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Abstract
1. Introduction
generally had a big effect on the evolution of telecommunications. Perhaps the two
largest effects have been on (1) the rate and direction of technological change and
(2) the market structure of the telecom industry. In the US, cellular telephony is an
example of (1). It is estimated that ‘politics’ held up its introduction by at least a
decade (Rohlfs et al., 1991, Hardman, 1982). The reason was that AT&T and its
potential cellular rivals both had political clout, resulting in interminable hearings
before the Federal Communications Commission. A US example of (2) is the
Telecommunications Act of 1996, passed after 20 years of political maneuvering.
It promises to cause massive changes in the market structure of the US telecom
industry.
At the same time, political economy analyses of the effects of politics on
telecom technological change and market structure are rare in the literature, in
spite of the large literature in both economics and political science on methodolo-
gies of such analyses. In this paper, we attempt the beginning of a comparative
political economy of telecommunications in Malaysia and Singapore, using
interest group or ‘stakeholder’ analysis as our principal methodological tool. These
countries present striking, contrasting case studies. Until 1957, both were part of
British Malaya. Politics have driven both countries to keep their telecom industries
at the technological cutting edge, in some cases even leading the world in the
introduction of new technologies. However, different ethnic compositions and
accidents of history have caused politics to drive the two countries toward quite
different telecom market structures.
In Malaysia, the market structures in different telecom sectors are generally
highly competitive, characterized by large numbers of privately-owned firms. By
contrast, in Singapore, the corresponding market structures are more monolithic,
characterized by one or a few government-owned or ‘government-linked’ firms. In
this paper, we try to analyze the political origins of these differences.
We focus our analysis on four sectors of the telecom markets in Malaysia and
Singapore: cellular telephony, paging, electronic data interchange (EDI), and the
Internet. For each sector, we describe the market structure, including the existing
firms in the sector, the standards and technologies employed, and its present state
of development. This is the primary evidence that we present to support our thesis.
Public choice and interest group theories have evolved primarily in the US, a
democratic, open society, with laws and regulations that require lobbyists to reveal
how they have interacted with legislators and government officials. This has
afforded scholars access to data with which to formulate theories of how rational
actors have maximized self-interest and gains from exchange.
The political process is not always so open, however. In many countries, such as
Malaysia and Singapore, the economies are, to a large extent, centrally-controlled,
with control vested primarily in a single entity. In the case of Malaysia, the single
G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 185
exogenous to the political process. In our formulation, they are very much
endogenous.
2. Malaysia
Since the independence of Malaya in 1957, UMNO has been the dominant party
in all ruling coalitions and all of Malaysia’s prime ministers have been drawn from
its ranks. UMNO was formed primarily to promote the political and economic
position of the Malay ethnic group in Malaysian society. Because of the complex
ethnic structure of Malaysia and the fact that no group forms an absolute majority,
including the Malays, the country has always been ruled by coalitions of
ethnically-based political parties. Thus, some concessions to non-Malay interests
have always been an ingredient in government policy formulation.
Malaysian politics are characterized by a competitive Malay–Chinese axis and
punctuated by the interethnic strife which occurred after the 1969 elections. In that
election, after opposition political parties did unexpectedly well (though UMNO
and the Alliance still held a comfortable majority), demonstrations began which
turned into riots. Martial law was declared and remained in effect for nearly two
years.
In the aftermath, the government implemented the New Economic Policy
(NEP), aimed at giving Malays and other indigenous ethnic groups, usually
referred to as bumiputeras (literally, ‘princes of the soil’ in Malay), more
economic power. For example, the majority of openings for students at Malaysian
public universities were set aside for Malays, while government organizations, and
government-owned corporations gave preference to hiring Malay workers. A
further NEP goal was to increase the Malay level of corporate ownership, which
stood at less than 2% in 1970, to 30% by 1990 (Jesudason, 1989). Although the
NEP did not reach that goal, a ten-fold increase in Malay corporate ownership to a
level of about 20% was achieved by 1990, the year the NEP was officially slated
to end.
Thus, the NEP not only created new opportunities for the less affluent members
of that society, it also laid the groundwork for political insiders to be granted
opportunities to create new Malay-owned businesses with support from the
government. As a consequence, in the mid-1970s a class of ‘political’ en-
trepreneurs cum business executives began to emerge. Political connections with
the government continue to be a key factor in determining who is selected to run
newly created organizations and what companies are allowed to enter new markets
(Bowie, 1994). The NEP was officially slated to last only until 1990. A new
policy, the New Development Policy (NDP), has now replaced the NEP. The NDP
is more or less a continuation of the previous policy, with some relaxation of the
G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 187
essentially zero in early 1995 to about 30% of all cell phone subscribers by the end
of 1996.
subscribers. Mutiara’s dominant partner, Vincent Tan also leads the large,
diversified Berjaya Group.
• Malaysian Resources Corporation Bhd. Telecommunications (MRCB) which
began operating its Alcatel-supplied network, called E-Martel, in June, 1995.
As of September, 1996, MRCB Telecom had 13,000 subscribers. The parent
company, MRCB is a Malay-owned property development corporation. During
1996, the company was sold to Telekom Malaysia.
• Sapura Digital, a subsidiary of Malaysia’s large telecommunications equipment
manufacturer, Sapura Holdings, launched its Advanced Digital Access for
Mobile telecommunications service (ADAM), supplied by Nokia, in August,
1995. As of September, 1996, Sapura Digital had 50,000 subscribers. During
1996, a 75% share of the company was sold to Time Engineering.
During late 1995 and much of 1996, the Malaysian Ministry of Energy,
Telecommunications and Posts announced that it would ‘rationalize’ Malaysian
telecommunications services by reducing in the number of operators in telecom
markets by September, 1996. Although the stated goal was to limit the number of
international gateway and basic services operators to three, the actual process
appears to have been to promote the emergence of ‘full service’ telecom
companies able to offer a broad range of services. Intense lobbying ensued which
included some rare public statements of opposition to the government’s plan by
telecom companies who had received licenses which were apparently about to be
revoked. Finally, in July, 1996, the Ministry abandoned its goal of rationalization,
saying that it would leave further reductions in the number of participants to
‘market forces’.
During the rationalization period, two sales of cellular networks occurred. First,
MRCB Telecommunications was sold to Telekom Malaysia, giving Telekom
Malaysia a digital cellular service. Second, a 75% stake in Sapura Digital was sold
to Time Telekom. Sapura and Time have a number of complementary services,
and are expected to work more closely together in the future.
2.2.2. Paging
Thirty-eight licenses have been issued to paging operators in Malaysia.
Malaysia’s paging market became prominent in the late 1980s, when the first
regional licenses were given out. In 1992, a number of nationwide paging licenses
were granted. The market today is an amalgam of the five paging companies that
offer nationwide services and about twenty more small providers of localized
paging services which operate in Malaysia’s state capitals. In addition, several
other companies hold licenses but have not developed networks.
Malaysia’s ‘half-rate’ cell phone call charging system, in which only the caller
pays, has had a negative impact on the paging market. The half-rate charging
system means that cellular phone owners who only use their phones to receive
calls are buying a service superior to paging, but at a similar cost, since they only
190 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202
pay a monthly access fee. At the end of 1995, there were an estimated 150,000
paging subscribers, a penetration rate of only 0.8% and the sector was reported by
JTM to be growing at a 16% annual growth rate.
Malaysia’s paging market is dominated by five companies which offer nation-
wide or peninsula-wide paging services and control about 90% of the market.
These are:
Malaysia. Also, unlike the other paging companies, Skytel operates at 932 MHz
instead of the 150 MHz band which other paging companies are using. The
company currently has a subscriber base of about 11,000. Skytel also gives a
toll free 800 number to access its paging network, lowering the cost of calling
in pages, a significant benefit, especially for a nationwide service. This is
possible at low cost to the company because of its relationship with Telekom
Malaysia.
Presently, all paging services use the POCSAG protocol and companies offer a
mix of numeric and alphanumeric paging. The latter has many advantages, but also
involves longer air time thus lowering system capacity.
The FLEX protocol, which operates at 6400 bps instead of POCSAG’s 512 or
1200 bps, will be made available in Malaysia in early 1997. Celcom also owns two
small paging companies and, in 1995, became the first Asian member of the
ERMES Steering group, but, to date, has not attempted to become a significant
player in the paging market.
Malaysian paging operators feel that with the introduction of new paging
technologies, the paging market in Malaysia will be able to grow substantially.
2.2.3. EDI
Electronic Data Interchange, or EDI, is a standard for passing documents over
computer networks. In theory, then, the barrier to entry should be quite low. Thus,
although the concept of EDI is essentially that of a data structure, EDI service
providers actually provide their services by acting as Value Added Network
operators (VANs). For this reason, EDI markets tend to operate in a different
manner from the other markets we have discussed above, by entering monopoly
market niches, rather than engaging in direct competition such as occurs in the
other markets discussed above.
The following companies are currently offering EDI services in Malaysia:
• Value Added Data Services Sdn. Bhd. (VADS) is a joint venture between
Telekom Malaysia and IBM and two government-owned companies, Per-
modalan Nasional Berhad (PNB) and Kumpulan Wang Simpanan Pekerja
(KWSP) to provide virtual networks for data communications. VADS uses IBM
equipment as a platform for using the X.400 networking protocol for document
interchange. It also emphasizes the utility of this system for multinational
corporations that have strong international data communications needs. VADS
has a number of offerings in the EDI area, including SUPPLY * NET,
MISC * NET, MEDI * LINK and EC * LINK. SUPPLY * NET is used in Malaysia
to transmit purchase orders and deliver receipts and invoices within the
business community. Proton, Malaysia’s national car company uses the service
which also links it to Proton’s foreign partner, Mitsubishi Motor Company, in
192 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202
research group. Their service, called Jaring, began operations in 1992 as a research
network, and later expanded its services to the commercial sector and general
public. Early on, Jaring’s user population grew rapidly at rates of about 20% per
month. By the end of 1995, it had grown to over 25,000 users. At that time, Jaring
had begun to experience growth problems and users would often have to wait a
considerable amount of time before being able to make a dial-up connection. In
addition, it was also reported that some curtailment or closure to new users
occurred for a period of several months from late 1995 to early 1996.
In March, 1996, MIMOS announced that the commercial end of Jaring’s
operations would be taken over by a group of Jaring Access Service Providers
(JASPs), with MIMOS’ role becoming limited to the operation of the backbone
itself. Eight firms were reportedly selected: Binariang, MRCB Telecommunica-
tions, the New Straits Times Press, Utusan Malaysia, Sapura Holdings, Telekom
Malaysia, Time Telekom, and the JASP Konsortium.
JASPs would be allowed Internet access via Jaring, but reportedly would be
required to sign an agreement to not become full Internet Service Providers,
operating their own international links, in the future. The rationale for this
constraint made by MIMOS executive officers was that maintaining a monopoly
service was the only way to (1) prevent ‘‘the sort of wasteful duplication of
services which exists in the cellular telephony market’’, and (2) ensure that the
high cost of keeping and maintaining the local and international backbone would
be met, thus guaranteeing that widespread access around the country would be
possible.
After months of negotiations, five of these firms signed an agreement with
MIMOS to become JASPs in July, 1996. These were reported to be: Time Media,
a joint venture between Time Telecom and Sapura Holdings, the New Straits
Times Press, Utusan Malaysia, a Malay language newspaper, Binariang, and
Silicon Communications, which is a consortium combining two state economic
development companies with a group of local and international partners. Only
Silicon Communications has launched such services at the time of this writing.
Rather than agree to becoming a JASP, Telekom Malaysia apparently began to
lobby the government directly to obtain its own ISP license. That license was
finally granted to Telekom Malaysia in July, 1996 and the company launched its
Internet service, called TMnet, in November, 1996. At the same time, MIMOS
lowered Jaring access prices to match those of the new TMnet service and became
a privatized corporation.
Given the number of companies attempting to participate, and the significance
of the Internet for national development, we view Malaysia’s Internet as still in the
midst of reorganization, although the date at which further change in the current
market structure will occur is unclear. Binariang has been mentioned as a likely
candidate for the next ISP in Malaysia since, as MEASAT’s operator, the company
could provide international Internet links, generally the most expensive component
of any Asian ISP’s network, at relatively low cost. As of November, 1996, there
194 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202
Since independence in the mid-1960s, Singapore’s political system has been run
by the People’s Action Party (PAP), led by Lee Kuan Yew. At that time, the PAP
leadership faced two major challenges, strong political opposition on the one hand,
and severe economic problems on the other. The current political economic system
was developed to solve these twin problems, for which the PAP leadership is the
main stakeholder. The PAP’s base of support is strongest amongst the English-
educated middle class, which provides the bulk of the relatively large class of
Singaporean civil servants and workers in government-linked companies.
Unlike Malaysia, Singaporean politics are only weakly influenced by ethnic
considerations since about three quarters of the population is Chinese. Instead, the
Singaporean social contract has been based on trading political rights for economic
prosperity. The PAP dominates the parliament. Only two small opposition parties
currently exist with parliamentary representation, the Worker’s Party and the
Singapore Democratic Party. In each case, the parties hold one or two seats out of
a total of about 80 (Rodan, 1993).
Separation from Malaysia in 1965 meant that Singapore would have much more
limited access to Malaysian markets. This effectively destroyed the government’s
original economic development plan for which import substitution industrialization
based on access to the much larger Malaysian market was critical. Furthermore,
just two years after separation, the British government announced its intention to
completely withdraw its military presence by 1975, later moved up to 1971. This
meant that Singapore would lose nearly one quarter of its GNP and 100,000 jobs.
G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 195
The ETACS system was launched in August, 1991, using equipment acquired
from Ericsson. By late 1993, this system was reaching it’s maximum capacity of
100,000 subscribers. It currently has 93,000 subscribers. The GSM network, which
began operations in March, 1994, was also supplied by Ericsson. As of January,
1996, there were 140,000 subscribers on this network.
In early 1995, at the behest of the Telecommunications Authority of Singapore
(TAS), Singapore Telecom created a new subsidiary to operate in the soon to be
liberalized mobile services market, MobileLink which will handle cellular
communications. In January, 1996, MobileLink launched Singapore’s first PCN
network using the European DCS1800 standard with equipment supplied by
Nortel. At the end of the first month of operations, the network had 9,000
subscribers.
MobileLink’s monopoly on mobile phone services will change in the near
future. In 1995, TAS granted a second license to MobileOne, a joint venture
between Singapore Press Holdings (SPH), the Keppel Group, Cable and Wireless
and Hong Kong Telecom (two are owned by the Singaporean government, one is a
British private sector firm with extensive Asian experience and the last is a
government-owned company in Hong Kong). MobileOne will begin operations in
April, 1997 and is planning on providing two separate networks at the time of its
initial service; a GSM network, and a PCS network to be based on CDMA
technology.
3.2.2. Paging
Radiopaging was first offered in Singapore in 1973. At the end of 1995, there
were 880,000 pagers in Singapore, or a penetration rate of about 30%, the world’s
highest. The paging network has continued to expand rapidly, growing at a rate of
23% per year. In comparison with other Asian countries, as well as with the US
and the UK, Singaporean paging rates are lower in absolute terms than any other
country in the region, except South Korea, which has a per capita income of about
one half that of Singapore.
New types of paging services were offered during the early 1990s, such as
Skypager, an international paging service, alphanumeric paging, capable of longer
text messages and Telestock, an alphanumeric paging service which notifies
subscribers that a stock has reached a certain level. Other paging innovations
include the introduction of the FLEX protocol, the ability to receive computer-
based messages, and Chinese character paging.
In 1995, as required by TAS, paging services at Singapore Telecom were
reorganized under a new subsidiary, named PageLink. At the same time, it was
announced that three new paging operators would enter the paging market
beginning in April, 1997. These were: MobileOne, described in the previous
section, Hutchison IntraPage, a joint venture which includes a local government
linked partner and Singapore Technologies Paging, a subsidiary of a large, highly
diversified government-owned corporation.
G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 197
3.2.3. EDI
The subject of Singaporean EDI services has been an active one in both the
academic and telecommunications trade literature (see, e.g., Boon, 1994).
TradeNet, Singapore’s main EDI offering, has been in heavy use since the service
was initiated in 1989, giving local trading firms the ability to have their customs
declaration forms rapidly processed. Singapore Network Services (SNS), the GLC
created to manage TradeNet, was incorporated in March, 1988. SNS is jointly
owned by the Singaporean Trade Development Board Holdings (which has the
majority interest), with minority shares held by the Port of Singapore Authority,
Singapore Telecom, and the Civil Aviation Authority of Singapore.
By the end of the first year of EDI operation, 40% of all import / export
declarations were made electronically. After two years, 2200 users had joined and
more than 90% of all declarations were made electronically, at which point the
manual counter was closed. Today, about 70,000 messages are processed daily
while close to 7,000 companies use TradeNet.
TradeNet has been popular because of the substantial efficiency gains it has
produced. A single electronic document, which used to take a minimum of two
days to process manually, can now be sent to all relevant government agencies and
returned with the necessary approvals within 15 to 30 minutes. The EDI network
has been estimated to have increased labor productivity by 20 to 30 percent while
savings to government and businesses involved in TradeNet, when compared to
the costs of processing the forms manually, have been estimated to be about 1
billion Singaporean dollars per year.
SNS also provides a number of other EDI services such as CoInNet, for the
construction industry, LawNet, for processing legal documents, MediNet, linking
the health-care community and $Link, an EDI network for financial transactions.
In spite of the availability of the Internet, SNS continues to operate its proprietary
network for EDI transactions, though this would increase the ease of use and
availability of the system. Why this move has not been made is unclear, but is
likely an attempt to avoid exposure to a more competitive environment.
3.2.4. Internet
The Internet in Singapore began in 1991 with the opening of the first link
between the National University of Singapore (NUS) and Princeton University in
the US. Singapore’s first ISP, Technet, began operations at that time from the
Computer Center at NUS, with financial support from the National Science and
Technology Board. Originally, Technet’s mandate was to set up a national R&D
network. Within two years after starting operations, nearly every major R&D
facility and tertiary educational institution in the country was connected to
Technet. In June, 1994, Technet’s mandate was further expanded to include the
educational sector, with a project to expand Internet connectivity to Singapore’s
secondary schools.
Also during 1994, SingNet, was established as a subsidiary of Singapore
Telecom and began offering Internet services to the commercial sector. Although
198 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202
both Technet and SingNet were government-owned, it was clear at the time that
the Internet in Singapore had entered a more competitive phase during this period,
since some price competition began to occur. Though Technet was officially given
a mandate to operate in R&D areas only, the boundary between this and the rest of
the commercial sector was never clear. Furthermore, Singapore Telecom began
lobbying for an expanded role in IT2000, originally a joint project between the
National Computer Board and the National Science and Technology Board, for
which the Internet will play a critical role.
In late 1995, Technet was privatized and sold to a consortium of companies lead
by Sembawang Media, a subsidiary of Sembawang Corporation (a GLC involved
in the shipping industry). The new company is named Pacific Internet.
TAS granted a third ISP license in September, 1995. The new company,
Cyberway, launched operations in March, 1996 and hopes to achieve a user base
of about 20,000 by the end of 1996. Cyberway is jointly owned by Singapore
Press Holdings (55%), a GLC that owns Singapore’s newspapers, and Singapore
Technologies Telecommunications (45%), a subsidiary of the highly diversified
GLC, Singapore Technologies.
In March, 1996, there were an estimated 100,000 Internet users in Singapore, or
a penetration rate of 3%.
In July, 1996, the Singapore Broadcast Authority (SBA) came out with rules on
how it will regulate Internet content in Singapore: all operators must register with
the government (including cyber-cafes), and owners of Web pages with political or
religious information must also register. Proxy servers have been installed by the
three ISPs in Singapore which have the capability of blocking access to some Web
sites. So far, though only about one dozen sites are reportedly being blocked. A
special SBA unit has also been established to monitor Internet activities in
Singapore. In spite of these efforts, SBA officials readily admit that the Internet
will be impossible to completely control. Most observers of the Internet see this as
a move which will retard Internet growth in Singapore.
In 1993, the government launched its third and most ambitious computerization
policy, IT2000, whose goal is to provide broadband communications to the entire
country during the first decade of the next century. The IT2000 policy has included
participation from a broad range of Singaporean organizations, including the
National Computer Board and increasingly, Singapore Telecom. Thus, in spite of
the recent regulatory constraints placed on Internet growth in Singapore, given the
it’s size and large number of associated companies, the government can still
produce rapid development of the Internet by encouraging or mandating govern-
ment organizations and government-linked companies to use it.
In the four markets examined, all save the Singaporean Internet were found to
be monopoly markets, and in every case all network operators were also found to
G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 199
be GLCs. Since the government has no competing economic interests to deal with
and monopoly markets are able to maximize profits for the monopolists, we see
this as fulfilling the interests of the main stakeholder. This situation will be
changing somewhat in the near future, as both paging and cellular telephony will
become more competitive during 1997. All new entrants, however, will continue
to be GLCs, so that the true level of competition which will occur is not yet clear.
cellular phone market to cut heavily into the low end of the mobile services
market. With regard to the Internet, however, we believe that policy makers are
wary of letting the Internet get out of control, to the point that Internet traffic
cannot be monitored and policed. Thus, it may not be surprising that both
countries currently lag the US in this area. How long this will remain the case is
unclear, however, as both countries now have ambitious national projects
underway which include rapid Internet development.
some cases, penetration rates as well. In the case of the Internet, however, politics
seems to have inhibited recent growth rates in both countries, since the wide
ranging content of information available though the Internet conflicts with national
information policy goals. Nevertheless, we expect these conflicting goals to be
resolved quickly, as both countries now have ambitious national telecom programs
underway whose success will depend on rapid local Internet development.
Acknowledgments
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