TM INTERNATIONAL SDN BHD
REGULATORY REGIMES AS
ENABLERS OF GROWTH:
AN INVESTOR PERSPECTIVE
ASSOCHAM TELECOM CONFERENCE 2006
19 APRIL 2006
Date: 20 April 2005
• REGULATORY RISK ASSESSMENT: AN
• REGULATORY EFFICTIVENESS AS GROWTH
• TYPICAL EMERGING MARKET REGULATORY
ISSUES FROM TM INTERNATIONAL’S
• NEW CHALLENGES
TM adopts a prudent international expansion strategy
focussed on the following:
• To look at emerging markets particularly with high growth potential,
closer to home, thereby strengthening TM’s regional presence.
• Rapid growth strategy of existing investments including possible
strategic alliances which would provide TM with outstanding
international partners. This is aimed at improving TM’s ability to
compete in the increasingly competitive global mobile
• Divestment of our African investments:
- sale of the Telkom S.A Ltd stake concluded November 2004,
- amicable resolution of Ghana arbitration process in May 2005,
- the process to divest remaining investments in Africa (Guinea
and Malawi) is ongoing.
TM International Sdn Bhd is the vehicle overseeing
TM’s ventures abroad
• As Telekom Malaysia Berhad’s (TM) vehicle overseeing and managing its
foreign ventures, TM International Sdn Bhd (TM International) aspires to be an
established, well-recognised, self supporting and profitable company that
serves as the flagship for the group’s international investments.
• Commenced as an operating division within the TM Group. Pioneer investment
in Sri Lanka in 1995.
• In line with TM’s restructuring exercise, TM International was activated in 2001
to be the operating investment holding company for the TM Group. A wholly-
owned TM subsidiary.
• Current investments are primarily in mobile cellular though new possibilities in
broadband, VOIP are being considered.
• Total initial capital employed = US$588.34 million
TM International Vision and Mission
• To be an established, well recognised, self-supporting and
profitable global company that serves as the flagship for TM’s
• As an investment holding company, TM International’s
To identify, select and evaluate investment opportunities for
TM’s telecommunication business overseas;
To maximise value and return for all the stakeholders in
To promote TM as the regional player with global presence
in the telecommunications industry
Regional footprint of investments managed by
* Mobile operations
** Pending approvals
Current investments - Subsidiaries
Company name / Country Business Type Shareholding
Cambodia Samart Communication Co Ltd (Casacom), Cellular 100%
Dialog Telekom Limited (Dialog), Sri Lanka Cellular, ISP 87.7%
Multinet Pakistan (Private) Limited (Multinet) Broadband 78.0%
PT Excelcomindo Pratama (Excelcomindo), Indonesia Cellular 56.9%
Societe Des Telecommunications De Guinee (Sotelgui Fixed, Cellular 60.0%
Telekom Networks Malawi Limited (TNM), Malawi Cellular 60.0%
TM International (Bangladesh) Limited (TMIB), Cellular, ISP 70.0%
Current investments - Affiliates
Company name / Country Business Type Shareholding
MobileOne Limited (M1), Singapore Cellular 29.85%
Samart Corporation Public Company Ltd (Samart), Holding 19.24%
Samart I-Mobile Mobile 24.4%
Spice Communications Private Limited Cellular 49.0% *
* Pending approvals
Through its international investments, TM has access to some 13.8 million
international cellular subscribers, in markets experiencing exponential growth
Subsidiary Q2 2005 Q3 2005 Q4 2005
Aktel, Bangladesh 1,992,825 2,073,600 3,054,700
Casacom, Cambodia 131,577 144,500 157,773
Dialog, Sri Lanka 1,740,190 1,925,200 2,123,800
Excelcomindo, Indonesia 4,355,959 5,864,900 6,978,500
MobileOne, Singapore - na - 1,285,000 1,246,000
Sotelgui s.a., Guinea 160,218 161,800 162,700
TNM, Malawi 106,798 136,605 131,500
TOTAL 8,487,567 11,591,605 13,854,674
REGULATORY RISK ASSESSMENT:
AN INVESTOR’S PERSPECTIVE
Telecommunications operators include “regulatory risk”
as a key factor in determining their investment strategies
• Regulation relating to telecommunications reform, information
infrastructure development, next generation networks, e-commerce, etc.
plays a crucial role in shaping the environment and incentives for
• Effective regulation need not add a new element of risk that increases
investment risk. Rather it can reduce and stabilize inherent uncertainties
in network markets.
• While not as volatile as the boom and bust cycles of financial markets
and macro economy,telecom policy and regulatory decisions clearly have
an impact the investment climate and investment opportunities in the
Some key questions in regulatory risk assessment (1)
Policy and Regulatory Framework
Observations on telecommunications policy (if in place);
What are considered definite “must wins” from a regulatory perspective?;
Regulatory uncertainties – what are desired changes or amendments?
Key regulatory issues faced and how the company is working to resolve them
What is the licensing policy? What are the considerations for gaining entry into
the market? Are licenses standard or are there special license conditions?
Exclusivities or moratoriums?
Has service-technology neutral/unified licensing regime been implemented?
What are the terms of the company’s license in terms of the scope, rights,
What are the license fees and terms of the license?
Some key questions in regulatory risk assessment (2)
What is the interconnection regime like and what regulatory instruments apply;
Charging: Mechanism: cost-based, revenue-share? Methodology: LRIC, FAC?
What are the interconnection arrangements like?
How are interconnection agreements forged?
How are interconnection disputes settled?
How are tariffs set? Regulated? Market forces?
What methodology is used to establish and change tariffs?
How is competition is terms of tariff setting?
Are tariffs associated with interconnection rates?
Some key questions in regulatory risk assessment (3)
What is the spectrum policy? How is spectrum managed in terms of application,
allocation, pricing, refarming, etc;
Is there a Universal Service regime in place? How does it work?
Is the a framework for competition regulation? How is competition regulated?
Are there asymmetrical rules that apply to the dominant operator?
Quality of Service
Is there a framework for QoS? How is QoS regulated?
Is there a framework for Consumer Protection?
Careful and astute management of regulatory risk is
central to telecoms investments
Above the Line: will influence investment decisions
Business Base Case MARKET RISK
[Establish Internal [External operating
Rate of Return: IRR] Conditions e.g. market
saturation, etc] CAPABILITY RISK
Will vary depending [Internal issues eg
on investment and billing, systems,
associated risk factors management
Indicative Range: and consumer]
Return on Capex
2002 for 10 largest
Asia Pacific operators
-12% for Japan Below the Line: will determine investment decisions
Telecom to +41% for
In the context of global wireless markets, regulatory and
political risks are becoming the dominant factor in
assessing the business prospects for
REGULATORY EFFECTIVENESS AS
Recent analyst observations on the impact of
• “Regulation can affect growth trajectory.
Ongoing reforms in India, most notably to its high
regulatory fees, could result in operator cost savings being
passed onto consumers via lower tariffs. This could drive
affordability and accelerate growth. Other potential changes
include spectrum allocation and rural build-out subsidies…”
Source: “Where will regulation risk rise or fall?”, Asian Telecom Themes & Strategy,
UBS Investment Research (24 March 2006)
• “Europe is missing up to Euro 14 billion of telecom
investment each year due to ineffective regulatory
environments in some countries…
Source: Strategy & Policy Consultants (SPC) Network (29 March 2006)
Regulatory Risk versus Effectiveness
• Some national telecom regulatory environments create
“regulatory risk” that drives up investment risk, whilst the
expectation is that regulation should be providing a degree
of confidence that would reduce investment risk.
• Among the key regulatory outcomes which enhance
effectiveness and promote growth are:
1. A robust institutional structure;
2. Clarity of policy directions;
3. Efficacy of regulatory processes including enforcement;
4. Appropriate regulatory standards;
5. A rigorous economic regulation regime.
1. Robust Institutional Structure in the Sector
• Degree of regulatory independence from political interference by the
• Independence to manage the strength of incumbency;
• Clarity and transparency of these relations with respect to the law
and administrative procedures
2. Clarity of Policy Directions
• Policy directions that the regulator is supposed to implement, and the
discretion on technical and specialized matters delegated to the
• Investment risk is increased by arbitrary regulatory decisions;
• Consistency of sector legislation with policy decisions;
• Any exclusivities/exemptions that may be granted to particular
parties, and the terms of such exclusivity.
3. Efficacy of Regulatory Processes including
• May have a major barrier to entry as a result of lack of transparency,
accountability and efficiency (e.g. time consuming regulatory filings);
• Complex regulatory compliance schemes may mean incurring
• This can raise investment risk to the point of driving away investment.
• Enforcement the litmus test – often subsumed by more exciting,
futuristic industry concerns
4. Appropriate Regulatory Standards
• The application of substantive regulatory standards (e.g. price
regulation, cost-oriented standards for access/interconnection,
competition rules, spectrum standards, etc;
• Appropriateness of standards to achieve specific regulatory objectives
+ how, where and when they are applied;
• The above requires both technical and strategic competence which in
turn will foster investor confidence and investment in networks.
5. A Rigorous Economic Regulation Regime
• Transparent and non-discriminatory access and interconnection
• Transparent and technology-neutral Licensing Framework that is
integrated into broader industry arrangements;
• Effective tariff regime that reflects underlying costs and delivers
optimal competition outcomes;
• Effective universal access scheme that are aligned with proven global
best practice mechanisms and the recognition of existing (and
successful) commercial contributions that support the Government’s
universal access goals.
TYPICAL EMERGING MARKET
REGULATORY ISSUES FROM
TM INTERNATIONAL’S EXPERIENCE
(1) Sector Policy and Reform
• National Telecommunications Policy 1998 (NTP) predates new legislation (2001)
by 5 years;
• Review of NTP is essential also due to recent global sector developments, growing
importance of wireless access, consistency of legislative instruments, creation of
level playing field. Also captures monopoly by incumbent of international services;
• Competitive landscape has changed given recent liberalization and opening up of
• Competition intensifies yet level playing field far from being achieved;
• Concerns: falling retail tariffs, “grey” traffic and bypass, spectrum issues, parity
issues with incumbent
• Interconnection Regulations provide options to charging methodology – not
practical and may lead to arrangements that are highly anomalous and difficult to
(1) Sector Policy
• Lack of policy coherence and direction with multiple, complex web of
(2) Access and Interconnection
• Unsustainable and inequitable interconnection arrangements;
• Access regime still based on MPP retail regime
(3) Anti-Competitive Practices
• Lack of certainty on integrated framework for competition regulation
and enforcement instruments
(4) International Licensing and Call Market
• Rampant international bypass and over-licensing of External Gateway
(5) Spectrum Issues
• Proposal to re-align spectrum bands to the benefit of certain operators
and detriment to others
(1) Sector Policy
• Duopoly of IDD still exists and awaits review;
• Comprehensive interconnection framework being developed, however,
certain elements on costing may have negative impact on certain
• Government to re-allocate 3G spectrum; however, broad spectrum
management and policy remains unclear.
(4) Retail Tariffs
• Efficacy of current retail tariffing mechanism questionable
Whether assessing regulatory risk at the point of making an investment
decision or managing existing risk, TM International views regulatory
elements as a mutually reinforcing package of “regulatory levers”
Other Legal Parameters
TARIFF REGULATIONS Distortions between INTERCONNECTION
retail + wholesale
Investment + Tax Law
Commercial rates of
Rights of Way
Quality of Service
Industry Development Affordability INTEGRATED What access rights per
Arrangements Scope of Basic Services COMMUNICATIONS SECTOR license category
WTO Obligations STRATEGY Types of services or
facilities to provide
UNIVERSAL SERVICE LICENSING
Contributions to USO
Direct Impact on country
competitiveness Sector Building Blocks
Related Regulatory issues Spectrum, Numbering, Electronic Addressing, Technical
TM International constantly seeks the following
regulatory outcomes to ensure growth of its investments…
• Integration of policy settings and regulatory mechanisms;
• Formalized rules and commercially binding contracts for
interconnection and access;
• Application of fair and equitable competition rules;
• Optimal spectrum and licensing arrangements;
• Transparent and technology neutral licensing framework;
• Tariff regulations that are linked to costs;
• Universal service programs that are fair, transparent and reflect the
broader impact of (wireless) technologies;
• “Future proof” numbering and electronic addressing.
NEW CHALLENGES CONFRONTING
1. New challenges in regulatory approach…
• Is a full convergence regulatory model based on technology & service
neutrality the way to go (ie merging the communications, broadcasting
and Internet value chains)?
• What should the approach to regulation be – light-handed, intervening
only when there is impending market failure, or prescriptive?
• Should provision for self-regulation mechanisms be made?
• How and where should the regulation of content be tackled, if at all?
• How shall depletable resources – spectrum, numbering, electronic
addressing – be tackled and made “future proof”?
• How should competition levels dictate if services should be regulated
• How will consumer protection feature as regulatory regimes evolve?
2. New challenges in mobile operations
“A paradigm shift in the mobile value chain now means that
operators need to turn their large internal organisations inside
out and examine them very closely to be able to adapt and
optimise their procedures and organisations to the new mobile
reality. The paradigm shift will lead to an upheaval of the existing
value chain and all the market players will be forced to redefine
their tasks and structure…”
Source: “The Mobile Operators Business: Turning Inside Out and Upside Down”,
www.cellular-news.com, posted 12 April 2006
New challenges in mobile operations
New arrangements are characterising mobile operations
• Managed networks:
- No longer an option suited to new entrants or specialist players alone;
- Fast paced evolution and decreasing profit margins demand that
operators establish a more flexible, nimble organisation;
- Processes previously considered core competencies are being
outsourced to external companies.
• Infrastructure sharing models:
- Stated policy intent promoting service-based rather than facilities-
based competition helps;
- Should this be limited to physical network elements or also airtime
- Should this be mandated or left to commercial arrangements?
New challenges in operations
• MVNO arrangements:
- Demands a rethink of the regulatory framework
- Regulators would need to consider a new class of licensees capable
of providing public cellular services, but without spectrum allocations
- Absolute clarity needed on the benefits of lowering market entry,
shortening time to market and increasing levels of competition to be;
- Regulators need to be aware that the sustainability of MVNOs is
dependent on network operators – competition issues arise - is
3. Challenges posed by new services
• IP networks and broadband services:
- Potentially alter industry dynamics as they can accommodate multiple
services (voice, data, video);
- In otherwise stable markets, multiple access platforms can cause
fragmentation of markets and foster competition (eg 3G);
- Bundling to increasingly arrest market share leakage.
• Emerging wireless technologies eg WiMAX
- Redefining wireless broadband
- Potentially disruptive technology unless careful policy can ensure
maximum benefits to consumers;
- Regulators to be alert to potential anti-competitive impact of WiMAX
networks, interconnection regime, as well as role of wireless broadband
technologies in rural roll-out.