Whenever I traveled to Malaysia, I found it so similar to India. In places like Malacca, one feels almost at home. Because of market similarities, the Malaysian cellular story has always been interesting. Too much competition has been hurting even the strongest players. The five full-service players—each having cellular, international gateway and domestic fixed-line licenses—are still vying for a share of the Malaysia’s market, making consolidation inevitable.

Malaysia started analog mobile services in 1985 and at one point of time had seven mobile operators. The first merger of a GSM operator with Telekom Malaysia (TMB) took place quite early, leaving six in the fray. Now there are five operators. By the end of the previous year, mobile penetration in Malaysia—with a population of close to 24 million—was around 25 percent and should be around 28 percent now.

The biggest operator Maxis, formerly known as Binariang, with about 29 percent of the market share, had BT as a shareholder till BT decided to quit its Asian investments. The second major player TRI-Celcom, controlled by Tajudin Ramli and Deutsche Telekom, had a market share of 27 percent. In a recent development, TRI-Celcom has agreed to merge its mobile phone business with that of TMB, the terms of which are being worked out. The third cellular operator DiGi, with around 1.1 million subscribers, is Malaysia’s leading GSM 1800 mobile network service operator and claims to be the market leader in pre-paid services. DiGi tries to tailor its services to suit customers’ lifestyles, work and play. Norwegian partner Telenor has offered to increase its stake in DiGi from 32 percent to 61 percent. The local incumbent Telekom Malaysia is the fourth player, with a market share of 16 percent.

It is interesting to note that the five mobile operators signed an MoU in November 2001 on the sharing of the telecom infrastructure to optimize and consolidate their respective resources.

After months and years of speculation, Malaysia’s smallest cellular firm Time dotCom, with less than the critical mass number of a million subscribers (actually around 600,000 subscribers), recently agreed on the sale of mobile operations to Maxis, bringing an end to its woes. A win-win deal for all parties concerned, the sale marks what is likely to be the final phase of the market’s consolidation. Analysts expect the number of operators to be cut to three with the advent of 3G.

3G to Necessitate Consolidation
The recent allocation of two (out of three planned) blocks of 3G spectrum to Telekom Malaysia and Maxis subsidiary is being viewed as accelerating the long-needed and an advocated consolidation process of the telecom industry in Malaysia. The number of five mobile operators was always considered a large number for a population of about 24 million. Malaysia is considered as one of the most proactive governments within the Asia-Pacific region—keen to promote technology as a driver to future economic prosperity. It is noteworthy that the government has avoided the temptation to use the 3G licenses as a means to raise billions, as in many other countries. Licensees will be required to pay only RM 50 million ($13 million) as an assignment fee.

Market Share of Mobile Operators in Malaysia (end 2001)

The Rule of Three is becoming increasingly relevant for telecom business. To quote its proponent, telecom strategist, Prof Jagdish Sheth, from his famous book by the same name: "Because only three players are needed to create a balance of power, the fourth player becomes expendable in the market’s push toward efficiency." He cautions, "The Rule of Three does not apply when naturally occurring competitive forces are thwarted by regulatory and protectionist impediments." Need we say more!.