Malaysia has ambitions of becoming a developed nation in six years’ time, yet broadband speed and affordability remains a critical, unresolved issue. In fact, research shows that even Thailand is ahead of us in terms of broadband speed and affordability. Where did we go wrong?

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Although Malaysia is targeting developed nation status by 2020, our broadband speeds are still lagging behind our closest neighbour Singapore, and even that of Vietnam and Thailand, as shown by a study in April this year by Asean DNA.

The study was highlighted in an article by Asean Briefing, which said that within Asean, Singapore and Thailand have the fastest average Internet speeds at 61 megabits per second (mbps) and 17.7 mbps. Vietnam has an average speed of 13.1 mbps while Cambodia has 5.7 mbps. Malaysia on the other hand, has an average speed of 5.5 mbps. The average Asean Internet speed is 12.4 mbps, which puts our broadband speed well below average.

What’s more disturbing is that while Malaysia lags behind in Internet speeds, it’s service comes at a much higher price – more than triple that of services in countries such as Singapore and Thailand on a comparable basis .

For instance, Telekom Malaysia Bhd’s UniFi charges RM199 (US$62.40) a month for its 10mbps fibred Internet service, while as the article by Asean Briefing points out Singapore’s largest telco offers 15 mbps Internet for US$30 a month and Thailand charges around US$25 a month for 12 mbps speeds.

The root of the problem

To understand the root of the problem, it pays first to understand the national broadband policies of countries like Singapore, Thailand and Vietnam. Like Malaysia, all three have national broadband plans. However what differs in Singapore, Thailand and Vietnam is that their markets are deregulated, allowing for multiple broadband service providers to own infrastructure and offer broadband services. Competition in these markets fuels demand and supply, thus users are offered higher speeds at competitive prices.

The situation is very different in Malaysia. The fixed broadband market is dominated by government-linked incumbent Telekom Malaysia (TM), which owns 90% of telephone lines and fibre infrastructure in the country, say industry experts. In fact, it is the sole infrastructure provider for the High Speed Broadband (HSBB) project under the National Broadband Initiative (NBI). And the agreement between TM and the government for the HSBB falls under the Official Secrets Act.

Because TM owns last-mile access, other players are ‘forced’ to lease infrastructure from the incumbent to offer broadband services. Again, as an industry expert points out, the industry has been given the raw end of the deal as TM dictates wholesale rates to players who want to provide broadband services.

“Their (TM’s) wholesale rates are not as competitive as the market anticipated and this has left the other players no choice in the end but to offer higher-priced broadband services,” says the industry expert.

This dominance by one player has led to the present-day situation of high broadband prices and partly the near-stagnating broadband penetration rate. Ironically, a National Key Economic Area under the Economic Transformation Programme is to increase the penetration of high-quality and affordable broadband to 95% of the population by 2020. That’s a mere six years away yet our broadband speeds and prices are nowhere near that of Singapore, our closest neighbour.

Of course one may argue that household broadband penetration in Malaysia was only at 31.7% in 2009 and that this jumped to 55.6% in 2010 owing in part to the deployment of the first phase of the HSBB under the NBI.

However this includes the Streamyx service which is based on copper cabling and not fibre. If this is excluded, then broadband penetration can be lot lower. Also, 2010 was the year in which the true broadband service Unifi was introduced, which means that the large jump could be because of that.

The issue however, is that household broadband penetration does not seem to be increasing as fast as it should be in recent years. According to data from the Malaysian Communications and Multimedia Commission (MCMC), as of the first quarter of this year, broadband penetration in Malaysia per 100 households was only 67.3%, compared to 66.6% during the same period last year. That’s a paltry year-on-year increase of 0.7 percentage points.

Analysts believe it won’t be long before broadband penetration hits a saturation point. “I believe saturation under normal circumstances should be closer to 80% (this can change if broadband becomes a basic utility just like electricity and water). If you see the breakdown by states (see table), you will have an idea why the broadband penetration has stayed around 67% in the past year. The low penetration is in rural and East Malaysia – the areas are ‘underserved’ by mobile players as well as fixed-line incumbent TM for broadband,” a telco analyst tells KiniBiz.

“It is a function of economics – the telcos will focus on urban areas first to maximise the returns on capital expenditure. For the mobile players, they have just extended 3G coverage to 80+% of population in the past year or so,” he added.

To achieve higher penetration rates, the government needs to take the lead, the analyst said. “To achieve 80+% penetration, the government will need to take the initiative and even allow the release/use of lower-band spectrum (e.g. 700MHz for longer-range 4G-LTE) so that the rural areas can benefit from wireless broadband. It does not make economic sense to ‘cable up’ rural and vastly populated areas. Hitting more than 90% penetration is a long shot,” he added.

The analyst pointed out also that fixed line broadband is still very expensive and that to push broadband penetration to the next level, prices have to drop. And that is going to be virtually impossible with one player dominating the broadband market.

“Maybe MCMC can require all telcos to provide a basic broadband package (with limited data usage) with low entry cost such as RM30 a month. In fact, the mobile players are pushing their prepaid clients to jump on the data bandwagon by offering ‘bite-sized’ data offerings to get prepaid users to use data. I suspect the broadband penetration may exceed 70% if mobile broadband gets more prevalent with the increasing availability of cheap smartphones,” the analyst explained.

The industry expert suggests that to level the playing field, the government should call for an open tender for the second phase of the HSBB project, due to start later this year. “However, TM still has the last mile connectivity. To open up a tender may prove difficult as TM already has a dominant position,” he said.

One may argue that having millions of broadband customers already means that TM has achieved the economies of scale to allow it to drop prices of its broadband packages. Yet customers continue to pay steep prices for even its ADSL services (Streamyx packages), while in other countries like Singapore, prices have dropped for ADSL packages as other wireless and fibred broadband technologies have overtaken ADSL.

Malaysia isn’t the only country that started out with an incumbent player. Even Singapore started out with SingTel as the only broadband player and South Korea with Korea Telecom. Yet these markets have evolved for the better and ours hasn’t. How did South Korea do it? In our next instalment, KiniBiz speaks to a South Korean expert on how the country achieved the high broadband penetration rates it has today.

Tomorrow: Lessons from South Korea

