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By Julian Matthews

Call off government merger of telcos, urges analyst

October 20 1999, Penang -- The Malaysian government should back-away from attempting to merge the six telcos in the country into three as it would do more harm than good to the industry, says a Gartner Group analyst.

"Consolidation is necessary. But when the government intervenes, it risks delaying an inevitable process. Government intervention tends to strengthen the hand of the weakest and undermine the fittest. That will not strengthen the sector," said Bertrand Bidaud, Director of Telecommunications for the Asia-Pacific Gartner Group.

Bidaud said the government's intentions may be an attempt to rescue the telcos from bankruptcy, but such intervention by governments elsewhere has not been positive citing France Telecom, Deutsche Telekom and several Asian mergers that remained "superficial".

Bidaud suggests the government focus only on its regulatory role, adopt a "hands-off" attitude to mergers and let market forces decide their fates.

This was Malaysia's second attempt in three years to consolidate the industry which most analysts agree is crowded with too many players for a population of 22 million people.

The government abandoned the 1996 attempt after the operators balked, claiming they were already committed to infrastructure build up. Some out-maneuvered the government by signing up with foreign partners to avoid takeovers.

The currency crisis hit hard, however, and found the telcos racking up huge debts.

"The fact is that too many licenses were granted before a proper competitive framework was in place. Telcos invested too much in infrastructure and are now heavily indebted. Since then, the government has improved a lot the regulatory environment, but the debt is there," he said.

Gartner Group's latest estimates suggest the the telco market in Malaysia is worth RM11 billion (US$2.9 billion) in 1999 and is expected to climb to RM15 billion (US$3.95 billion) by 2002. The key driver will be macroeconomic or GDP growth, said Bidaud.

Bidaud believes the mobile market will be "where all the action is" as there is little competition in the fixed-line market which is dominated by Telekom Malaysia Berhad.

"The first stage of consolidation is likely to involve three operators initially: two competing on 1800Mhz bandwidth, two competing on 900MHz bandwidth, and one with both frequencies. That should give healthy competition," said Bidaud.

There are currently seven different services run by five telcos in the mobile space: Celcom ART 900 and Celcom GSM (operated by Celcom), Maxis Mobile (Maxis Communications), DiGi 1800 (DiGi Swisscom), Adam (Time Telecommunications), and Mobikom and TMTouch (both run by Telekom Malaysia).

The industry has been rife with speculation on possible tie-ups or partnerships with foreign telcos since the forced mergers by government was announced this year. Bidaud believes further investment in Malaysia from foreign telcos is likely.

(Published in CNET Asia, October 20, 1999)

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