Saturday April 30, 2011
By B.K. SIDHU
bksidhu@thestar.com.my
INDEED, it is rare when two dozen telcos come together for a common goal. Instead of pulling away in different directions, a competitive industry can also compel rivals within the same industry to forge alliances.
On Monday, an agreement was inked to set up a 24-member Konsortium Rangkaian Serantau Sdn Bhd (KRS) which has a paid up capital RM240,000, thanks to the RM10,000 contribution from each member.
The telcos include Telekom Malaysia Bhd (TM), Time Dotcom Bhd (TDC), Maxis Bhd, Celcom Axiata Bhd, DiGi.Com Bhd, U Mobile Sdn Bhd, Green Packet, YTL Communications Sdn Bhd, RedTone International Bhd, OCE, Fibrerail Sdn Bhd, Jaring, Sacofa, Sarawak Information Systems, Fibrecomm Networks (M) Sdn Bhd, and V Telecoms.
The plan, over the short term, is to eventually bring down the cost of Internet protocol (IP) transit by buying international bandwidth in bulk. In the longer term, the goal is to be partners of submarine cable (one which is laid beneath the sea) networks that reach US and European shores.
IP transit cost makes up about 10%-40% of total Internet cost for a player. This is what players pay to buy capacity on submarine cables to enable customers to access sites, the bulk of which are located in the United States and Europe as well in India or Australia.
IP transit is in demand, given the rising demand for broadband services. For a small player, it can be a challenge to buy capacity at a cost that allows it to make a profit.
This idea of setting up the consortium comes under the National Key Economic Area as part of the wider regional reach initiative.
“It is a positive step as a larger consortium will have more bargaining power when it negotiates for bandwidth prices,'' says an analyst from ECMLibra Investment Research in his report.
He says controlling the cost of international bandwidth was crucial as the requirement for data capacity rises exponentially, especially in the new era where data usage in smartphones and table PCs are rapidly growing.
“Over the longer term, if executed successfully, end-consumers might even enjoy lower priced Internet packages or getting more international bandwidth by paying the same price,'' he says.
Currently, TM, TDC, Maxis and Celcom are partners in various submarine-cable consortia with networks covering the United States, Europe, Middle East and Africa.
This week four individuals had been identified to be board members of KRS. Sources said they are Datuk Harold Read, Datuk Mohamed Khadar Merican, Datuk Dr Abd Samad Alias and Datuk Idris Abdullah.
“The board members must be credible as they will be the custodian of any funding that the KRS may get from the Government in the future,'' says a source.
KRS is on the lookout for a CEO and a business plan will be crafted. Capacity buying will begin in three to six months time, says another source. The bigger gainers in the consortium are most likely the smaller players as they will save costs with bulk buying.
HwangDBS Vickers Research in its note says that the lower cost of IP transit and domestic bandwidth could enhance the cellular players' overall margins but it does not expect this to impact earnings in the near term given that part of the cost savings will be passed to consumers. “TM and TDC could be on the losing end as the lower lease rates could result in lower wholesale revenues and margins, but we think the impact may not be significant to TM's bottomline given that wholesale revenues account for only 9% of total revenues. TDC generates 50% of its total revenues from wholesale business,'' it said.
Eventually, the grand plan of KRS is to have its own submarine-cable network.
For a typical 7terabits cable network with four to five fiber pairs the cost is between US$400mil and US$600mil to run from Malaysia to the United States, probably, via Hong Kong.
For that to happen, KRS needs to conduct a detailed study, says TDC chief executive officer Afzal Abdul Rahim. TDC is a member of KRS and a partner of a cable network that runs from Japan to the United States.
If it makes business sense, KRS will invest in its own cable network but securing funding would be its biggest challenge. However, it may seek a soft loan from the Government, said a source.
Afzal is looking at a two-year period, though this may be a long shot, before any cables can be dropped into the ocean.
Having KRS has its benefits but it is also to deflect any business falling to the hands of foreign cable companies that is said to have secured rights to land stations on the Malaysian shores. It is not clear whether this theory holds water but the bigger domestic players would certainly not appreciate competition on their shores if they are not allowed to land stations in other countries. “It should involve bilateral arrangement even though Malaysia has opened up access for landing stations,'' says a source.
At present, the Internet traffic mainly goes through Singapore as it cost less than via Malaysia. About 70% of Internet traffic goes ex-Singapore and while the pricing depends on volume; the average cost is said to be US$55 a month for a 1GB line and US$70 for a 200Mb line ex-Malaysia. Ex-Singapore, the cost is lower at US$50 and US$20 respectively.
Come what may, IP transit cost should come down to benefit the consumers and that can only happen if there is bulk-buying. But one thing KRS shouldn't do is to allow the bigger players like TDC or TM to restrict its freedom to buy capacity. That would, as the source said, not be in the best interest of competition.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/30/business/8583175
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