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

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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

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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 TMBs 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

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Commercial Agreement between TMB and Celcom, 1990

• For all calls destined for TMBs 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 Celcoms 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 TMBs gateway

9
Commercial Agreement between TMB and Mobikom,
1994

• For all calls destined for TMBs network, Mobikom
  paid TMB 13 plus 5 per minute (this payment in
  respect of the USO)
• For all calls destined to Mobikoms 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.

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

• Scope
• Interconnecting TMs 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.

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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

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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).

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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.)

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Commercial Arrangement between TMB and Celcom,
1995 - basis of general agreement
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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
• Celcoms 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)

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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

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General Framework Agreement for Interconnection
and Access (GFIA) - 1996

• Objectives
• The deployment and optimum usage of the sectors
  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.

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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

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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.

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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 - TMBs cost structure taken as
  the reference point by the consultants
• Mobile networks will be set closer to long run
  incremental cost - Celcoms costs structure
  taken as a reference point by the consultants

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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.

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Universal Service Contribution

• Each fixed and mobile carrier contributes to the
  USO according to their proportion of the
  industrys 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.

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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

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Mobile - mobile retail tariffs _at_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

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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

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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 gt550k 4 seconds RM1.95 8
  seconds 97.5
• Band D Sabah/Sarawak 3 seconds RM2.60
  6 seconds RM1.30

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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

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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?

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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