Home Asia-Pacific I 2006 Innovation and regulation in Malaysia – choices and opportunities

Innovation and regulation in Malaysia – choices and opportunities

by david.nunes
Dato’ V. DanapalanIssue:Asia-Pacific I 2006
Article no.:1
Topic:Innovation and regulation in Malaysia – choices and opportunities
Author:Dato’ V. Danapalan
Organisation:Malaysian Communications and Multimedia Commission
PDF size:52KB

About author

Dato’ V. Danapalan is the Chairman of the Malaysian Communications and Multimedia Commission (MCMC). Prior to joining MCMC, Mr Danapalan was a Senior Vice President of the Multimedia Development Corporation (MDC). He began his career in the Malaysian Administrative and Diplomatic Service upon graduating from the University of Malaya. Mr Danapalan then went on to serve in the Ministry of Education and the Ministry of Social and Community Development before being appointed Secretary General at the Ministry of Science, Technology and Environment.

Article abstract

In Malaysia, innovation and regulation work together and industry participates in the process. Licensing facilitates market entry and requires only registration, not approval. Services and content of any type, wired or wireless, via any platform are now possible. Regulatory forbearance is the rule, but anti-competitive conduct is seriously dealt with. As a result, service providers have thrived. In the last five years, sector revenues have doubled. They account for 10 per cent of the country’s GDP and 11 per cent of its market capitalisation.

Full Article

Innovation and regulation are considered by some to be the opposite ends of the spectrum and there are those who consider that regulation signals the death of innovation, but we need to examine this view carefully. Is it true that these two concepts are mutually exclusive, or do they actually complement each other? What has the Malaysian experience been? The eminent management guru, the late Peter Drucker, is said to have stated that “innovation is the specific instrument of entrepreneurship … the act that endows resources with a new capacity to create wealth.” Thus, innovation is the lifeblood of continuing economic prosperity and this has clearly been accepted in the framework for the communications and multimedia industry in Malaysia. The recognition of a better way to deal with the communications and multi-media landscape, the acknowledgement of an abundance of opportunities to capitalise on the effect of convergence and the realisation of the need to modify the regulatory stance accordingly resulted in a total revamp of the way in which the communications and multimedia industry is regulated in Malaysia. The Communications and Multimedia Act 1998 (the Act or the CMA) came into force on 1st April 1999. It established an entirely new approach to regulation in Malaysia as it emphasised active industry participation and input in both the Act’s processes and its decision-making framework. The legislation focussed upon meeting expressly spelt out national policy objectives including the objective to regulate for the long-term benefit of the end user. This experience showed true innovation in Malaysia from the standpoint of the government’s approach to regulation. A real attempt was made to change the orthodox perception of regulation as an obstacle; instead, the regulations were designed to facilitate and transform the practices to benefit the end user. Enabling licensing framework A new approach to the concept of licensing was introduced, an enabling approach that distinguished between the concepts of market entry and the need to regulate for market failure and consumer protection. This is in contrast to the traditional government role of acting as gatekeeper, with the attendant delays and bureaucracy, thereby restricting innovation, ostensibly in the interests of consumer protection, but too often having a negative impact on innovation by businesses and choices for the consumer. Additionally, the technology neutral licensing regime, which allowed for the licensing of facilities and services separately, meant that smaller entrants could more easily begin a business. They found their own niches that were either too small for the larger players to focus on or they were nimble enough to take advantage of the inefficiencies of the larger players and thrived. Further, with the introduction of a class licence regime, which requires mere registration as opposed to approval, those who wish to enter the applications service market are empowered to choose their own niche and apply themselves to making their businesses work rather than deal with red tape and a minefield of unknown or ambiguous regulation. Thus, this approach provided an opportunity for innovation, a quick start for new businesses and the offer of a choice of how to start their business and in which market to do so. Innovative services could now be offered because of the recognition that voice and data were not the only offerings possible. Content of all kinds could be offered to consumers on many platforms whether on the mobile phone, via the traditional free to air television or the Internet. The proliferation of the use of SMS and MMS for everything from sending messages, to voting in talent quests, to downloading ring tones and even to lodging complaints with the authorities, is evidence of the many and varied offers now possible. Forbearance An interesting feature of the Act that must be emphasised is the concept of regulatory forbearance. This is another element that adds to the flexibility of the new regime as it acknowledges that there may be circumstances when, although technically persons may be non-compliant, no greater public good is served by strictly enforcing a legal provision. In fact, it may be that strict enforcement will curtail technical innovation. Such forbearance also serves to accommodate situations where the enforcement of such compliance may be neither appropriate nor necessary in relation to policy objectives. No room for regulation? Does this mean there is no need for any regulation and is innovation a sacred cow to protect at all costs? Clearly not. The view has been, and continues to be, that while there should be more leeway shown to enable entrepreneurs to dream their dreams and then make them real, there is also another side to consider. When businesses do not play fair, they may themselves act to restrict innovation in the market place by their competitors. Less scrupulous players will use liberal market entry requirements to make a fast buck by cheating consumers. Focus of regulation The role of the regulator is to find a balance between encouraging innovation by leaving the market and its players free, and making sure there is sufficient regulation to protect the consumer and avert market failures and distortions. This means the task before both the regulator and the serious industry participants is to ensure that the quest to be innovative does not override the need for a competitive market place and that anti-competitive behaviour, which restricts innovation, is prevented. The need for innovation does not mean the consumer’s rights can be allowed, willy-nilly, to be overridden. Thus, the regulatory framework has specific provisions to ensure that anti-competitive conduct will be seriously dealt with, and prohibits specific activities by dominant players that would restrict market entry and prevent the establishment of a level playing field where fair competition can take place. Additionally, many specific provisions also embrace the notion of the need for effective consumer protection – from the basic idea of the need to treat the consumer reasonably to the wider notion of the duty to ensure that all consumers are able to have access to services regardless of, among other things, location and disabilities. Self-regulation Self-regulation is a cornerstone of the new regulatory framework. The CMA provides for the establishment of an industry forum on access, another on technical standards, a third on content and last but not least a forum for consumers. These play a very important role in ensuring that the rules that apply to the players are rules that they themselves make, together with all other stakeholders including NGOs and civil society representatives. The basic principles enshrined in the codes govern the newer and more innovative services, thus setting up a basic platform of values that will govern all services, new or old, as appropriate. This ensures a measure of buy-in by all concerned and enables innovation, but not at the expense of the consumer, and has resulted in the registration of a Consumer Code in October 2003 and a Content Code in September 2004. Effect of new regime The question arises: what has the response been to these changes? Were the opportunities realised? Have the choices made by the regulator and the industry players benefited the end user? Did the framework assist innovative entrepreneurs? In a way, choice has been increased at all three levels – for the regulator, the service provider and the consumer. The role of the regulator in this scenario is no longer one of Big Brother wielding the stick. Instead, under the new regime, the regulator plays an active part in developing new and under-served market segments and in bridging the gap between policy objectives and market outcomes. Service providers have obviously thrived. In the last five years, in terms of aggregated revenue of the companies in the communications and multimedia sector, there has been almost a doubling in revenue from RM12 billion in 1999 to RM21 billion in 2004. Today, the communications and multimedia companies command about 10 per cent of the country’s GDP and constitute 11 per cent of the market capitalisation on the local stock exchange. Market capitalisation of the communications and multimedia companies totalled RM81.1 billion in 2004, which is more than double the market capitalisation of RM39 billion in 1999. There were only three communications and multimedia companies listed on the Main Board, of the stock exchange in 1999 compared to seven on the Main Board with four more companies listed on the MESDAQ market, today. As the number of public-listed companies comprising the communications and multimedia companies sector increased, the total number of employees in this sector has also more than doubled from 28,600 persons employed in 1999 to 57,900 employed in 2004. As for consumers, they have an unprecedented variety of choices for many services in the market place today and with penetration levels for mobile phones and Internet access showing a steady increase, there is still room for more and better results. Clearly, the changes that have taken place over the last several years have been the result of innovation on the part of both existing and new players in the market and a positive response to the opportunities created by the new regulatory regime. Both the industry and the consumers have clearly benefited and this augurs well for the future. It is evident that so long as opportunities for innovation are embraced in a manner mindful of the basic rules of fair play, they will result in a better future for all.

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