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.

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