Telekom Malaysia Berhad, is the
largest integrated solutions provider in Malaysia. with a market capitalization
of RM21.6 billion and a workforce of 27,257 employees. (Telekom Malaysia, 2013)
Established as the Telecommunications Department of Malaya in 1946, it was privatized
in 1987. Subsequent growth led to a demerger in 2008 of TM's mobile and fixed
services. (Telekom Malaysia, 2013) The fixed services company is known as
TM Net. As of 2009, it was the
only fixed line broadband provider in Malaysia It also provides Internet Protocol
television and other multimedia services. TMnet is a wholly owned subsidiary of
Malaysia's main telecommunication provider.(TM Net, 2013) TMnet launched its 4 Mbit/s service at
selected locations, which was the fastest speed available at the time.
The
word ‘internet’ was a verb refers to interconnected motions in early 1883. But
now, Internet is a broadcast medium for everyone, it is a necessity tool for
billions of people to trade info with each other. There are trillions of pages
out there, we can find whatever information we need on the net. The demand for
internet is increasing in an extremely fast speed especially in this internet
information explosion era. Consequently, the supply of TMnet’s service is
increasing to cope with the increasing demands. TMnet is offering different internet
package such as Streamyx BlockBuster, Unifi VIP and Unifi Biz. (Telekom
Malaysia, 2013) Every package is design to have different speed and different
price to let customer has different choice according to their needs.
Internet
Service Provider (ISP) in Malaysia is less and this cause ISP in Malaysia become
an oligopoly market structure. Oligopoly is a market which dominated by few
number of producer. Due to there are only few producer, the decisions of one
firm will influence the benefits of other firms. Therefore, each oligopolist is
mutual restraints to each other, so strategic planning by each producer needs
to take into account the likely responses of the other market participants. TMnet
is considered as an oligopoly because it is one of the few and largest ISP
provides internet connection in Malaysia.
Human
has unlimited wants but there are limited resources in a world. This results in
many economics problem such as what to produce? How much to produce? How to
produce? And for whom to produce?
What
to produce?
Because
of human unlimited wants and limited resources in the world, to make sure all
the resources are being fully utilized, producer will choose to produce the
most needed goods. In today world, internet is more and more important in our
life, slow internet speed in Malaysia is fretful and cause slow production, we
need a better, faster internet service. And then TMnet comes out with UNIFI to
satisfy their customers. TMnet encourage customer to choose UNIFI so that they
can shut down the old service (streamyx) and use the resources to produce UNIFI.
How
much to produce?
Seems
internet service is a necessity and TMnet own the nation’s last mile
connections, they restricts competition to populated areas and enjoys a virtual
monopoly of the market. So they can produce as much as the demand of the areas.
How
to produce?
To
have maximize production, TMnet has to use the resources wisely, choose the
best mode of production. TM install their fiber optic source near populated area
and build their branches there. This let them easier to install fiber to
resident house and easier to repair when something goes wrong.
For
whom to produce?
Because
of limited resources, TMnet has to determine which area of people has to be
satisfy first and which area can be satisfy later. This is why most of the area
in cities have UNIFI service, and some the rural areas still using streamyx.
Limited
resources in the world are unable to satisfy the unlimited desire of human, and
this lead to scarcity.
Scarcity
forces people to make choice. As a profit organization, TMnet will choose to
use limited resources to produce product which can bring maximize profit to
them, the UNIFI package. When TM choose the UNIFI, the opportunity cost occur.
Opportunity cost is the highest value item to forgo among the other choices.
The opportunity cost for TM is Streamyx.
We
need internet service to feel connected to everything and everyone and we could
afford to have one, this is called demand in economic. Economist has created a
law for this which is Law of Demand. Law of Demand state that when ceteris
paribus, as the price of a product rises, the quantity demanded will decrease;
as the price decrease, the quantity demanded will increase. When TM reduce
their price, we are likely to upgrade the package, this is because we are
rational and this agree with the law of demand.
The
law of demand results from substitution effect and income effect. Substitution
effect is when the relative price of a good rises, people seek substitutes for
it, so the quantity demanded decrease. TIME Fiber is another fiber optic ISP,
the price for 8Mbps is RM129 per month, (TIME, 2013) compare with TMnet, they
charge RM160 for the same speed and same add-on. This causes the demand for
TMnet in the area which has TIME Fiber decrease. Unfortunately, TIME Fiber is
still new, the coverage is limited, and they only set their fiber point at
apartments and commercial blocks in some areas. So far, TIME Fiber is the best
ISP with lowest price and highest speed in Malaysia. They may change the
monopoly status of TMnet and bring benefits to customers. Income effect is when
the price of a good rises relative to income, people cannot afford the things
they previously bought, so the quantity demanded of the good will decreases.
For example, we are using UNIFI VIP10 which cost RM199 per month, when the
price increases, we could not afford it and we may downgrade to UNIFI VIP5
which cost RM149. (TM Net, 2013)
In
economics, there is a thing called Price Elasticity of Demand. PED is the
responsiveness to the price change on a goods. In this case, internet
connection is a necessity to us, the PED for this is inelastic, which means the
changes ratio in demand will smaller than changes ratio in price. The demand
curve is a steep down sloping curve. In this situation, ISP in Malaysia can
raise the price as high as possible, they know by doing this they can get more
profits because of inelastic demand and TMnet made a total of RM9.99 billion
revenue last year.(Telekom Malaysia, 2012) Some of the countries like South
Korea, their internet speed are faster and the cost is extremely cheaper
compare with us. It is around RM90 for 100mbp/s.(KT, 2013) This is because the
Korea government forces all the ISP share their infrastructure and this make
the entry requirement lower, new ISP can start their business without investing
a huge amount of capital to build the infrastructure. This make ISP in Korea is
in a monopolistic competition market structure. Unlike the oligopoly market in
Malaysia, there might be collusion between each ISP, which is called Cartel.
In
terms of pricing, firms in oligopoly are price setters. TMnet is able to
control the pricing and usually sets the higher price to has more profit. TMnet
is enjoying the economies of scale. Economies of scale are defined as the
number of goods being produced increases resulting into a decrease in average
costs. The cost for building the fiber optic connector and other infrastructure
is a fix cost. When there are more and more users install fiber optic
connection, they are helping TM to share the fix cost.TM only has to pay a small
amount to pull the fiber optic (variable cost). When more and more users use
the facilities, TM will get more and more profits because of the average cost are
getting lower.
In
the diagram below, we can see that a rise in marginal costs (MC’) will not lead
to higher price, this is because kinked demand curve theory state that there
will be price stickiness in oligopoly market and they will do some non-price
competition to attract more buyers, so their MR is lesser than AR.
Maximize
profit is where MC cuts the MR curve.
Oligopolies
have advantages and disadvantages. The disadvantages are firms in oligopoly
market have ability to control the price which will reduce consumer surplus.
Besides, they can produce a lower quality product, reduce consumer’s choice and
behave in a collusive manner to exploit the consumer as a monopolist. (More on
Oligopoly, 2004) That is why we have to pay more for the slow connection speed
in Malaysia.
But each oligopolist is mutual
restraints to each other, so there is
lots of non-price competition and we can benefit from it. The huge profits
generated by the companies can be used for research and development of new
products which will benefit us in some way, such as Yes Huddle 4G Mobile
Hotspot. (YES 4G, 2013) So the oligopolists can be advantageous to us too.
(1520 words)
Reference:
Telekom
Malaysia (2012) Annual report and
Financial Statement 2012 [online]. Menara
TM:
Telekom Malaysia. Available from:
