4 - The Telecommunications Sector in Malaysia and the Philippines Before Reform

Summary

This chapter describes the condition of the telecommunications industry in Malaysia and the Philippines before market reform by examining the condition of the telecommunications sector and the roles played by the state and private actors. The patterns of political patronage, the types of rents, the way they were obtained, who acquired them, and how they were used will also be analysed. Finally, the question why the Malaysian telecommunications sector was more efficient than that of the Philippines will be addressed.

Immediately after independence, Malaysia was left with a fairly efficient communications infrastructure. Telecommunications were originally the responsibility of a state department that had monopoly control of service delivery. The private sector's role was limited to equipment supply. With the introduction of the New Economic Policy (NEP), the state's monopoly over the telecommunications sector was used to allocate patronage to Malays through the award of licenses for some services and equipment supply contracts. The NEP goal of rapid economic development led to massive state investment for the expansion of the communications sector in the 1980s. The modernisation of the communications infrastructure, however, was also used to create business opportunities for Malays. State patronage of these businessmen resulted in increased costs and inefficiencies in the infrastructure expansion programme. Yet, the economic impact was generally expansionary and growth-enhancing.

Under American occupation, foreign-owned companies under state regulation provided telecommunications services in the Philippines. In 1967, a group of Filipino businessmen close to then President Ferdinand Marcos took over ownership of the Philippine Long Distance Telephone Company (PLDT). PLDT had sole authority to operate a national communications network. During the 1970s, PLDT consolidated its monopoly status, and was under very little state pressure to expand its network and improve its services. A few other businessmen were granted exclusive privileges by the Marcos regime to operate various communications services, and small provincial telephone companies proliferated due to unmet demand. Yet, the state protected the monopoly profit of PLDT, whose services were inefficient. Monopoly rent was captured for private profit, and was growth-hindering.