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Telcos Battle for 3G Licenses

Malaysia will only hand out three licenses for third-generation (3G) telecommunication networks, forcing rival network operators to make joint-bids or face the possibility of being shut out. The move is widely seen by analysts as a means to pave the way for long overdue mergers between the five telecom company players in the country.

Energy, Communications and Multimedia Minister Leo Moggie said successful bids for the 3G licenses will be announced in July this year. Moggie denied an earlier report that suggested three players, Telekom Cellular Sdn Bhd, DiGi Telecommunications Sdn Bhd and Maxis Communications Bhd, had already been awarded the licenses. "We're sticking to what we announced last year," he said.

Malaysia has opted for a "beauty contest" in handing out the licenses rather than a costly auction, reasoning that the latter may unduly burden bidders, as seen by some 3G auctions in Europe.

The five contenders for the licenses are Telekom, DiGi, Maxis, Celcom Sdn Bhd and TimeCel Sdn Bhd. Analysts suggest that state-backed Telekom and efficiently-run Maxis are leading candidates, while Celcom and TimeCel may need to court rivals to ensure a successful bid as their parent companies are debt-ridden and undergoing protracted restructuring.

Moggie had also previously indicated that criteria for the chosen applicants would be based on capability and financial resources to launch the services. Winning applicants may have to pay an estimated fee of 50 million ringgit (US$13 million), in exchange for a spectrum block for 15 years, and will be required to roll out the new services by the end of 2003.

Given the current economic climate, the government has been cautious in its approach and has indicated that it favors joint or consortium bids for the 3G licenses rather than individual bids.


The failure of hyped-up Wireless Application Protocol (WAP) service and poor demand for always-on General Packet Radio Service (GPRS) have only dampened interest in new, unproven technologies. 3G development costs are also seen to be prohibitive for some players already struggling to repay huge capital expenditure incurred in recent years to build, maintain and expand existing networks.

Last November, in a precursor to consolidation, the five telecom companies signed an agreement to share infrastructure and to ante-up at an agreed rate the cost to build or rent new communication towers or sites. There are currently about 350 towers being shared among the operators, who have collectively spent more than US$1.8 billion on the setup of telecommunications infrastructure around the country.

In a recent report, securities company SJ Securities Sdn Bhd described consolidation in the industry as "inevitable" as infrastructure cost increases and global competition intensifies.

The report indicated, however, that there was still ample room for growth in the local cell phone market. Malaysia has an estimated 6.5 million cell phone users, a relatively low penetration rate of 28% compared to countries/regions such as Singapore, Taiwan and Hong Kong, which enjoy rates in excess of 40%.

SJ Securities said growth in coming years would be fuelled by lower phone prices and access fees, ease of use of prepaid packages, and improved coverage and services.

by Julian Matthews, Kuala Lumpur

(March 2002 Issue, Nikkei Electronics Asia)

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