In Malaysia, regulatory reforms are beginning to shape the trajectory of the digital economy to unleash ultrafast internet. The result has been beneficial to Malaysians, especially within the confines of a market with low adoption of fiber internet services in the past decade, compared to its regional peers. But now things are changing. The country’s broadband market is rapidly moving to become more accessible, with increased competition and better quality services – which could potentially expand the digital economy to provide the benefits of economic growth, job creation and social inclusion.
Last year, the country saw a major undertaking of regulatory reforms, leading to a drop in prices of fixed broadband services and triggering a shift in consumer demand for faster Internet. This is important as recent World Bank analysis found that Malaysia’s lag in Internet speed was partly due to limited competition in the broadband market – marked by the dominance of one company holding a 90% market share as of December 2017. At that time, Malaysia had the most concentrated fixed broadband market in all of Asia Pacific for a country with a population larger than one million. Limited competition and difficulties in network deployment constrained alternative internet service providers (ISPs) from rolling out networks or offering services on competitive terms.
A key reform to address this has been the introduction of the Mandatory Standard on Access Pricing (MSAP) by the country’s telecommunications regulator, the Malaysian Communications and Media Communication (MCMC). The MSAP regulates the prices and terms for alternative ISPs to access the incumbent’s wholesale broadband capacity. Similar measures have had positive impacts on broadband markets in other parts of the world, allowing alternative ISPs to offer lower priced and higher quality services to their subscribers.
Fixed broadband connection quality, including fiber internet services, rapidly responded to these regulatory changes. Within three months of the reform in 2018, many local service providers announced new broadband subscription plans with faster speeds at lower prices. The impact was evident for what is globally becoming the norm for basic broadband services (30 Mbps services), with average prices for those plans falling by over 30% in 2018. Notably, the average price of plans for speeds in excess of 1 Gbps (the emerging speed target for high-income economies) fell by 40%. Price drops were seen across all plan types.
As a result, Malaysian subscribers have begun the switch to broadband plans with faster speed. Data from MCMC shows that the number of fixed broadband subscriptions with download speeds of more than 100 Mbps grew by a factor of eight to 1.2 million subscribers by the end of 2018.
After these reforms, we see that Malaysia is now starting to close the gap in internet speed with leading countries. In December 2017, the average speed of fixed broadband services in the five countries with the fastest connections in the world was over six times faster than average speed in Malaysia. By March 2019, this had narrowed to just over two times. Looking at the bigger picture, Malaysia’s average fixed broadband speeds have trebled in the span of a year (see Table).
Malaysia’s experience shows that policy reforms can have an immense impact on market outcomes in a short space of time, as recent events have proven. The implementation of regulations that boosted competition have had positive effects on subscriptions and affordability. This demonstrates the potential gains from regulatory reforms and the demand for high quality and affordable internet services. Regulatory reforms are a first, but critical, step in a longer journey to providing all Malaysians with access to ultrafast and affordable broadband services that will position local businesses and the economy for growth in an increasingly digital world.