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Telekom has near-monopoly if ISPs merge
By Julian Matthews,
January 11, 2001

Telekom may have unassailable lead over rivals with over 1.5 million subscribers if Jaring and TMnet merge.

KUALA LUMPUR - A possible buy-out of Internet service provider Jaring by Telekom Malaysia Berhad, operator of rival service TMnet, will give the state-controlled telco a near-monopoly of retail ISP business, say analysts.

“I don’t think the regulators should accept such a move. It would make Telekom the dominant player with a near-monopoly. I would be surprised if it happened, “ said Bertrand Bidaud, Gartner Group director of telecommunications for Asia-Pacific.

Tan Tze Meng, general manager of IDC Sdn Bhd, said the move could discourage competition and make it difficult for other ISP license holders to grow their share of the market.

“Due to the ridiculous cost of leased-line Internet access in Malaysia and the cost of trans-Pacific connectivity, only the truly big players who own their own network will be able to compete with TMnet,” he said.

Bidaud and Tan were commenting on a Dow Jones report yesterday, quoting an unnamed industry source, that suggested Telekom was “close to buying” Jaring.

Jaring is the pioneer ISP in the country and is a unit of government-funded research house Mimos Bhd. From previous estimates, the ISP has over 500,000 dial-up users and over 3,000 leased line customers.

Public-listed Telekom Malaysia, which is 70 percent-owned by government, started rival service TMnet in late-1995 and has an estimated one million dial-up users to date.

Malaysia has four other ISP license holders namely, Maxis Communications Bhd, DiGi Telecommunications Bhd, TimedotCom Bhd, a unit of Time Engineering Bhd, and Celcom Sdn Bhd, a unit of Technology Resources Industries Bhd.

If TMnet and Jaring are merged it could have an unassailable lead over rivals with a consolidated base of over 1.5 million subscribers.

Both Telekom Malaysia and Mimos have yet to respond officially on the potential purchase.

Gartner’s Bidaud said Telekom risks “spreading itself too thin”, if the merger goes through. “Telekom would be better-off spending whatever surplus funds it has on boosting its cellular networks and corporate services as those are more profitableense in the US it is poised to slash trans-Pacific costs to negligible amounts,” said Tan.

Tan was referring to Telekom recently obtaining a licence under US’ Federal Communications Commission Section 214, which enables the telco to save huge infrastructure link-up costs.

He also contends that Telekom’s dominant control over the “last-mile” with over 4 million fixed-line subscribers, makes it difficult for rivals to reach customers.

Rival ISPs have also had to pay Telekom connectivity charges for riding on its network, which has irked market players for some time.

“Jaring, for example, leases everything and may be bleeding because of it. The ISP pays Telekom about RM18 million (US$4.74 million) annually for every 45-Mbit circuit. Jaring also only makes 1 sen per minute from every user but Telekom makes an additional 1.5 sen a minute from the phone calls regardless of whether the user is TMnet or Jaring.”

Tan said, additionally, broadband connectivity to US backbone providers is in the region of US$2,000-3,000 per Mbit per month for bandwidths of 155 Mbps and above. “Jaring's revenues cannot hope to cover the cost of operating an ISP. Most of its revenue comes from their leased-line customers. Even here, Telekom Malaysia makes money from the rental of the leased-lines to Jaring,” he said.

DiGi and Maxis are in the same predicament. “Only TimedotCom has a nationwide fiber optic backbone to compete but it also has last-mile customer-reach problems,” he said.

Tan estimates, however, that if the Jaring and TMnet merger takes place, TMnet is likely to gain the critical mass, which will allow it turn a profit. “They definitely have not recovered their costs but may just be starting to break-even on operational costs.”

But Tan contends TMnet needs to dramatically improve its customer service and infrastructure to remain competitive. ”They need to cut down on some of the worst red-tape and bureaucracy in the country. TMnet staff need to be freed from the layers of decision-makers they have to go through, so they can better respond to customer needs.”

Telekom stocks closed unchanged at RM10.60 at the close of trading at the Kuala Lumpur Stock Exchange today.