The Currency Crisis and Asia's Online Services Boom
[Includes info on NTT and ALA plans]
telecoms-mag.com
Charles Dodgson
May 1998
South-East Asia's recent financial turmoil has forced several countries in the
region to reassess their ambitions to become multimedia hubs. Much of the
initial drive to build superfast multimedia networks was spurred by the
economic success of Asian economics. But as the economic rationale has
crumbled, so the new buildouts are coming into question.
International financial news for most of the past nine months has been
dominated by the Asian currency-cum-banking crisis. Many commentators
have projected gloom and doom from the follow-on effect of what started out
as a property crash in Thailand and escalated into a full-blown regional crisis
with every South-East Asian stock market losing over 50 per cent of its value,
and regional currencies plummeting in value against the US dollar. But what
has been the effect of this crisis on the region's plans to become a multimedia
hub?
With the apparent collapse of the 'Asian miracle', most Asian countries have
re-assessed their political leadership. Leaving aside Singapore's prime minister
Goh and Philippine President Ramos, who is required to retire in May,
Malaysia's Prime Minister, Mahathir Mohamad, and Indonesia's President
Soeharto are the only two leaders remaining in power in Asia that occupied
their position on 2 July 1997, when the value of the Thai baht collapsed and
confidence in the regional economies began to wane.
Against such a background of unprecedented political instability in economies
whose growth had been underpinned by strong leadership, there is concern
that the fixed-line rollout targets and plans for national information
infrastructure (NII) projects will be abandoned, or at least scaled back.
Although there are signs that this is occurring in Indonesia, Thailand and the
Philippines, elsewhere the 'crisis' has had remarkably little effect in this area.
There are three reasons for this.
Firstly, the 'Asian crisis' was an inevitable correction to markets which were
growing too quickly. Stock analysts and market researchers have stated that
as greater amounts of capital were generated, unrealistic amounts of money
were channelled into the property market in Asian capital cities. Accordingly,
the current correction will lead to a more realistic property market with the
development of more sophisticated lending principles from financial
institutions. This will have a positive follow-on effect for telecoms and
information technology (IT&T) companies which have struggled to attract
venture capital in Asia.
Secondly, virtually every Asian economy has identified IT&T as a priority
development sector. Indonesia's outgoing communications minister, Joop Ave,
claimed to be expressing a common view among Asian communications
ministers when he told Telecommunications International in December, as the
rupiah was going into freefall, that, "There is a thorough understanding that it is
the information society that will lead to development and to meet this objective
the network rollout programmes must continue. It is impossible to stop
investment in telecoms and multimedia because it is the sector that will help us
get out of our current problems".
The third reason is a reflection of Ave's comments. Gartner Group telecoms
analyst, Helene Frontin, said that a trend has emerged in which companies
involved in installing networks are suffering from a credit squeeze. However,
local service provision companies with cashed-up foreign-based partners and
smaller companies which have entered the market by providing services other
than simple telephony, are thriving. These include Internet service providers
who, because of their continued growth in stagnant markets, are quickly
becoming a significant driving force behind the installation of higher bandwidth
infrastructure.
Foreign Confidence Remains
Furthermore, foreign companies involved in providing equipment to companies
which offer peripheral services on the existing telecom networks are reporting
record sales and growth projections. Hewlett-Packard (HP) said that there
has been over 100 per cent increases in printer and scanner sales in every
Asian market over the last 12 months, including Indonesia, Thailand and South
Korea, the countries worst hit by the economic downturn. According to HP's
director of marketing, Christopher Morgan, the increased sales are a direct
result of the increase in online services. Morgan is quoted by analysts as
saying that HP doubled its sales last year and expects to do so again in 1998.
Morgan's projections came as US-based network equipment vendors, Cisco,
3Com and Bay Networks all announced that they intend to expand operations
in the Asia-Pacific region over the next 12 months, despite the region's
economic turndown.
Asia, excluding Japan, Australia and New Zealand, had some 2.43 million
Internet users at the end of 1997, according to the Gartner Group. There will
be 15 million Internet users in the region by 2001. Taiwan remains the region's
most connected country with 870,000 Internet users at the end of 1997. This
is expected to rise to 3.35 million by 2001. India and China have the fastest
growth projections. India had 40,000 Internet users at the end of 1996, and
by the end of 1997 this had risen to 200,000 and is expected to reach 1.8
million by 2001. China had 250,000 Internet users by the end of 1997 and
expects to have 2.7 million by 2001.
There are differential approaches among Asian economies to take advantage
of the growth in demand for high bandwidth and associated applications. The
developing economies of India, China, Thailand, Indonesia and the Philippines
have all announced that they will encourage plans to install broadband
networks. However, in every case, these rollouts will be secondary to the
need to first install basic fixed-line telephony.
The Philippine secretary to the Department of Transport and Communications,
Josefina Lichauco, said that the Philippines would love to have the money
Malaysia and Singapore have to install broadband networks, but with less
than 10 per cent teledensity, no developing government can justify the huge
funding requirements. An official from the Chinese Ministry of Posts and
Telecommunications, listening to the conversation, added that despite the
formation of Ji Tong to create a national information infrastructure, the Chinese
government shares the same view as the Philippines.
Lichauco said that the credit squeeze which has accompanied the economic
meltdown in Asia has stalled any plans the Philippines had entertained in
advancing a broadband project. Telecommunications International
understands that Indonesia's Nusantara 21, which was announced in
December 1997, and Thailand's unnamed project which was to be part of its
much-discussed telecoms masterplan, have both been stalled indefinitely
because of funding problems.
Marketing Malaysia's MSC
While every Asian country has identified IT&T has a priority sector for
industrial development, no government has marketed the concept as
aggressively as the Malaysian government under the prime ministership of Dr
Mahathir Mohamad.
When the baht collapsed on 2 July, Mahathir was on leave from the office
marketing his pet project, the Multimedia Super Corridor (MSC), a 15 by 50
km tax-free zone extending south of Kuala Lumpur and incorporating
Malaysia's new capital city, Putrajaya, a new international airport and
Cyberjaya, a so-called intelligent city.
Mahathir returned from his marketing trip in the US and Europe with
agreements from some 101 multinational companies to participate in building
the MSC. However, the commitments from these companies were vague with
the only clear announcements coming from the MSC's construction company,
Multimedia Development Corporation (MDC). The MDC said that MSC
status entitled foreign companies to tax holidays and preferential treatment for
bringing in foreign staff.
Shortly afterwards, Telekom Malaysia announced that Japan's NTT would
partner it to build a 2.5 Gbps fibre optic backbone with ATM switching
supplied by Alcatel. The backbone will have a 5 Gbps international gateway
with direct links to the US, Europe and Japan. The multiprotocol open
network will be based on a three-tier structure: the first is the backbone, the
second is customer access from 34 Mbps to 622 Mbps, and the third is
customer access from 64 kbps to 2 Mbps.
When the full impact of the consequences of the currency crisis began to be
felt, Mahathir voiced theories about western capital having an intention to
undermine the economic achievements of Asia. Observers agree that, while
Mahathir's comments contributed to the stock market crashes in Southeast
Asia, the comments should not detract from Mahathir's achievements. As if to
prove the point, during February and March the chairmen of IBM, Microsoft,
Sun Microsystems, Ericsson, Alcatel and NTT all made their way to Malaysia
to attend discussion groups as members of the MSC advisory board on how
best to progress the project.
Little information has emerged about the talks. However, Othman Yeop
Abdullah, the executive chairman of the MDC, said that the current economic
slowdown has not had a negative impact on the overall development of MSC.
Othman said that the MSC has attracted some MR$ 4 billion worth of
investment commitments despite the regional economic crisis and that a total
of 103 companies, out of 176 applications, had been given MSC status.
One commentator said that the idea behind the MSC was simply to attract
expertise to Malaysia. He said that Mahathir had hit upon an idea to 'fastrack'
Malaysia into the information age, and while the objectives of the MSC are
still necessarily vague, the idea is sound because Malaysia will benefit from the
proximity of high tech companies.
Meanwhile, Mahathir said after his meetings with the MSC advisory board,
that despite Malaysia's efforts to curb credit growth given the prevailing
economic problems, IT companies would find no difficulty in getting loans now
or in the future as channelling investment into IT in the MSC had been
identified as productive.
While Mahathir has won credit for his approach to get multinationals to base
their regional operations in Malaysia, he has been criticised for failing to
provide any guidance on content provision in his MSC. This problem was
highlighted in January by the MSC's agreement to link itself with a technology
park near Chennai, in southern India, in order to provide the MSC with
programming. Critics say that Malaysia lacks the creative input to provide
content for the MSC and that while the broadband project will go ahead, the
MSC will be highly vulnerable if alternative regional hubs are established in
India or Australia.
Singapore's Move to Creativity
The Singapore One project faces the same problem, as acknowledged by the
Singapore government's campaign to make Singapore a 'Creative Island'.
According to a press release from the Telecommunication Authority of
Singapore (TAS), the idea behind the campaign, which was launched during
1997 after the Singapore One launch, is to migrate Singapore away from
manufacturing high tech equipment towards using that equipment creatively.
The release is one of the few which say anything concrete about Singapore
One. Like the MSC, press releases about Singapore One are high in hype but
give little detail on the technology or the funding for the project. What is clear
is that NTT is partnering Singapore Telecom in the rollout, and that the project
aims to connect every Singaporean to a broadband network by the end of
1998.
Last month, Singapore completed its first secure electronic transaction via the
Internet -- a service critical to Singapore One -- in order to facilitate
transactions, credit card purchases and global electronic commerce.
Singapore One's pilot broadband network infrastructure includes the public
network, cable television access networks, access networks for government
services and other access networks that connect to a digital optical fibre
network and several broadband ATM switches supplied by Alcatel Singapore
Pte Ltd.
Charles Dodgson is editor of Telenews Asia, and is based in Sydney,
Australia.
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