Malaysia: Mobile-Fixed-Mobile Interconnection Case Study

1. Malaysia: Mobile-Fixed-MobileInterconnection Case Study John Ure Director of the Telecommunications Research Project University of Hong Kong www.trp.hku.hk

2. Demographics of Malaysia • Most developed ASEAN economy after Singapore • Population = around 21 million • Towns of Peninsular Malaysia most densely populated, from Johor Bahru in the south to Penang in the north, and especially around the capital city of Kuala Lumpur and along the Klang Valley to the port city of Klang • Eastern Malaysia (Sabah & Sarawak) still quite rural and many forests

3. Telecoms in Malaysia • Teledensity today: • 4.5 million fixed direct exchange lines = 22 per cent penetration • 4+ million mobile cellular subscribers = 19 per cent penetration • Seven cellular operators, each with their own trunk networks and international gateways = highly competitive

4. Cellular Operators in Malaysia Cellular Company and dial code Technology Transmission Mode • Telekom Malaysia (TMB) NMT 450 Analogue • TM Touch (TMB) 1800 PCN Digital • Mobikom (TMB) AMPS 800 Analogue • Mobikom (TMB) AMPS 800 Digital • Celcom ETACS 900 Analogue • Celcom GSM 900 Digital • Maxis GSM 900 Digital • Digi.com PCN 1800 Digital • Time.com PCN 1800 Digital

5. Development of Telecoms Policy in Malaysia • Decision taken in 1980s to liberalize telecoms as a stimulant to national development of the information sector = a strategy of development as past of Vision 2020! • MultiMedia Super Corridor (MSC) from KL south to new KL International Airport designed to attract IT and multimedia company investment = flagship of the development strategy • Telekom Malaysia (TMB) partially privatized in 1987 • Jabatan Telekom Malaysia (JTM) ceased to be the operator and became the regulator in 1984

6. Telekom Malaysia Berhad (TMB) • Telekom Malaysia (TMB) began life as Syarikat Telekom Malaysia when telecoms was incorporated in 1984 • JTM became the regulator responsible to the policy-making Ministry of Energy, Telecommunications and Posts (METP) • Finance Ministry remains TMB’s largest shareholder • TMB has the universal service obligation and the sole right to provide the optical fibre ring in the MSC • Remains the dominant fixed network operator and service provider today - so cellular have to interconnect to TMB!

7. Telecoms Reforms in Malaysia • 1996: fixed line Equal Access - for customer selection for IDD • 1996: General Framework for Interconnection and Access (GFIA) - sets out principles to govern interconnection between fixed-fixed, and fixed-mobile networks • 1998: Multimedia Commission Act - replaces JTM as regulator with the Malaysian Commission for Multimedia Communications (MCMC) and embraces convergence of telecoms, IT and broadcasting • 1998: Communications and Multimedia Act - overhauls the telecoms licensing regime and establishes an Industry Forum among operators

8. Commercial Agreement between TMB and Celcom, 1990 • For all calls destined for TMB’s network, Celcom paid TBM the full PSTN rate. (Note: untimed local calls, which retailed at 10¢, made up 70 per cent of traffic.) • For all calls destined for Celcom’s network, TMB paid Celcom 5¢ for every 20-second block. • The nett account paid by Celcom = (2.3.1 – 2.3.2)/2 • Celcom to establish a point of interconnection (POI) in every area code. • Celcom to bear the cost of both incoming and outgoing circuits, and the associated POI hardware and software costs. Note: Celcom also operated an international gateway, so only a small percentage of its international traffic passed through TMB’s gateway

9. Commercial Agreement between TMB and Mobikom, 1994 • For all calls destined for TMB’s network, Mobikom paid TMB 13¢ plus 5¢ per minute (this payment in respect of the USO) • For all calls destined to Mobikom’s network, TMB paid Mobikom 13¢ per minute. • For international calls, Mobikom paid TMB a discounted retail rate (less 10%) for carrying such calls. Note: Mobikom receives a lower payment than Celcom and has a smaller network. Unlike Celcom, Mobikom also has no international gateway.

10. Commercial Arrangement between TMB and Celcom, 1995 - basis of general agreement • Scope • Interconnecting TM’s network to the facilities of the other party • Supplying requested telecommunications services to the other party • Making available to the other party the services, facilities and information as required by law or as specified in the licences. • Includes a) Point of Interconnection (the cost of establishment bundled into the interconnection fee b) Delivery of calls depending upon whether they involve near-end or far-end handover. c) Interconnection capacity in terms of circuits made available measured in 2 Mbps units d) Access by TMB to the premises of mobile operator to establish the connection.

11. Commercial Arrangement between TMB and Celcom, 1995 - basis of general agreement • Commercial • Revenue sharing • Near-end and Far-end handover of calls (mobile operator keeps 35 per cent of revenue for near-end handover of long-distance calls; the terminating party keeps 30 per cent of revenues for far-end handover of calls; the long-distance carrier receivers 35 per cent of revenue.) • Special discounted rate for interconnection capacity

12. Commercial Arrangement between TMB and Celcom, 1995 - basis of general agreement • Billing and Settlement • Billing period is on a monthly calendar basis • Due date is 30 days after relevant invoice • Dispute notification period expires 30 days after date of invoice • Invoice date is the date on which the invoice is dispatched • Payment to be by electronic transfer or exceptionally by cheque is agreed by the invoicing carrier • Billing disputes procedure (these could arise from glitches in software, and mostly involved customer disputes over international calls and call charges).

13. Commercial Arrangement between TMB and Celcom, 1995 - basis of general agreement • Other • Interconnection terms and conditions, which are commercially agreed bilaterally, should be on a non-discriminatory basis. • Interconnection agreements with mobile operators would remain confidential, but available to the regulator. (This allows the regulator to ensure the terms and conditions are non-discriminatory). • Disputes resolution provides for a committee representing TMB and the Other Licensed Network Operators (OLNOs) to resolve issues, backed up by the Arbitration Act No.93 (Revised 1972) of Malaysia. (Most disputes arise over billing issues, and none has ever required the use of the Arbitration Act, nor reference to the regulator.)

14. Commercial Arrangement between TMB and Celcom, 1995 - basis of general agreement

15. Commercial Arrangement between TMB and Celcom, 1995 - Analysis • Why the agreement? - Celcom had no trunk backbone at that time • Why a revenue-sharing agreement? - • quick and easy method of establishing interconnection that offered gains for both sides and compensated TMB for provisioning POIs • Celcom’s network still immature; Celcom needed early interconnect • Why not cost-based? - attributed costs largely unknown at that time; knowing them would involve time and expense, and may disputes • Did it work? - yes, it was subsequently adopted by Mutiara (Digi)

16. General Framework Agreement for Interconnection and Access (GFIA) - 1996 • Objectives • All network operators should contribute towards the achievement of the national objective of extending the availability and usage of telecommunications services and the provision of quality services which meet the diverse needs of all Malaysians; • All network operators should be encouraged to deploy high quality and advanced telecommunications infrastructure to serve the diverse needs of different customer groups in an environment of strong growth and demand for advanced telecommunications products and services within a high growth economy;

17. General Framework Agreement for Interconnection and Access (GFIA) - 1996 • Objectives • The deployment and optimum usage of the sector’s infrastructure and resources should be directed towards the development of an economically efficient telecommunications industry, and should not only minimize the uneconomic duplication of infrastructure facilities but encourage the shared usage of common infrastructure facilities. • All network operators should fulfill the national and public service obligations as stipulated in their Licences; and • Clarity, stability, and transparency in the interconnection relationship between network operators must be established in order to ensure that users enjoy the full benefits of competition, including choice, convenience, and a variety of high quality services at the lowest possible prices.”

18. GFIA - Technical • compliance, wherever feasible, with international standards and recommendations • offering technical and operational interconnection facilities on the basis of suitably unbundled system components, in accordance with general practice In the industry • ensuring that all network operators’ switching and transmission facilities have the capacity to interconnect with other networks • preserving network integrity and security • reasonable lead times in network provisioning for interconnection • provisions and requirements for the national numbering plan • allowances for differences in the interconnecting networks • the application of good engineering principles and practices • timely and efficient deployment of sufficient numbers and capacity links to support the required grades of service for customers

19. GFIA - Commercial • The fundamental principle is that all licensees should be fairly compensated for the cost incurred in the provision of interconnection. • The structure and level of charges should be related to the direct costs incurred by each network operator. Charges should generally be in proportion to the extent and nature of the interconnection service or facility being supplied, within the total economics of the delivery of an end-to-end service. • Where charges are determined in relation to direct cost components, these cost elements must be capable of being objectively identified and allocated against specific activities. The costs must be consistent with, and capable of reconciliation against, an overall Chart of Accounts for the licensee based on standardized cost allocation rules. • Cost based charges should be based on the directly attributable costs of the interconnection service or facility in question.

20. GFIA - Scope

21. JTM document TRD 006/98Determination of Cost-Based Interconnection Prices and Cost of University Obligation • Introduced shift towards cost-based interconnection charges • Fixed networks would more “closer to fully allocated costs” - TMB’s cost structure taken as the reference point by the consultants • Mobile networks will be set “closer to long run incremental cost” - Celcom’s costs structure taken as a reference point by the consultants

22. JTM document TRD 006/98Determination of Cost-Based Interconnection Prices and Cost of University Obligation • Single tandem termination: when the called and calling parties are in the same Exchange area – used for terminating all calls (fixed to fixed, mobile to fixed, incoming international) - in the case of cellular this includes MSC to Base Station Controller (BSC) and/or Base Transceiver System (BTS) • Double tandem termination: This applies when the called and calling parties are in different Exchange areas – used for terminating all calls (fixed to fixed, mobile to fixed, incoming international) - two MSCs in the case of a cellular system. • All interconnection agreements were reviewed by the end of 1998 towards compliance with the Determination for cost-based charges to be introduced from January 1999.

23. Universal Service Contribution • Each fixed and mobile carrier contributes to the USO according to their proportion of the industry’s total revenue as determined by the formula: • A x local revenues • B x Long distance and international revenues • C x mobile revenues • D x other revenues Where: A = 0, B = 1, C = 0.5, and D = 1.

24. Interconnection Charges per Minute: Mobile-Fixed; Fixed-Mobile; Mobile-Mobile Peak Off Peak Call attempt from a POI within 13¢ 6 ¢ the same Automatic Telephone (3.42 ¢US) (1.58 ¢US) Using Radio (ATUR) exchange area Call attempt from a POI outside 18 ¢ 8 ¢ the same Automatic Telephone (4.7 ¢ US) (2.11 ¢US) Using Radio (ATUR) exchange area

25. Mobile - mobile retail tariffs @10¢ per unit Peak (7am - 7pm) Off-peak (7pm-7am) Seconds Price Seconds Price per per unit per unit per unit unit Same area 20 30¢ 40 15¢ Adjacent Area 7.5 80 ¢ 15 40 ¢ Non-adjacent area 4 RM1.50 8 75¢

26. Interconnection charges per minute Fixed-Fixed Peak Off-Peak • Local Termination 2 ¢ 2 ¢ • Long-distance using transmitting 8.5 ¢ 3 ¢ through a single tandem • Long-distance using transmitting 18 ¢ 8 ¢ through a doubled tandem • Long-distance using transmitting 26 ¢ 11 ¢ through a double tandem and submarine cable

27. Bands of Fixed Retail Tariffs Peak - 13 ¢ Price per Off-peak Price per unit minute minute minute Local: same/adjacent 60 seconds 13 ¢ 90 seconds 8.7 ¢ charge areas Band A: 50k ≤ 150k 20 seconds 39 ¢ 40 seconds 19.5 ¢ Band B: 150k ≤550k 7.5 seconds RM1.04 15 seconds 52 ¢ Band C: >550k 4 seconds RM1.95 8 seconds 97.5 ¢ Band D: Sabah/Sarawak 3 seconds RM2.60 6 seconds RM1.30

28. Conclusions? • GFIA part of a shift in philosophy towards industry self-regulation, regulatory transparency and international best practice • Revenue-sharing worked well as a cost-effective interim solution while mobile networks were still in their infancy • Role and authority of the regulator is well established in law • JTM/MCMC has tried to build a basis for consensus in face of competitive rivalries

29. Conclusions? • Use of consultants to provide benchmarking - regulator needs financial resources to pay for this • Benchmark interconnection prices used to assist private commercial agreements, not designed as heavy intervention • Interconnection agreements not comprehensive - number of areas not covered • How will the move to LRAIC be undertaken? • How will broadband issues be handled?

30. Index: 1. Kelantan, Pahang & Terengganu 2. Sabah & WP labuan 3. Sarawak 4. Melaka & Negeri Sembilan 5. Johor 6. Perak 7. Kedah & Perlis 8. Pulau Pinang 9. Selangor 10. WP Kuala Lumpur