The Communications and Multimedia Act 1998

Case Study based on book (Move to share popular TV content)

OCTOBER 11, 2018

GROUP 8
Q1812
 Peer Rating…
Name Reg. ID Rating Signature
Harsh 11810334 10
Jaiswal

Nischay 11810124 10
Singh

Deekshith 11809989 7

Sonam 11809984 9
Shering
Lama
The Communications and Multimedia Act 1998
(CMA) and the Malaysian
Communications and Multimedia Commission:

In November 1998 the Malaysian Government restructured the Ministry of Energy,

Telecommunications, and Post (METP) into the Ministry of Energy, Communications
and Multimedia (MECM). A major reason for this restructuring exercise was to bring the
regulatory structure in line with technological developments, in particular, the
convergence in communications and multimedia industries. (The Ministry defines
convergence as “the progressive integration of the value chains of traditional
communications and content industries within a single value chain based on the use of
distributed digital technology.”
Concurrent with this restructuring exercise, a new regulatory authority for the
sector, the Malaysian Communications and Multimedia Commission (CMC), was
formed. The Commission comprise of five members. Even though only a single member
of the Commission is a government representative, all five are appointed by the Minister
of Energy, Communications and Multimedia. In April 1999, the CMC assumed the
regulatory mandate for the sector with the passage of the both the Communications and
Multimedia Act 1998 (CMA 1998) and the Malaysian Communications and Multimedia
Commission Act 1998 (CMCA 1998). The former spells out the regulatory institutions
and structure for the industry whilst the latter details the function, powers and operational
aspects of the CMC.
The CMA 1998 is a comprehensive piece of regulatory legislation. Its enactment
streamlines the regulatory structure by consolidating the many legal statutes
(Telecommunications Act, Broadcasting Act) and regulatory authorities (METP, JTM,
Ministry of Information) for telecommunications and broadcasting by putting them under a
single umbrella regulatory framework.
Under the present regulatory framework, the Minister of Energy, Communications and
Multimedia is the most influential institution. The Minister makes all key decisions
pertaining to regulatory policies. The CMC provides policy recommendations to the Minister
and is responsible for the enforcement of regulatory policies and legislation (the CMA 1998).
In the case of the issuance of licenses, the Commission administers the application and
renewal process, makes recommendations but the final decision is up to the Minister.
There is a greater role for public participation in the present regulatory framework. The
CMA 1998 provides for the conduct of public inquiries by the CMC on regulatory matters.
The CMC has used this avenue to solicit opinions from operators during the process of
drafting regulatory policies (e.g. Access List Determination).
Typically, discussion papers are published on CMC’s website and the public is invited to
submit their views within a given period (at least 45 days). The CMA 1998 also allows for the
setup of an Appeal Tribunal to review CMC decisions and direction when the need to do so
arises. Another avenue for public participation is the establishment of industry forums that
act as a consultative body to the CMC in important issues such as access code, consumer
code, content code and technical code.
Thus far, two industry forums have been established namely the Consumer Forum and
the Content Forum. Even though the CMC takes directives from and makes
recommendations to the Minister of Energy, Communications and Multimedia it is an
organization outside the Ministry. Unlike its predecessor, JTM, this setup provides the CMC
with greater flexibility with regards to regulatory initiatives. This is crucial as it embarks on
new functions such as monitoring competition. Besides, as a statutory body with its own
funds, the CMC also has greater flexibility in staff recruitment. In particular, since its
establishment, it has adopted a “greenfield” approach to staff recruitment i.e. hiring
people from the private sector, the industry and other regulatory bodies.
Regulatory Principles
The CMA 1998 has substantially clarified and deepened the regulatory framework for the
communications and multimedia sector. Under the Act, regulatory activities are classified
into four key areas: economic regulation, consumer protection, technical regulation and
social regulation.

(a) Economic Regulation: -

The objective of economic regulation is to ensure that the communications and
multimedia industry is efficient. This is to be achieved through the implementation and
enforcement of three types of regulatory policies – licensing, competition policy and
service access.
The licensing structure underwent significant changes under the CMA 1998.
Previously, licenses were issued for specific technologies and services such as
telecommunication license, broadcasting (TV or radio) license, cellular license, ISP
license and VAN license. Under the CMA 1998, licenses were issued for four major
categories of activities, namely content application services, application services, network
services, and network services. This new licensing structure takes cognizance of the
potential for vertical separation, allowing competition at different levels along the
upstream-downstream continuum of the industry (akin to enhancing horizontal
competition). The activities-based licensing is also expected to facilitate the introduction
of convergent services.
Prior to the CMA 1998, previous telecommunications legislation
(Telecommunications Act 1950) did not have any provisions on anti-competitive
conduct. Recognizing the importance of market competition in the achievement of
efficiency and in the absence of a national competition law, the CMA 1998 took the bold
step of addressing this issue by incorporating in the Act prohibitions of anti-competitive
practices. Since its enactment, the CMC has published a series of guidelines on relevant
concepts such as “substantial lessening of competition” (CMC, 2000a) and “dominant
position” (CMC, 2000b). It has also published guidelines on the procedures and
processes for assessing and remedying anti-competitive conduct (CMC, 2000c).
Access to essential facilities such as the fixed network is an important pre-
condition in ensuring level-playing field competition in the telecommunications market.
To this end, the CMA 1998 provides for the determination of an access list. The
determination of the access list was completed and came into effect in April 2001.
Having settled the issue of access list, the CMC is currently looking into the issue of access
codes and pricing.
(b) Consumer Protection
Consumer protection is undertaken to ensure that consumers’ needs in terms of access,
affordability, and service quality are met. To meet these objectives, the CMA 1998
provides for the implementation of regulatory policies and if necessary, institutions to
deal with key issues such as service quality, required applications services, consumer
disputes, rate regulation and universal service provision. The two areas that have
received the most attention from public are rate regulation and universal service
provision.
The CMA 1998 has provisions for market-based rate setting (i.e. cost-oriented and no cross-
subsidies) but ironically it also provides for the Minister to intervene on this matter. The latter
tends to dominate the former - thus tariff re-balancing requires Ministerial approval.

1. The objective of this Act is:

(a) to promote national policy objectives for the communications and multimedia industry;
(b) to establish a licensing and regulatory framework in support of national policy objectives
for the communications and multimedia industry;
(c) to establish the powers and functions for the Malaysian Communications and
Multimedia Commission; and
(d) to establish the powers and procedures for the administration of this Act.

(2) The national policy objectives for the communications and multimedia industry is:
(a) to establish Malaysia as a major global centre and hub for communications and
multimedia information and content services;
(b) to promote a civil society where information-based services will provide the basis of
continuing enhancements to quality of work and life;
(c) to grow and nurture local information resources and cultural representation that
facilitate the national identity and global diversity;
(d) to regulate for the long-term benefit of the end user;
(e) to promote a high level of consumer confidence in service delivery from the industry;
(f) to ensure an equitable provision of affordable services over ubiquitous national
infrastructure;
(g) to create a robust applications environment for end users;
(h) to facilitate the efficient allocation of resources such as skilled labour, capital, knowledge
and national assets;
(i) to promote the development of capabilities and skills within Malaysia’s convergence
industries; and
(j) to ensure information security and network reliability and integrity.

(3) Nothing in this Act shall be construed as permitting the censorship of the
Internet.

FUTURE POLICY AGENDA

Market forces were brought to bear on the sector with liberalization and privatization
policies in the 1980s. A decade later, in 1998, the Communications and Multimedia Act
1998 (CMA 1998) marked a new phase in telecommunications reform in Malaysia – that
of consolidating and strengthening the regulatory structure and institutions in the sector.
For the first time, the implications of convergence for regulation were considered.
Today, a plethora of common regulatory issues continue to be addressed - competition,
access, universal services, among others. But numerous policy issues remain unresolved
in the communications and multimedia sector in Malaysia.
In May 2001, British Telecom announced that it would be divesting its stake in Maxis.
A fundamental principle underlying the CMA 1998 is transparency. Public
participation through public inquiries and industry forums is a good start. However, it is
still unclear whether a more extensive notion of transparency is desirable and possible
since key regulatory policies and decisions are ultimately made by the Minister of
Energy, Communications and Multimedia.
The CMA 1998 provides for market-based rate-setting but this has not been fully
implemented. The rates for cellular services are no longer regulated (as of August 2000)
but local fixed line services continue to be regulated by the government to ensure
affordability. This continues to be an obstacle to tariff rebalancing i.e. removing cross
subsidies between long-distance and international services and local fixed line services.
Perhaps, other market-based approaches ought to be considered, for example, allowing
local rates to be market-based with operators offering special rates for economically
disadvantaged groups. Ultimately, the choice of a rate-setting system is crucial as this
has implications for productivity improvements (e.g. via incentive regulation) and
investment incentive in the industry.
Competition policies and laws are virtually non-existent in Malaysia. The
incorporation of competition issues in the CMA 1998 is an attempt to remedy this. The
lack of tradition and experience in this area means that it will be difficult for the regulator
(CMC) to take on (as it has) the responsibility for addressing anti-competition conduct in
the sector. The government has to consider the option of implementing a national
competition law to deal with anti-competitive conduct rather than have each of the
regulatory commission in different sectors (telecommunications, power, ports) deal with it.
Questions: -
1.According to the article “Move to Share Popular TV Content” what is the
consequence of a monopoly in the broadcast industry?

Ans: - Monopoly to end, move to share popular TV content by “PETALING JAYA”. A policy
directive to ensure certain types of popular content, such as some live sports, is not bought
on an exclusive basis by any television station in the country is expected to be issued soon,
according to industry sources.
This may pave the way for joint bidding for live sports content by all the players or, if only
one player bids for it, the concept of sharing popular content with all the players will be
possible.
The policy directive will be issued by Information, Communications and Culture Minister
Datuk Seri Dr Rais Yatim and this directive may change the way the industry bids for content
in the pay-tv industry.
“The whole idea of the policy directive is to address the concerns and comments made by
the industry players, who claim that only one broadcaster gets all the exclusive content and
that allows them to keep their market dominance and the exclusivity blocks the prospects
for new entrants,” a source said.
It added that there was an “exhaustive list of popular content'' from football to select
badminton games that fell under the policy directive. The directive is being done with the
cooperation of industry players, including the incumbent, but it is not known how the
content owners will react to this.
Last November Rais had said that the country could do away with monopoly in the pay-tv
broadcasting sector. He then said that amendments had been made to the Communications
and Multimedia Act to allow for competition.
This can also potentially mean that cut-throat bidding wars for exclusive distribution of
premium television content such as live sports and Hollywood movies may be a thing of the
past.
With the next season of Barclay's Premier League (BPL) bidding coming up, it will be
interesting to see how the players are going to bid for the content which, for a long time,
has been the domain of the country's biggest pay-TV operator, Astro
BPL is one of the most popular sporting events with one of the widest viewership in the
world.
The local pay-TV scene has also seen the entry of many new players.
Besides Astro, the country now has IPTV players such as Telecom Malaysia BHD
And RED tone International Bhd Maxis BHD will also enter the market in the middle of the
year and Asian Broadcasting Network (ABN) is the new digital cable operator that hopes to
launch its services also by mid-year.
“The minister has been listening to the industry grouses and the directive should set the
tone for a more equitable sharing concept,'' said the source.
Though there may be more players offering pay-TV services now, the challenge is still
whether all the operators want to work together to buy exclusive content and share the
cost. But, there again, will the content providers want to offer one country price for all the
stations or will it only work exclusively with one or two broadcasters?
“But the directive is nothing new as many regulators all over the world have done it,'' added
the source.
What the Government is doing is similar to what Singapore did two years ago when the
republic's Media Development Authority made it mandatory for the two pay-TV operators
to carry each other's content.
The regulation came about after much public outcry over the bidding rights to the English
Premier League in 2010, which Singapore Telecommunications secured for its IPTV service,
Mio TV. However, the incumbent pay-TV operator, Star Hub, had long held the rights to
broadcast the popular football league but now both must cross-carry each other's content.

2.The new policy attracts more new players into the industry. What type of market
structure would this industry operate in after the policy implementation?

Ans: - The new policy implemented was Communications and Multimedia Act 1998. This
policy will avoid monopoly and allow all Malaysians to watch sporting events with mass
appeal involving the country’s interests such as the Olympics, badminton and football. Yes,
there was a change in economic regulation. Market structure changed overall. The present
situation under which the market is acting is monopolistic competition.

Here I will be dealing with ASTRO company in Malaysia to make my topic clearer.

Monopolistic Competition Market Structure with Astro

Company
All-Asian Satellite Television and Radio Operator, which is also well known as Astro, is
a Malaysian media and entertainment broadcast company. It was founded by Tan Sri
Ananda Krishnan and he started it service in Malaysia and Brunei in 1996 when there
is the launch of MEASAT. According to Astro (n.d), the Astro provides satellite
broadcast service with 22 television channel and 5 radio stations only when they first
started their broadcast service. Astro is a wholly owned subsidiary of Astro All Asia
Networks plc and it is operated by MEASAT Broadcast Network Systems Sdn. Bhd.
Astro was very successful in expanding their business to all over the Asia in the past
few years. They had introduced 3 types of services to run their business which is
Astro B. yond, Astro IPTV, and Astro NJOI. Astro B. yond had launched the first high-
definition (HD) television service in the year 2009 December. It had video recording
service which obtainable through PVR and a hard disk which connects to the decoder
to save the video. Apart from that, Astro IPTV is also one of the services that
provided by Astro to run their business. Astro IPTV launched in April 2011. It has
some advanced function from the B. yond which consists of HD channels, PVR, video-
on-demand, high-speed internet.
Astro IPTV which is also known as Internet Protocol Television is a monopolistic
competition market structure.
Monopolistic competition industry has few characteristics which are many
buyers and sellers, low barrier of entry and exit, product differentiation and
price maker.

First, product differentiation is marketing strategy used by the firm to make their
product unique from other competitors. Product is differentiated based on product
quality, services, location, and pricing strategies
In addition, monopolistic competition market has a low barrier to entry and
exit the market. Low barrier indicates that firms only need to have capital and
they can enter the market to start up business. Under this type of market, the firm
can earn a supernormal profit in short run but only normal profit in the long run.
However, when firms face economic loss, they can leave the market easily. In
short run, Astro earns a supernormal profit because it will enter a new market
and target new consumers. However, in the long run, it will only earn a normal
profit.
Next, large number of buyers and sellers also one of the characteristics of
monopolistic competition. Buyers are people who purchase product or services also
call as consumer or customer, while sellers are the firms that produce a product or
provide services that call as producer or manufacturer. In IPTV industry, several
competitors are Hypp TV, Netflix, iflix, Amazon Prime Video, Crunchyroll, Indieflix,
Viu, Google Play Movie TV, Happy IPTV, Family IPTV.
Moreover, one of the characteristics of monopolistic competition is a price
maker. Price maker means that firm can decide the prices of its goods because
there is no close substitute in the market. Monopolistic competition market has
more monopoly power on its price than perfect competition market but lower
than monopoly market.

Furthermore, non-price competition occurs as common circumstances in

monopolistic competition market. The non-price competition involves
advertising and focuses on a promotion that highlights their feature of
products.

A monopolistic competition company shows like a monopolist in the short run

at profit maximizing level. Astro act as a monopolistic competition company, its
product is different enough from its competitors due to the product differentiation,
so that small price increase over those competitors do not eliminate all customers. At
the same time, its marginal revenue is not equal to price, and it makes the output
decisions based on the price respond. Astro company decided the output or price
combination that maximizes profit. For maximize profit purpose, Astro company will
increase production until the marginal revenue equals marginal cost:
In the short run, Astro company may face experience three situations:
Supernormal profit
Normal profit
Subnormal profit or losses

Supernormal profit
Astro company produces the level of output (Qm) at profit maximizing level which is
marginal revenue equals marginal cost and changes the prices at Pm. Since Astro
company changes the price of product (Pm) higher than its average cost (AC) of
production, so the company can earn a short-run economic profit or know as
supernormal profit.
Normal profit

Astro company produces the level of output (Qm) at profit maximizing level which is
marginal revenue equals marginal cost and changes the prices at Pm. Since Astro
company changes the price of product (Pm) equal to its average cost (AC) of
production, so the company only can earn a normal profit.

Subnormal profit
Astro company produces the level of output (Qm) at profit maximizing level which is
marginal revenue equals marginal cost and changes the prices at Pm. Since Astro
company changes the price of product (Pm) less than its average cost (AC) of
production, so the company incur losses or know as subnormal profit.
In a realistic world, there is not guaranteed for company always earned an economic
profit in the market. When the company faced losses or subnormal profit, it must
decide whether to produce at a loss or to choose to shut down. There are three
situations for the company to make the decision.
Price of product more than Average variable cost (P > AVC)
Astro company might face losses if its average total cost more than its demand curve
(ATC > Demand), due to there is no quantity allows the company escape from losses.
If the company can change the price of product (Pm) more than the average variable
cost (AVC), then the company can continue the production. This is due to its total
revenue (P x Q) can cover the total variable cost (TVC) and a small portion of total
fixed cost (TFC). Since the company can use its total revenue cover most of the cost,
so it may continue its operation with little losses.
Price of product equal Average variable cost (P = AVC)

Astro company might face losses if its average total cost more than its demand curve
(ATC > Demand), due to there is no quantity allows the company escape from losses.
If the company can change the price of product (Pm) equals the average variable
cost (AVC), then the company can continue the production. This is due to its total
revenue (P x Q) can cover the total variable cost (TVC). Even though the company
cannot use its total revenue cover its total fixed cost (TFC), but as long as the total
revenue can cover all the total variable cost. The company can still have a chance for
getting back to the normal profit position so that it can keep its production.
Price of product less than Average variable cost (P < AVC)

Astro company might face losses if its average total cost more than its demand curve
(ATC > Demand), due to there is no quantity allows the company escape from losses.
If the company can change the price of product (Pm) lower than the average variable
cost (AVC), then the company need to shut down its production. This is due to its
total revenue (P x Q) cannot cover the total variable cost (TVC) and the total fixed
cost (TFC). Since the company cannot use its total revenue cover all the cost, so it
needs to shut down its operation to avoid from incurring more losses. Although
some of the monopolistic competition firms will face this extreme situation, Astro
company had not faced this situation since it still having the operation until
nowadays.

In the long run, Astro company will achieve zero economic profit due to the low
barriers to entry or exit in the monopolistic competition market. There are two
situations lead the Astro company achieved zero economic profit in the long run.
The short-run economic profit attracted new entrants in the long run.
Astro company can earn a supernormal profit in the short run due to greater market
share. Since the IPTV market is low barriers to entry, so the others company such as
Hypp TV, iflix, Netflix and others will act as the competitor of Astro company to enter
the IPTV market thus share the short run profit. When more and more competitors
enter in IPTV market, lead the industry supply increase which lowers the market price
at which P = AR. This situation continues until there are no more profits to be gained
in the market which Astro company achieved zero economic profit in the long run.
With losses some competitors will leave the market or industry.
Since there are not guaranteed for earned the economics profit so that some
company may face losses. These loss-making company will leave the IPTV industry
such as eTV and ABNxcess. When some of the competitors leave the industry, it will
decrease the industry supply which increases the market price. This situation
continues until there are no more profits to be gained in the market which Astro
company earned zero economic profit in the long run.

Monopolistic Competition Market Structure and Economic Efficiency

In the long run, the company who conduct its business under perfect
competition market or monopolistic competition market will achieve zero
economic profit condition. However, Astro company act as a monopolistic
competition firm will incur allocative inefficiency compared with a company
under perfect competition market structure. The reason behind that is the firm in
pure competition or also known as perfect competition, always changes the price of
product equal its marginal cost of production which at the point P = MC to achieved
allocative efficiency, while the firm in monopolistic competition market such as Astro
company changes the price of product greater than its marginal cost of production
which at P > MC.
Moreover, the perfect competition company produces its product at minimum
average total cost (ATC) to achieved productive efficiency, while monopolistic
competition company such as Astro company are not producing at minimum
average total cost (ATC) and excess capacity exits thus lead to inefficiency. As a
result, consumer and producer surplus are maximized in perfect competition market
structure, but there is society loses welfare occur in monopolistic competition market
structure due to not enough of company’s output is produced and consumed.
In summary, Astro company which under monopolistic competition market have two
key differences compared to the company has an efficient scale which is produced at
minimum ATC (efficient scale) in perfect competition market structure. There is Astro
company has excess capacity (different between Efficient scale and Quantity produce
by monopolistic competition company) due to the quantity its produces is less than
quantity at which ATC is minimum. In addition, Astro company’ mark-up amount by
which price of product more than its marginal cost of production (P > MC) compare
to the company under perfect competition changes the price of product same as the
marginal cost (P = MC).

(ii) Relate the selected market structure and the company to the
implementation of Goods & Services Tax (GST).
The Goods and Services Tax (GST) in Malaysia are defined as recommended code
listings to grant good allocation of different goods, and supply payment and these
codes are based on a normal enterprise that is commonly encountered by GST
registered companies in Malaysia. GST is a kind of value added tax and replaced the
Sales and Service Tax (SST) to reduce government spending in Malaysia (Mansor,
2013). GST is levied on most transactions in the production process but is refunded
with the exception of blocked input tax to all parties in the chain of production other
than the final consumer. The existing standard rate for GST effective from 1 April
2015 to is 6%.
Astro IPTV is in a monopolistic market structure, the downward slope of a
monopolistically competitive demand curve signifies that Astro IPTV has market
power in the industry. Market power allows Astro to increase their prices without
losing all of their customers.
Before tax, Astro IPTV set its price at RM139.10 with the quantity of Q at equilibrium
point E. When the government implemented the GST, this decrease the supply of
Astro IPTV, supply curve S shift left to S+Tax the cost of production is increases, and
the producers will reduce the quantity of supply.
After that price of IPTV paid by buyers is increased to RM148 per subscription. The
new equilibrium point is E1 is achieved on Q1 and RM148. The total amount of tax
on per subscription of IPTV is RM8.90 (RM 139.10 x 6%) which is paid by the
subscriber and the rest of tax RM139.10 to X is the price Astro IPTV receive after tax.

Conclusion: -
In short, we can conclude that Astro Internet Protocol television (IPTV) market
structure is in monopolistic competition market structure. To make sure we are going
to a right direction we have examined and determine the characteristics of Astro IPTV
market structure and the industry determine price and output decisions. We also
analyse some economic issue, and implementation of goods & services tax (GST)
bring the impact to IPTV market structure and Astro company.
First, we have analysed the Astro IPTV market structure one by one by using the
characteristics such as many buyers and sellers, low barrier of entry and exit, product
differentiation, price maker and non-price competition. Then, all of the characteristics
show us the same result that Astro IPTV is in monopolistic competition market
structure. For example, in non-price competition Astro have involves in new product
development such as add on a new channel which cooperates with eGG network for
eSport channel and Fetch TV to broadcast badminton competition.
Then, for the price and output determination in short run Astro may experience
supernormal, normal and subnormal profit. However, if Astro is having subnormal
profit, it will choose to continue to run a business or close the business based the
relation between average cost and the price of product. In the end for the long run,
Astro will have a normal profit which is price of product equal to average total cost (P
= ATC). This issue happened because of two reasons: in short-run firm earned
supernormal profit attracted new entrants which are new competitors and some
competitors incur losses choose to leave the industry.
Lastly, the current economic issue that affected the Astro IPTV is illegal activities such
as illegal broadcasting from private stations and households tend to download
movies from internet website illegally. All these reasons will hardly affect the profit of
Astro no matter in satellite TV or IPTV. While implementation of Goods & Services
Tax (GST). While bringing the effect to the Astro market supply and demand curve.
When there is GST people will choose to spend less and decrease the demand for
Astro services. This situation will increase the tax burden by supplier and customer.
Hence, it will the increase in deadweight loss.

By: Harsh Jaiswal, Nischay singh, Sonam Shering Lama, Deekshith