, chairman of the yet-to-be-named VoIP lobby group. Lau said Singapore had issued more than 150 licenses over the last three years, of which less than 20 operators have survived. "Five of these are significant players, while the rest are not expected to last the distance," he said. He added that the group hopes the government will recognize it can avoid the expected "boom, bust and consolidation" phases faced by other countries and other industries.

The Malaysian government, which began deregulating the industry in the early 90s, sees itself faced with the same issues in the VoIP industry as it did with mobile telephony when it offered a slew of licenses, particularly to various politically-linked enterprises.

Industry Controls

Without adequate checks and balances, competition was heated, resulting in duplication of infrastructure and exchanges. In 1996, the government attempted to rationalize the cellular industry and merge the players, but abandoned the plan after lobbying from the various players. The mobile service providers have since consolidated their position with tie-ups with foreign telecom companies and agreed to interlink their services and share resources. Now, the fledgling VoIP industry faces the same prospect of a bruising shake-out.

Lau said the CMC should assess the "optimal number of players" for the market by examining how much prices have fallen in recent months. "Are the current licensees operating profitably? If not, why introduce more competition? Each new entrant would need to incur relatively huge start-up costs, which require a substantial payback period and amortization. That would ruin our business models if more and more new entrants were to come in every three months or so and start a price war," said Lau, who co-founded Sigma-trix (M) Sdn Bhd and the voice traffic service SigmaNet in November 2000. Lau also said he was concerned that customers may lose out if the new providers suddenly folded and left them in the lurch.

Lau estimates that the market size was about US$50 million in 2000; he expects this to rise to about US$92 million this year. "Growth should taper off next year as more competition kicks in."
Market researcher Frost and Sullivan estimates that the Southeast Asia region will have generated total revenues of US$1.2 billion from the VoIP market by 2006, at an explosive compounded annual growth rate of 57.1%, with Singapore, Malaysia and Indonesia leading the way.

by Julian Matthews, Kuala Lumpur

(December 2001 Issue, Nikkei Electronics Asia)

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