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The Star Online: Business

Cellular firms told to deliver promised speeds


PETALING JAYA: Communications and Multimedia Minister Datuk Seri Ahmad Shabery Cheek said cellular companies have to deliver on the Internet/broadband speeds promised to consumers and that periodic audit checks would be undertaken by the regulator to safeguard consumers.

"We are still not happy with the (broadband) speeds they provide. It should be higher. We should no longer be talking about two to four megabits per second (Mbps), but 50Mbps," he told StarBizWeek yesterday.

If operators had been given the spectrum to provide connectivity, then they would have to deliver on it, and the regulator, the Malaysian Communications and Multimedia Commission (MCMC), must ensure that and continue with periodical audit checks, he said.

"The speeds must be appropriate (when they are given the spectrum to provide the service)," Ahmad Shabery stressed.

He was responding to questions from StarBizWeek about the audit checks done by MCMC about two months ago, where it found that most of the 3G players had been using lower frequency bands to provide 3G services.

MCMC has issued four blocks of the 2,100 megahertz (MHz) blocks to four players, but most of the players are still using the 900MHz and 1,800MHz bands to provide the 3G services.

StarBiz broke the story on MCMC's scrutiny of the 3G players on Thursday, quoting MCMC chairman Datuk Mohamed Sharil Mohamed Tarmizi as saying that checks were ongoing. "We did an audit over three months ago and this has come to light. They have been putting up 3G coverage but not capacity and speed, and hence, the 3G services are slow.

"We issued the warning two weeks ago and have given them till the end of December to come back to us or action would be taken against them," he said.

However, Ahmad Shabery, while saying that the operators had been investing a lot and that both coverage and penetration levels were all right, he added that "we would have to persuade them to deliver what they had promised the consumers and the Government.

"We have a long way to go in terms of quality of service and speed levels. We have set the criteria for the quality of service and speed, and it must be followed."

In anticipation of a shock


Is S&P right to downgrade banks' outlook in the face of potential weakness?

A FEW weeks ago, a friend of mine was having a discussion with a property agent. He wanted to flip his condominimum after taking vacant possession but was told by the agent he will find it difficult to sell his property at the price he wants. She told him it's a buyers market out there.

He then confided in me that he was paying RM10,000 to service his loan on the property. If he were to sell his unit at the price he wants, the buyer will probably have to pay a higher monthly instalment. Just how many Malaysians can afford to pay for such a property?

That issue of affordability was in part related to the crux of Standard & Poor's (S&P) downgrade in the outlook of four Malaysian financial institutions.

It's not that the banks are on the cusp of losing money or will find that their financial strength are going to be hurt. It's the fact that high household debt and the high price of property will mean that people will find it hard to pay the asking price of properties these days. The situtation now, in short, represents the peak of a cycle.

S&P sees that household debt, which accounts for 55% of banking system loans, and mortgages, which account for 27% of total loans in the banking system, cannot go much higher in the current circumstances. Bank Negara is already taking steps to reduce household debt when it crossed 80% to GDP.

S&P sees that property prices, which have risen 10% per annum since 2010, have gone up annually more than the rise in household income. Prior to 2010, it found that property prices used to go up between 2% and 4% a year, somewhat tracking the rate of inflation.

In justifying its call, S&P's Ivan Tan says the credit cycle is at its cylical best. Unemployment is low, interest rates are near historical lows and the base lending rate banks are charging customers are about 2.5 percentage points below the base lending rate.

Competition between banks has led to interest rates financial institutions are charging home buyers to be affordable. But just how much longer can that go on is uncertain, but should there be a future shock, then things are bound to change.

As it is, Malaysians are dealing with cost increases and that will affect the disposable income they will have. If interest rates were to go up or an economic shock were to hit Malaysia that will result in a loss of jobs, then the chances of non-performing loans will also increase.

Right now, non-performing loans are not a problem. In fact the banking industry has seen bad loans as a percentage of their loan book drop and the level now for the industry has never been lower.

The caution by S&P though has to be put into a different perspective. It is looking at the implications of a potential shock. Expectations are that the economy will grow and as long as household debt grows faster than nominal GDP, then the situation can get excerbated and risks get heightened.

If economic growth continues, then the chances of a shock diminishes. But that's not to say it cannot happen. Inflation in October was 2.8% higher and it is surprising it's already at that level. In fact, that rate of inflation is higher than Thailand and Singapore, and not that far away from the Philippines.

Should inflation rise further, then will interest rates be used to bring that under control? Should interest rates rise, then there will be implications on household incomes. The permutations of possibilities are quite varied. There lies the essence of the risks banks are facing.

Business editor (features) JAGDEV SINGH SIDHU wonders just how much elbow room there is should the economy experience a shock.

Electrifying rates ahead


CONSUMERS will have to brace themselves for the inevitable hike in electricity tariffs, as the Government endeavours to bridge the gap between the "true cost" of power and the current subsidised tariffs.

According to Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili, plans are in place to raise the average electricity tariffs by 10% to 20%, and that the hike would most likely take place next year.

He, nevertheless, stresses that the final decision on the timing and quantum of power tariff hike still lies with the Cabinet.

Ongkili, who met several reporters in the parliament over the week, says the tariff hike is necessary to ensure sustainability of the country's power sector and the long-term competitiveness of the country's economy.

The average tariff rate in Malaysia is 33.5 sen per kWh, which is about 8.5 sen, or 25.3%, below the "true cost" of power estimated at 42 sen per kWh.

Based on the prevailing rate, the proposed adjustment in electricity tariffs will likely involve an increase of up to 7 sen per kWh.

To put things into perspective, a home appliance that is rated at 1,000W, if left switched on for one hour, would consume one kWh of electricity.

Cushion for low-income group

Undeniably, higher electricity tariffs sounds very unpalatable to consumers, especially in current times, when many already have to grapple with the rising cost of living.

But Ongkili assures that the Government will go to lengths to ensure that the electricity bills of the low-income group will not be adversely impacted by the impending adjustment.

"When we talk about increasing electricity tariffs, what is important for us as the government is to consider the impact on consumers, especially the low-income group," Ongkili says.

He reveals that the Government will implement a "stabilisation" programme when the electricity tariff hike takes place to protect the poor and low-income group. Details of the "stabilisation" programme, however, have yet to be finalised at this stage, says Ongkili.

An industry source reveals that there is a plan to raise the lifeline band from the current 200kWh to 300kWh.

This means domestic consumers with monthly consumption of up to 300kWh will continue to enjoy substantially lower tariff rates. This move is expected to benefit at least 75% of domestic consumers in the country.

AmResearch's utility analyst Alex Goh argues in his note: "In our view, the tariff adjustments may exclude the low-income population, while the middle-income group may be less affected than heavy users of electricity such as industrial and commercial segments."

Goh based his argument on recent comments made by Datuk Abdul Razak Abdul Majid, the CEO of MyPower Corp, a special purpose agency established in 2011 to spearhead reform in Malaysia's power sector.

Local media last week quoted Razak as saying that MyPower had proposed to the Cabinet to raise electricity tariffs for heavy industrial users such as steelmakers and glove manufacturers by 25%. Razak pointed out that under the proposal, commercial users such as retailers and enterprises would face lower tariff increases, while households whose monthly consumption of electricity falls within the lifeline band would not experience any tariff changes.

Industrial and commercial groups collectively consumed about 75% of the electricity generated in Malaysia.

Currently, the average tariff for industrial users stands at 32.2 sen per kWh, while that for commercial users stands at 42 sen per kWh and residential at 29.7 sen per kWh.

"The industrial tariff, which was originally set at a lower rate to promote the country's industrialisation, is already currently 24% below the commercial segment. Hence, if subsidies were to be gradually removed, industrial users could face the major brunt of any fuel cost increase," Goh explains.

It is estimated that among Tenaga Nasional Bhd's (TNB) industrial and commercial customers, less than 10% are heavy users, with electricity accounting for more than 5% of their total operating costs.

The bulk of TNB's industrial and commercial customers, or 90% of them, are light to moderate users, with electricity accounting for less than 5% of their total operating costs. And for this group of users, every 10% increase in electricity tariffs is expected to result in only 0.5% increase in their total production costs.

Inevitable hike

Ongkili explains that the move to increase electricity tariffs in the country is in line with the Government's subsidy rationalisation plan.

The Government had reiterated during Budget 2014 last month that it would stick to a plan to gradually reduce subsidies to improve the country's fiscal position. The plan was to reduce total subsidies to RM39.4bil next year from the almost RM47bil allocated for various subsidies, incentives and assistance in 2013.

Subsidies for the power sector alone are estimated to cost the Government RM8bil to RM12bil per year, depending on the prevailing prices of the input fuel, specifically gas.

Gas currently accounts for about 50% of the fuel used for electricity generation in Peninsular Malaysia, while coal provides 40%, hydropower about 8% and renewable sources about 2%. Gas is supplied by Petroliam Nasional Bhd to the power sector at subsidised prices, while coal is obtained at market rates.

The electricity tariff in Malaysia was last revised in June 2011 after the Government raised subsidised gas price to the power sector to RM13.70 from RM10.70 per million metric British thermal unit (mmbtu).

Gas is currently quoted at around RM50 per mmbtu in the international market.

"There is no sin in subsidy, but the question is whether it reaches the right (and deserving) group," Ongkili says.

According to Ongkili, by scaling back subsidies to the power sector, the savings gained can be channelled to social programmes that benefit the poor and low-income group directly, such as the 1Malaysia People's Aid or BR1M.


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