The Ovum View: 3G in Malaysia

It's all change in Malaysia with 3G. Or is it? The allocation of spectrum says as much about the government's views on industry structure as it does about the immediate prospects for mobile multimedia. Ovum's Asia-Pacific research director John Davison provides the insight...

On 31 July 2002, the Malaysian Communications and Multimedia Commission (MCMC) assigned two of the three available 3G spectrum blocks in Malaysia. It was no surprise the two successful bidders were Telekom Malaysia Bhd and the Maxis Communications subsidiary UMTS (Malaysia) Sdn Bhd.

Celcom, Time and E-touch, the relative outsider, all failed to impress the Commission sufficiently.

In part, the allocation of only two blocks of spectrum can be viewed as part of the long-awaited process of telecommunications industry consolidation in Malaysia. The country has five mobile operators, which is a large number for a population of about 24 million.

The Malaysian government is one of the more proactive within the Asia-Pacific region and is keen to promote technology as a driver to future economic prosperity. Consolidation within the industry is intended to contribute towards the development of a stronger set of players, capable of competing with foreign-owned operators both within Malaysia and overseas.

Additionally, the licence process was never seen by the Malaysian government as a means to raise billions of dollars (as it was in most of Europe). Successful bidders will be required to pay only RM50m (US$13.2m) as an assignment fee.

So what does the allocation of spectrum mean for Malaysian communications? It certainly doesn't mean we will see any short-term launch of 3G in Malaysia - and we shouldn't expect to.

The two successful bidders have six months to submit business cases to the MCMC in order to validate their bids. Nothing concrete on 3G implementation is going to happen before then. It's also unlikely anything will happen to the remaining potential block of 3G spectrum until at least the end of that six month period - in effect the start of 2003.

We expect TM to complete its acquisition of Celcom - which will cause sufficient organisational indigestion to put any thoughts of 3G on hold for a while.

It's less likely that Maxis will look to acquire the mobile assets of TimedotCom. On the surface, Time's mobile operation is only attractive to Maxis if it could purchase it at a rock-bottom price, as the operational synergies are only superficial. It is unlikely that TimedotCom would sell at a low price and its strategy is still to offer a convergent wireless and fixed broadband service portfolio - so to unwind the mobile operation would mean a serious diversion of its business strategy. Unless directly encouraged by the government, Maxis is likely to look for other routes to solve any capacity problems it faces.

What it does mean is that the two successful bidders will be looking for partners, of various types? The MCMC made much of the need to avoid duplication of infrastructure (by network sharing) and the requirement to facilitate MVNOs (competition based on services and applications). It is in developing these partnerships that the interesting work will happen in Malaysia over the next few months.

DiGi very visibly pulled out of the 3G licence bidding, claiming that as a strategic move, partly to avoid network duplication. It will instead look to take a role as an MVNO.

Like many countries, Malaysia is just beginning its move to the wireless internet as the stepping stone to 3G. This doesn't mean that foreign partners will necessarily flock to Malaysia (even if they're invited). The sort of raunchy branding that Virgin has placed on its mobile offerings in recent times is unlikely to be a hit in Malaysia. But equally, Malaysia should be willing to learn some of the hard lessons that leading-edge countries like Korea have learnt over the last few years.

Most of the basic drivers towards mobile internet are just that - basic, and common to most people. For 3G to succeed in Malaysia, it will need local developers to take the lessons of successful services overseas and adapt them for the local context.

Related Ovum research: Mobile@Ovum and WirelessInternet@Ovum .Forthcoming Ovum report: 3G Revenues: Payback Time. Or email: info@ovum.com and visit www.ovum.com .