Information Economics and Policy 9 (1997) 183–202

The political economy of telecommunications in

Malaysia and Singapore: A structure–conduct–
performance comparative analysis
Gene M. Mesher*, Edward E. Zajac
Department of Management Information Systems and Department of Economics, University of
Arizona, Tucson, AZ 85721, USA
Received 27 September 1996; accepted 31 October 1996

Abstract

This article presents a political economy analysis of national telecommunications policy

in Malaysia and Singapore. Our approach combines a stakeholder analysis of central
political actors with the Structure, Conduct, Performance paradigm of industrial economics.
We posit that the structure of telecommunications market sectors along with reforms that
are implemented can be seen as fulfilling the main political stakeholder’s policy objectives.
Preliminary findings from a comparative study using the Stakeholders–SCP methodology
are presented based on fieldwork in Malaysia and Singapore. Along with the analysis of
stakeholders, we describe telecommunications market structure in the two countries. The
structures of four market sectors are compared: cellular telephony, paging, EDI and the
Internet. 1997 Elsevier Science B.V.

Key words: Telecommunications policy; Political economy; Market structure; Stakeholder

analysis; Comparative analysis; Malaysia; Singapore

JEL Classification: L1; L96; O57

1. Introduction

In almost every country, telecommunications organizations have been either

government owned or regulated. As a result, national political forces have

* Corresponding author. Tel.: ( 1 1) 602-621.2748; fax: ( 1 1) 602-621.2433; e-mail:

gmesher@bpa.arizona.edu.

0167-6245 / 97 / $17.00  1997 Elsevier Science B.V. All rights reserved.

PII S0167-6245( 96 )00028-5
184 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202

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.

1.1. Some preliminaries

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

entity is the leadership of the United Malay National Organization (UMNO),

which has been the dominant party in all of Malaysia’s ruling coalitions. In the
case of Singapore, it is the leadership of the People’s Action Party (PAP).
Where political power is centralized, decisions tend to be taken behind closed
doors, and revealed publicly only after they have been made. We have no doubt
that stakeholder lobbying takes place in these countries, just as it does in the US
and other more open societies, but the lobbying process is generally unobservable
by outsiders. Even worse, it can be difficult to identify the various stakeholders
and their interests. We are thus limited to examining the interests of the primary
stakeholder in each country, UMNO in Malaysia and PAP in Singapore.
Our analysis is organized using the Structure–Conduct–Performance (SCP)
framework. In our use of this framework, an interest group or public choice
analysis of the formation of government telecommunications policy becomes a
central part of the analysis of the conduct of the firms in the industry. Our
contention is that conduct, primarily political conduct, influences market structure.
Because this is the primary causal direction that we see, we change the traditional
order of reporting the relationships between structure, conduct and performance.
We start with conduct, then discuss market structure, and conclude with per-
formance.
Finally, we wish to make clear our terminology. First, we use the terms ‘interest
group’ and ‘stakeholder’ interchangeably. Our definition of ‘interest group’ or
‘stakeholder’ has two main ingredients: (1) an ‘interest group’ or ‘stakeholder’ is
an individual or group of individuals who has a self-interest in the outcome of
some government action or policy, and (2) that self-interest is sufficiently intense
that the individual or group will try to influence that outcome. Thus, the universal
service provisions of the Telecommunications Act of 1996 will affect almost every
resident of the US. However, we do not consider every US resident to be a
stakeholder in the implementation of the Act’s universal service provisions.
According to our definition, the more than 200 organizations that have filed
comments on the FCC’s Universal Service docket qualify as stakeholders, as do
government agencies and other organizations that have not formally filed com-
ments but may be acting behind the scenes to influence the docket’s outcome.
Second, we use the term ‘interest group theory’, in the sense it is used in the US
public choice and regulatory literature (see, for example, Zajac, 1995, Ch. 14).
That is, among the interest groups to be considered, we include policy makers.
This contrasts with, for example, the following passage by Warren (1996, p. 5):

Interest group theorists see trade policy as the outcome of political

competition between pressure groups and other sectional actors. Policy
makers are generally conceived as disinterested arbiters of these competing
societal forces.

Thus, in Warren’s formulation of interest group theory, policy makers are

186 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202

exogenous to the political process. In our formulation, they are very much
endogenous.

2. Malaysia

2.1. Conduct: Political economy of the Malaysian telecommunications sector

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

original goals, allowing instances of non-Malay majority participation in the

ownership of new companies, as well as further opening up the public universities
to non-Malays. This is also important because there is now a critical shortage of
skilled labor needed to continue Malaysia’s economic development.
Since one of the goals of the NEP was the creation of new employment
opportunities, a natural first step in the program’s implementation was the creation
of new jobs for Malays within public sector organizations such as Jabatan
Telekom Malaysia (Malaysian Telecommunications Department). By the late
1970s, what was a model telecommunications department for a developing
country, had become bloated and inefficient, tripling its total staff from 7,000 to
21,000 employees (Kennedy, 1995).
The problems within JTM also created opportunities for individuals within the
Malaysian government to press for the privatization of the telecommunications
industry as one means of achieving the NEP goal of expanding Malay levels of
corporate ownership. Because access to contracts and licenses for the tele-
communications network and its services have always been under government
control, the privatization program created a major opportunity to establish new
Malay-owned corporations in concert with the goals of the NEP.
As a consequence, the Malaysian telecommunications industry today is domi-
nated by Malay-owned firms (Lent, 1991). This process began quite early, with the
establishment of Malaysia’s first private telecommunications company, Sapura
Holdings in 1975. Telekom Malaysia was privatized somewhat later, in 1987.
Although privatized, Telekom is still majority owned by the Malaysian govern-
ment.
Since the end of the NEP, entry barriers to non-Malay participation have been
lowered somewhat. Two of the newer companies, Binariang and Mutiara Tele-
communications have only minority Malay participation. In both cases, however,
corporate control is held by non-Malay insiders known to have access to and
influence with UMNO leaders (Gomez, 1994).

2.2. Structure: Malaysian telecommunications markets

2.2.1. Cellular telephony

By the end of 1995, Malaysia had seven companies offering cellular phone
services. These were Telekom Malaysia, Celcom, Mobikom, Binariang, Mutiara
Telecommunications, MRCB Telecommunications and Sapura Digital. The last
four began offering services during 1995, with Binariang launching its GSM
service and Mutiara, MRCB Telecom and Sapura Digital offering their higher
frequency Personal Communications Networks (PCN) based on the DCS-1800
standard. Each of the three was allotted 25 MHz of bandwidth. Altogether, by
early 1996, there were about 1,032,000 cellular phone subscribers in Malaysia, or
a penetration rate of 5.6%. The total number of cellular subscribers grew by 52%
during 1995. Subscription to digital services has also grown dramatically, from
188 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202

essentially zero in early 1995 to about 30% of all cell phone subscribers by the end
of 1996.

• Telekom Malaysia, Malaysia’s main telephone service provider, first offered

cellular communications services in 1985, two years before privatization. At the
time, the Nordic Mobile Telephone standard (NMT-450), operating at 450
MHz, was selected as the most desirable cellular technology available. The
service, called ATUR 450, has grown considerably since it was first offered a
decade ago, and now stands at 95,000 subscribers nationwide.
• Cellular Communications Networking (Celcom), is Malaysia’s second cellular
phone company. Originally created as a subsidiary of Telekom Malaysia in
1988, Celcom was later purchased by private investors, led by the company’s
CEO. Celcom has grown to become Malaysia’s largest provider of cellular
services, with a share now of about two thirds of the Malaysian cellular market.
Celcom’s analog cellular offering is called ART 900 (Automatic Radio
Telecommunications) and uses the ETACS (Extended Total Access Communi-
cations System) standard. The system operates between 882–900 MHz. During
1995, Celcom also began operating a GSM service, called Celcom GSM. The
company has not been able to obtain additional bandwidth to operate the
network, however. Instead, Celcom has partitioned its bandwidth into ETACS
and GSM portions and is gradually migrating its ETACS customer base to
GSM. Celcom will eventually convert its entire bandwidth to the GSM
standard. As of June, 1996, Celcom had a total user base of 711,000, of which
65,000 were GSM subscribers.
• Mobikom began operations in Klang Valley in June, 1994. The company is
owned by a consortium of Telekom Malaysia, Sapura Holdings, Permodalan
Nasional Berhad, a government-owned investment corporation, and Edaran
Nasional Berhad, the distributor of Proton, the Malaysian national car.
Mobikom uses the analog Advanced Mobile Phone Service (AMPS 800).
Mobikom has been allotted a bandwidth of 20 MHz at a frequency just above
825 MHz. A digital service, D-AMPS, which operates on the same frequency
range, was launched at the same time. Also, dual mode hand phones are
available which allow subscribers to receive either digital or analog services,
allowing the reception of clearer digital signals where available. Mobikom had
235,000 subscribers as of July, 1996.
• Binariang launched its Maxis GSM service in August, 1995. This system
operates on a band near 900 MHz and has 15 MHz of bandwidth. Binariang’s
Maxis mobile service had 80,000 subscribers as of August, 1996. Besides
Maxis mobile, Binariang also operates the Malaysian national satellite system,
MEASAT.
• Mutiara Telecommunications launched its Digi-1800 service in May, 1995,
using Ericsson equipment. As of September, 1996, Digi-1800 had 80,000
 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 189

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:

• Electcoms, established in 1977. It now has an estimated subscriber base of

about 41,000, giving the company the largest market share in Malaysia. Of the
five major paging companies, Electcoms is the only large paging company that
is not linked to either an international paging company or a large local
telecommunications firm. The company is also Malaysia’s largest trunk radio
operator, from which it derives much of its revenue base. Also unlike the other
paging companies which focus mainly on alphanumeric paging, Electcoms
subscriber base is currently 80% numeric.
• Komtel, a subsidiary of Sapura Telecommunications, claims a subscriber base
of 25,000, and has a nationwide license. This subscriber base gives the
company about a 17% market share. Komtel also manufactures its own pagers,
and is the first local company to do so, although their sale has since been
discontinued.
• Hutchison Paging is joint venture between Serting Mewah (51%) a local
bumiputera company, Federal Flour Mills (24.5%, local Chinese capital) and
Hutchison Telecommunications, a subsidiary of the Hong Kong based Hut-
chison Whampoa Group. The company began its peninsula-wide network in
1991 and now includes 70 transmission sites on an investment of RM90
million. Hutchison began focusing on providing alphanumeric paging in 1993.
Corporate clients make up 60% of their subscriber base of 35,000. One of the
company’s biggest services is PC paging, which allows a company to send out
messages to its own pagers through a direct connection from the clients
personal computer to Hutchison’s paging computer via modem connection.
This service accounts for nearly 25% of their customer base.
• Easycall is a joint venture between Telesistem and Matrix Telecommunications
Ltd., an Australian firm, which reports 30,000 subscribers divided equally
between numeric and alphanumeric paging. Matrix participates in paging
markets in eight countries in Asia and Europe and has been active in the paging
market for twenty years, including paging markets in China, India, the
Philippines and Thailand. Easy Call received its first regional paging license in
1990, and later received a nationwide license.
• Skytel is a joint venture between Telekom Malaysia (40%), Sceter (25%)
which is a bumiputera company and Mtel, an American firm (35%). A relative
newcomer to the paging market, Skytel began offering its international paging
services in 1993. It is the only nationwide paging licensee operating in East
 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 191

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

Japan. MISC * NET is used by the Malaysian International Shipping Corpora-

tion and links that company to agents at 75 offices in 31 countries around the
world. MEDI * LINK is joint venture between VADS and the College of General
Practitioners of Malaysia used by the health-care community linking together
medical databases, laboratories, hospitals, clinics, health-care suppliers and
insurance companies. Finally, EC * LINK (electronic commerce) is another
specialized joint venture network developed for KWSP, which manages
Malaysia’s Employees Provident Fund similar to Social Security in the US.
These include the processing of funds from employers, as well as form
processing for the Amanah Saham Nasional (National Unit Trust).
• EDI Malaysia (EDIM) is a subsidiary of Time Engineering, Sdn. Bhd. EDIM
manages the Port Klang Community System (PKCS), launched in April, 1994.
This EDI network is analogous to Singapore’s TradeNet, in that it facilitates the
handling of documentation for imports and exports through Port Klang,
Malaysia’s largest port of entry. There are currently about 800 EDI subscribers
on the PKCS. PKCS is part of another EDIM managed network called
Dagang * Net (dagang means trade in Malay) intended to provide a broad array
of EDI related services. Dagang * Net’s second service, Ringgit * Net, was
launched in July, 1994 to provide EDI financial services for the business
community. In 1995, EDIM’s parent company, Time Telekom, began offering
basic telecommunications services. This will provide an important complemen-
tary service to EDIM, since the availability of telecom networking capacity
may become critical for EDIM’s VAN services to be offered at competitive
prices. Time Engineering, Time Telekom’s parent company which was
responsible for the building Malaysia’s North–South Highway, also has strong
links to UMNO (Gomez, 1994).
• HICOM Network Services (HNS) was created in October, 1994, as a joint
venture between HICOM Communications, Singapore Network Services (SNS)
and IT Integrator, an associated company of SCS Computer Services. SNS is
the Singaporean EDI firm which operates the TradeNet EDI network in that
country. Originally, HNS’ business activities were focused in the manufactur-
ing sector in and around Penang, but that has now been expanded to include
other areas of Malaysia, especially in the Kuala Lumpur area. HNS provides
EDI services to about 150 companies in the Malaysian manufacturing sector in
the area of supply procurement. The company’s customer base is mostly made
up of local subsidiaries of multinational corporations, including companies in
the electronics sector. Examples of typical documents include purchase orders,
delivery orders, goods received notes and invoices.

2.2.4. The Internet

Prior to July, 1996, there was only one Internet Service Provider in Malaysia,
the Malaysian Institute of Microelectronic Systems (MIMOS), a government
 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 193

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

were approximately 50,000 Internet subscribers in Malaysia, though accurate

figures on the exact size of the Internet user population are not available.

2.3. Summary: Political conduct and structure of Malaysian

Telecommunications Markets

The Malaysian telecommunications sector has become one of the most

competitive in the world. All of the markets discussed above now have multiple
operators, and nearly all entrants have been by companies in which majority
ownership was by Malay companies. Although the Internet is now a duopoly, we
believe it to be in a transition state and expect it to become more competitive in
the near future. We see current market structures in Malaysian telecom as the direct
outcome of the long-standing UMNO goal of increasing Malay ownership levels in
the Malaysian economy, since competitive markets produce the largest sustainable
set of market players.

3. Singapore case study

3.1. Conduct: Political economy of the Singaporean telecommunications sector

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 Singaporean government developed a two-fold solution to deal with the

severe economic conditions it faced in the mid-1960s. First, the government turned
to a policy of export oriented industrialization in which it allowed the setting up of
local, wholly-owned subsidiaries of foreign companies under favorable conditions.
Second, Singapore’s government began a program of state capitalism which has
become the foundation of much of Singapore’s current economic structure.
Because of its geographic structure as a free port without other economically
productive areas, Singapore’s economy historically did not include strong local
economic interests outside of the public sector. From the first state-owned
companies created in the late 1960s, the Singaporean government today owns
outright or has majority ownership in over 500 ‘private’ sector companies referred
to locally as government-linked companies (GLCs) (Castells, 1988). The con-
tinued expansion of this sector through the creation of new companies and the
privatization of government organizations remains a central goal of the PAP
leadership.
In 1993, the Telecommunications Authority of Singapore (TAS) was reorgan-
ized into a small government regulatory body by the same name, and a large
publicly traded corporation, Singapore Telecom. Though privatized and traded on
the Stock Exchange of Singapore, Singapore Telecom is still 85% government-
owned. In contrast with telecommunications departments in many countries which
are privatized to free the government of an inefficient, unprofitable organization,
TAS was producing an operating surplus during the 1980s. Furthermore, the
market for basic telephone services, which stood at 41 per hundred in 1993, was
more or less saturated. Thus, Singapore Telecom was privatized primarily as a
means to provide the company with new areas for business opportunities in foreign
markets which it was effectively unable to enter as a government department
(Smith and Staple, 1994).

3.2. Structure: Singaporean telecom markets

3.2.1. Cellular telephony

Cellular telephone service has been available in Singapore since 1988. So far,
four different cellular networks have been set up, based on the AMPS, ETACS,
GSM and DCS1800 protocols. To date, all services have been provided by
Singapore Telecom. By early 1996, there were about 290,000 cellular phone
subscribers in Singapore, or a penetration rate of 9.7%. The service has been
growing at about 12% per year.
Singapore’s AMPS cellular network was first commissioned in 1988 and uses
NEC equipment. After reaching 60,000 customers in 1991, this system was
expanded to a capacity of 77,000 customers in 1993. Since that time, the total
number of AMPS subscribers has fallen to 48,000. Presumably, most of the
subscribers who no longer use AMPS have converted to the newer GSM system.
196 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202

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.

3.3. Summary: Political conduct and telecommunications market structure in

Singapore

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.

4. Conclusion: Performance of the Malaysian and Singaporean

telecommunications sector

4.1. Malaysia and Singapore as fast followers

Malaysia and Singapore, generally speaking, have been ‘fast followers’ in

adopting new telecom technologies. We can illustrate the success of this fast track
approach by comparing both countries with the US in their adoption of the telecom
technologies we have studied.
In the case of cellular telephony, both Malaysia and Singapore have adopted the
digital GSM standard, generally recognized to be superior to analog standards
while in the US, by and large, cellular telephony still operates on analog standards.
Likewise, both Malaysia and Singapore already have Personal Communication
Networks (PCN) installed and operating. In the US, the FCC has only recently
concluded its auctioning of spectrum to introduce this service, and its availability
is still a number of months in the future.
Malaysia’s paging market appears to have been unsuccessful because the
country uses a ‘half-rate’ scheme for charging calls, meaning subscribers only pay
for outgoing calls. For about the same amount monthly, mobile customers can use
cell phones and then restrict outgoing calls. For this reason, paging densities in
Malaysia remain quite low, at less than one per hundred. In Singapore, where
full-rate pricing is used for cell phones calls, paging has been extremely
successful. At thirty per hundred, Singapore now has the highest density of pagers
in the world, while prices charged for paging, as a fraction of per capita income,
are the world’s lowest.
Singapore has also emerged as a world leader in the use of EDI, after TradeNet
was introduced in 1989. Its use of EDI for customs declarations helps give
Singapore’s port the world’s fastest turn-around for the processing of cargo ships.
Although the use of EDI in Malaysia has trailed that in Singapore by several years,
a more diversified market structure exists there and a variety of services for a wide
range of industries are now available. It is significant, however, that EDI providers
in both countries have not yet attempted to move on to the Internet as a means to
transport EDI documents, preferring to hold onto niche markets as VAN providers.
Unlike the other markets studied, however, the expansion of the Internet in both
Malaysia and Singapore has lagged behind the US. The Internet, we feel, provides
an unusual case which merits special consideration. Much more than the other
200 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202

technologies considered here, the Internet creates a potentially radical change in

the sort of information readily available to users in both Malaysia and Singapore.
In both countries, where the mass media have historically been controlled or
strongly constrained by the government, rapid development of the Internet
conflicts with explicit or de facto national information policies. This has likely
resulted in government moves which have limited the Internet from more rapid
development in both countries.
In Malaysia, the Internet has likely experienced a lower growth rate partly as a
consequence of being a monopoly managed by a government agency, constrained
by both objectives and budget. At the time of this writing, the Internet in Malaysia
has been growing relatively slowly. With the launching of services by a second
Internet Service Provider, a more competitive market structure is now in its initial
stages and pent-up demand for Internet access is starting to be met in Malaysia.
Further restructuring of the market is expected. The slow pace at which the
Malaysian Internet is being restructured into a competitive market is probably
partly a reflection of the inexperience which the market players have in competing
and government concerns over information content available on the Internet.
In Singapore, the Internet was also initially confined to the R&D establishment
and educational institutions. The Internet market is now much more competitive,
with three commercial providers now providing services. All three, however, are
government-linked companies.
Recently, in Singapore, a number of steps were taken in an attempt to control
Internet content including: the government requirement that all Internet Service
Providers, including Internet cafes, along with Web sites which have ‘political or
religious content’ register with the Singapore Broadcast Authority, new rules
making these organizations financially liable for policy Internet content infractions
incurred by their subscribers, and the existence of a special Singapore Broadcast
Authority group charged with monitoring Internet activities there.
Limitations placed on public use of the Internet clearly provide a constraint on
the use of the Internet in that sector at least until the conflict over information
policy is resolved. Public sector use is a different story, however, as the
Singaporean government has long had strong computerization programs, including
IT2000, the most recent. Malaysia has also recently announced an ambitious
broadband communications project called the Multimedia Super Corridor. The
MSC will be a combination export processing zone and research and development
region for multimedia products over a 15 by 40 kilometer rectangle from southern
Kuala Lumpur, to Malaysia’s new capital city, Putrajaya, where a government
network will be developed which will include the concept of ‘paperless govern-
ment’.
Thus, in nearly all of the markets studied, save the Internet, the performances of
both Malaysia and Singapore have been impressive and, in some cases, spectacu-
lar, with both countries being generally ahead of the US. The exception to this is
the Malaysian paging market, where cellular phone call pricing has allowed the
 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202 201

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.

4.2. Market structure and stakeholder’ s goals

In Malaysia, most telecommunications organizations were found to be Malay-

owned. This conforms to the idea that the Malaysian government uses its political
power as a means to ensure that nearly all participation in the telecommunications
services market comes from Malay-owned companies. In spite of these ethnic
constraints on market entry, telecommunications markets in Malaysia are competi-
tive, at least in so far as competition is allowed between ‘trusted competitors’. Of
the four markets we have so far looked at, all are now competitive.
The fact that the government of Malaysia reversed its decision to force the
rationalization of telecom eight months after announcing the policy due to intense
lobbying by telecom companies there, shows that stakeholders can be active
participants in the policy-making process and can change the direction of
government policy. The actual process remains essentially opaque and subject to
speculation. The reversal of policy, however, is difficult to reconcile with the
simple, one stakeholder model which we have used to analyze telecom markets in
this paper. The actual process is clearly more complex, though the simpler model
is still useful as a first approximation.
In Singapore, the privatization process and the opening of new markets for
telecommunications services fits into the long-standing government policy of state
capitalism. To date, all companies operating in the telecommunications sector have
been government-linked firms. Three of the four Singaporean markets we
examined; cellular telephony, paging and EDI, were found to be monopoly
structures run by government-owned firms. Furthermore, although new entrants
will be allowed into the Singaporean cellular telephony and paging markets in
1997, the companies about to enter these markets will still be government-linked.
Thus, recent and ongoing changes in market structure not withstanding, we
found that in both the Malaysian and Singaporean cases studied, there is support
for the idea that the goals of the most powerful stakeholder in the policy making
process are key factor to understanding how national telecom markets are
structured as well as the ownership patterns found in those markets.
We conclude that although the differing political economies of Malaysia and
Singapore have produced different market structures, both countries have had
relatively high growth rates in cellular telephony and EDI, along with paging in
Singapore, generally leading the US in the use of advanced technology and in
202 G.M. Mesher, E.E. Zajac / Information Economics and Policy 9 (1997) 183 – 202

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

The research described in this paper was partially supported by a fellowship

from the National Security Education Program.

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