What Is Monopoly Market Structure
Introduction: What is Monopoly Market Structure
The Monopoly is a market structure characterized by a single seller, selling the unique product with the restriction for a new firm to enter the market. Simply, monopoly is a form of market where there is a single seller selling a commodity for which there are no close substitutes. Essentially a monopolistic competitive market is one with freedom of entry and exit, but firms can differentiate their products. Therefore, they have an inelastic demand curve and so they can set prices. However, because there is freedom of entry, supernormal profits will encourage more firms to enter the market leading to normal profits in the long term. As with the model of perfect competition, the model for a monopolistic competition is difficult or impossible to replicate in the real economy. True monopolies are typically the product of regulations against the competition. It is common, for instance, for cities or towns to grant local monopolies to utility and telecommunications companies. In a monopoly market, factors like government license, ownership of resources, copyright and patent and high starting cost make an entity a single seller of goods. All these factors restrict the entry of other sellers in the market. Monopolies also possess some information that is not known to other sellers. Characteristics associated with a monopoly market make the single seller the market controller as well as the price maker. He enjoys the power of setting the price for his goods.
Background of Telekom Malaysia
As we all knew that, monopoly is a situation where there is one seller which the firm is the industry and many buyers in the market whereas monopolistic is a type of market structure where many firms produce close but not perfect substitute product. Telekom Malaysia is an example of company that practices monopoly structure. Telekom Malaysia Berhad (TM), Malaysia’s Convergence Champion and No. 1 Converged Communications Services Provider, offers a comprehensive range of communication services and solutions in broadband, data and fixed line. As a market leader, TM is driven by stakeholder value creation in a highly competitive environment. The Group places emphasis on delivering an enhanced customer experience via continuous customer service quality improvements and innovations, whilst focusing on increased operational efficiency and productivity.
Telekom Malaysia Berhad (TM) was first established as the Telecommunications Department of Malaya in 1946. Since its humble beginnings, the Group has grown into an institution on its journey of elevating the nation’s telecommunication infrastructure, technology and services.
Leveraging on our extensive global connectivity, network infrastructure and collective expertise, TM is well positioned to propel Malaysia as a regional Internet hub and digital gateway for South-East Asia.
As a model corporate citizen committed to good governance and transparency, TM continues its pledge to ensure the integrity of our processes, people and reputation as well as the sustainability of our operations. Our Corporate Responsibility (CR) ethos reinforces responsible behaviour in the four main domains of the marketplace, workplace, the community and the environment. With a focus on ICT, the Group further promotes 3 major platforms i. e. education, community/nation-building and environment, through our Reaching Out programmes.
The TM Global segment involves the wholesale business, which covers the wholesale telecommunications services delivered over the group's networks to domestic and international carriers. The Group places emphasis on delivering an enhanced customer experience via continuous customer service quality improvements and innovations, whilst focusing on increased operational efficiency and productivity.
How Telekom Malaysia Fits the Monopolistic Market Characteristics.
Telekom Malaysia has large number of buyers and seller which do not have competition between the companies as it is only seller in the market. Telekom Malaysia is the largest telecommunication company in Malaysia. It has a monopoly on the fixed line network. Besides that, there are many buyers in the market. Since Telekom Malaysia was build, many citizens in Malaysia started to use their services. It also has a considerable market share of the mobile communications market after acquisition of Celcom and TM Touch. Not only have that, Telekom Malaysia right now also offered narrowband and broadband connectivity which is now the DSL broadband provider in the industry. On the international front, TM has investments and operations in 13 countries around Asia and globally. TM has re-strategized its international investment to focus on emerging markets in selected parts of Asia. Complementing our investment forays abroad, the international arm of TM’s wholesale business, Global Market Sales (GMS) provides a wide array of voice, international bandwidth and data services capacity across six continents, namely Asia, Europe, the Americas, Oceania, Middle East and Africa. In the ASEAN region, GMS has business tie-ups and arrangements with Telco operators in Singapore, Philippines, Brunei, Thailand, Today, TM is the largest integrated telecommunications solutions provider in Malaysia and one of Asia’s leading communications companies providing an array of communication services across the length and breadth of the country. From fixed to wireless telephony, mobile to Internet and broadband technologies, satellite to marine Myanmar, Cambodia and Vietnam.
An increase in access and usage of cellular phones over the years has made cellular phones one of the necessities in our daily lives. Because of its benefits people and people tend to have more than two numbers though they have no access to fixed line. Therefore, the elasticity of demand plays an important role in determining the use of mobile and fixed-line phone in Malaysia. It also enhances the growth of the telecommunications sector as well as controls the oligopoly power that exists in the telecommunications market to avoid the existence of future collusive behaviour. There are two types of demands that need to be known and distinguished in telecommunication demands, which is the demand for access and demand for usage to network. Demand for access to network only involves one party, while demand for usage involves two parties. Besides, the probability for telecommunications firms in Malaysia to form collusive behaviour is very low. This is because the value of elasticity is too high, and therefore the telecommunications firms will not participate in any collusive behaviour as it is more profitable. A small price changes can cause a higher increase in quantity and revenue for firms without relying on other firms. Telekom Malaysia will accelerate new business offerings in the global and wholesale market, by revamping product portfolios and solutions into an attractive wholesale model. As part of sustaining profitability, Telekom Malaysia will be more vigilant towards improving direct costs, business collaborations and domestic roaming; in tandem with improving the efficiency of our network and IT systems. Beyond costs to serve, within the organisation itself, we are optimising all cost items including rental, utilities and consolidation of marketing expenditures. Enhancing cost-consciousness among TM has contributed to significant cost reduction over the years, and it shall continue to streamline our cost to sustain our profitability. Telekom Malaysia is considered to be elastic if the quantity demand of the product changes drastically when its price increases or decreases.
Telekom Malaysia sell product have a high entry and exit barrier and have no close substitution. There are significant barriers to entry set up by the monopolist. If new firms enter the industry, the monopolist will not have complete control of a firm on the supply. These barriers imply that under a monopoly there is no difference between a firm and an industry. Competition in the Industry Malaysian regulatory regime related to telecommunication industry has been regarded as pro-competition and technological neutral. The National Telecommunication Policy’s main approach is to encourage a healthy and orderly competition in order to achieve efficiency and to provide excellent and quality services. Whilst creating competition will benefit the consumer either in the form of cheaper product, advance technology or improved quality of services, it may erode the TM Group’s profitability margin and market shares. The strong competition in the cellular and data business sectors may erode TM’s market share that eventually lead to falls in revenue generation and profitability. This was to protect the strategic national security interests of the country in telecommunications and information. There was no clear regulatory regime and there were restrictions on the entry of foreign companies and government policy was targeted to protect the monopoly status of the state-controlled network provider, that is, Telekom Malaysia. The decline in the fixed line customers due to the emerging technology and the preference of customer towards mobile has affected TM where it forced the Group to develop innovative product bundling to optimise the network assets utilisation. However, TM Group cannot predict with certainty that the product bundling will suit the needs of customers that eventually will affect the sales turnover. This may lead to some of the existing network assets to be used uneconomically and our investment in these assets may not be recovered on time. Furthermore, Service Quality, Delivery & Restoration As the technical infrastructure is vulnerable against the occurrence of natural disaster or other unanticipated operational problems, any damage to or failure of networks and delay in the restoration processes may result into service interruption. The high frequency in service disruption does not only increase reputation risk but also increase the level of customer dissatisfaction. This may cause the customer to migrate to competitors, hence may adversely impact the revenue and profitability of the Group.
Telekom Malaysia is a monopoly market in our country because there are no close competitors in the market for that product. Telekom Malaysia Bhd (TM) is set to face potential competition over the medium term as there are packages which are relatively more attractive when compared with the group’s existing unify prices, analysts observed. network telecommunication become more differentiated by increasing the value-added of services. The consumer utilities by subscribing the network also depend on the interconnection between other networks. Tenaga National Bhd (TNB) recently revealed that the pilot project for NFCP, developed by the government with TNB, was successfully completed earlier than planned, thus opening up high speed internet access or High-Speed Broadband. Meanwhile, plans launched by Astro Malaysia Holdings Bhd (Astro), Celcom Axiata Bhd (Celcom), Digi. com Bhd (Digi) and Maxis Bhd (Maxis) are either slightly cheaper versus existing unify plans, fill a market gap (for example 50Mbps) or bundles in content. However, the research arm did not see an immediate impact on TM, as physical network rollout will take time and TNB’s existing fibre reach is still limited at circa 13,000 kilometres (km) versus TM’s more than 500,000 km.
The monopolist decides the price of the product, since it has the market power. This makes the monopolist a price maker. Telekom Malaysia rely on income and earnings generated by our operations to uphold and responsibly grow our organisation. This allows us to balance stakeholder value with sustainable growth. While generating income to produce dividends for shareholders, salaries for employees as well as general investments in communities, we use the financial capital to innovate and develop new opportunities in digitalisation Internet, Broadband, Mobile Network Data, Cloud, WIFI services and Content Development. Telekom Malaysia is constantly engaging with their numerous stakeholders through various platforms, which include surveys, call centres, online channels and face-to-face discussions. We also interact with local communities through numerous initiatives that help empower marginalised and underdeveloped groups. Besides, the probability for telecommunications firms in Malaysia to form collusive behaviour is very low. This is because the value of elasticity is too high, and therefore the telecommunications firms will not participate in any collusive behaviour as it is more profitable. A small price changes can cause a higher increase in quantity and revenue for firms without relying on other firms. the structure of telecommunications market in Malaysia is an oligopoly, hence an increase in total revenue for this type of market is not totally dependent on price changes. A more important factor for the oligopoly firm is non-price competition such as advertising campaigns to attract a greater number of subscriptions. Thus, the elasticity is very high is because the price is not too important and doesn’t play a dominant role in the oligopoly market
While a monopolist can maintain supernormal profits in the long run, it doesn’t necessarily make profits. A monopolist can be a loss making or revenue maximizing too. This is not possible under perfect competition. If abnormal profits are available in the long run, other firms will enter the competition with the result abnormal profits will be eliminated. They are enhancing the adoption of best practices for capital spending and efficiencies; re-prioritise network spending; and improve on theirs’s back end processes. Sweating of existing assets will focus on optimising utilisation of existing network infrastructure, whilst making selected investments and access-seeking for network expansion. Telekom Malaysia will expand its cost rationalisation initiatives; by lowering operational and network cost, optimising supply chain for improved performance, reducing international connectivity cost via content localisation and leveraging on digital for lower costs to acquire or serve. They will also be actively negotiating with partners and vendors to improve overall cost efficiencies as we move towards collaborative models with partners.
Market analysis is a research aimed at predicting or anticipating the direction of stock, bond, or commodity markets, based on technical data about the movement of market prices or on fundamental data such as corporate earnings prospects or supply and demand. The industry of the monopoly is the telecommunication industry and there are only a few companies that offer telecommunication service in Malaysia. In order to maintain their position in the market, they would have to consider the possible reaction of rivals to its own pricing, output and advertising decisions. The telecommunication companies are partially “A few large producers” because the market model of the telecommunication industry covers up so many areas between pure oligopoly and monopolistic competition. Market analysis is a tool companies use in order to better understand the environment in which they operate. It is one of the main steps in the development of a marketing plan. Responsible marketing means ensuring our internal and external communication are always legal, decent, fair, honest, truthful and sensitive to the views of different groups in society. These specify administrative procedures including levels of approval for all advertising activities, monitoring and tracking requirements and standards for integrated A&P Product Campaigns.
How Telekom Malaysia achieves market equilibrium in the short run based on its market structure.
Equilibrium in a market occurs when the price balances the plans of buyers and sellers. Equilibrium point is attained when the demand curve intersects the supply curve. At the intersection point of demand and supply, equilibrium price and quantity are determined. Equilibrium price is the price at which quantity demanded equals quantity supplied.
The fundamental goal of a business firm is the maximization of profit, irrespective of the time period under consideration. Profit becomes maximum only when a firm reaches equilibrium. TM supports the Government’s agenda of nurturing a thriving ICT and multimedia hub in Malaysia. Other than local connectivity, this necessitates global capacity which TM can provide via a continuously expanding network of submarine cable systems. TM’s commitment to serving the people reflects a deep-rooted sense of corporate responsibility (CR) that underlines all the Company’s actions.
TM’s CR initiatives cover the four dimensions of the marketplace, workplace, community and the environment. As a former state-owned enterprise, TM continues to bridge the digital divide. TM’s ultimate objective is to empower people by facilitating communication, simplifying both mundane and crucial activities, enabling information to flow seamlessly, and creating value by widening our reach for greater access of customers throughout the nation. They consistently adopt the latest technological advances which they transform into lifestyle and business enhancing products and services for the benefit of the end user. TM employs a customer-centric business structure that allows us to create greater synergies to better serve the individual markets. In 2010, TM introduced a new business segment as New Media that adding this to our existing principal customer segments of Consumer, Small Medium Enterprise, Enterprise, Government, Wholesale and Global. This new segment focuses on the fast-growing ICT and multimedia market that we are spearheading. TM have an enduring relationship with the Government and have supported its development agenda over the years. Today, as they launch Malaysia’s first retail HSBB service, brand named Unifi, we are proud to be able to partner the Government once again, this time in achieving its Economic Transformation Programme. Our commitment to the nation is reflected in our Corporate Responsibility (CR) values, which enhance our efforts to connect, communicate and collaborate with the people.
We use a widely accepted materiality analysis to identify economic, social and environmental challenges and opportunities that are important to our external audiences and prioritise these in our business strategies. In our Sustainability Reports, we highlight actions taken to address these challenges and the results obtained. In this manner, we ensure our Sustainability Reports disclose the most relevant and significant information to our stakeholders while promoting a better internal understanding of corporate citizenship issues.
How Telekom Malaysia achieves market equilibrium in the long run based on its market structure.
In line with efforts to boost the development of human capital related to the High-Speed Broadband (high HSBB) project, TM launched a three-year Vendor Development Programme to ensure our external local contractors have the capacity and capability required to undertake HSBB-related work. They have trained over 6,500 contractors’ personnel on fibre technology, equipping them with the necessary knowledge and skills to provide end-to end installation services to our customers. Their intensive training programmes include interpersonal aspects of customer service.
TM conduct a group-wide annual performance assessment. Employees meet regularly with their direct supervisors to set short and long-term goals and KPIs. Career opportunities and mobility are discussed and competency gaps in behavioural and technical aspects are considered. The supervisors discuss each employee’s achievements and specify areas that require further improvement. The evaluated performance achievement is moderated to reflect an individual’s true performance achievement and the division’s achievement. The moderated performance achievement determines an employee’s reward plan and may include elements such as a yearly increment and bonus pay-out. In 2010, each division received an allocated bonus based on its performance in 2009.
TM conduct employee feedback periodically by measuring and managing the level of employee engagement within all business sectors. Meanwhile, TM recognise that appropriate initiatives can be introduced to improve engagement levels and enhance the employees’ value proposition. Several in-house applications including 1Ekspresi, 1Suara and 1Pulse provide ways to communicate the policies and programmes to employees. The Group CEO makes regular state visits and presents the Group’s financial results each quarter through briefings streamed live to all state offices. TM also assess the effectiveness of our employee engagement tools through an internal communication audit held annually.
TM ensure that the rights of our employees are protected and respected. We are a signatory to the United Nations (UN) Global Compact and adhere to all 10 of its principles including that on human rights, fair labour and child labour, collective bargaining and non-discrimination. Our Code of Business Ethics, which also contains human rights policies, is distributed to all employees including our security personnel.
In the long run market structure, TM procure our goods and services in an open and transparent manner, ensuring the best quality, price, quantity, delivery, supplier and technology to provide the best returns to the Company. Every individual involved in the procurement process is required to uphold the principles of trust, honesty, fairness and transparency. Procurement documents are filed and kept properly by the person responsible. Our personnel are trained in the procurement process so that they, in turn, ensure all suppliers understand and accept TM’s requirements before they are contracted. At the same time, suppliers and vendors are provided ethics training and awareness activities so they understand our business conduct requirements.
Conclusion
Telekom is the largest telecommunication company in Malaysia. It has a monopoly on the fixed line network and has a considerable market share of the mobile communications market after its acquisition of Celcom and merging with its mobile operation arm, TMTouch. TM has an internet service provider subsidiary (TM Net) offering narrowband and broadband connectivity. Broadband connectivity is through DSL under TM Net's Streamyx brand. Due to its near monopoly of the last mile connections, TM Net is now the largest DSL broadband provider in the country. The role of the state changed from being the provider and regulator of telecommunications services to be the policy maker. The function of regulation was delegated to an autonomous body that was made more responsive to society and the providers of the mobile service. To reduce transactions costs the government privatized the public monopoly that is the Department of Telecommunications to enable the privatized monopoly to raise funds in the capital market to finance investments in new technology in the telecommunications sector, for example, the laying of optic fibre cables. The interconnectedness and mutual interdependence of the stakeholders to reduce costs and achieve outputs also indicated that a new form of network governance had evolved where it was considered that without the active participation and cooperation of all stakeholders the system might not work efficiently and might not be sustainable. The new form of governance emphasized partnership and network transactions with global firms and the local public and private sectors and civil society groups and the public at large. The state and firms cooperated to develop the mobile market.
References and Citations
Telecommunications Report Malaysia, 2007 http://www. bharatbook. com/detail. asp?id=19048
Essays, UK. (November 2018). Background Of Company: Telekom. Retrieved from https://www. ukessays. com/essays/economics/background-of-company-telekom-economics-essay. php?vref=1
http://www. businesslist. my/company/75506/telekom-malaysia#sthash. 2qrMfQFD. dpuf
https://www. thesundaily. my/business/tm-s-first-quarter-earnings-nearly-double-thanks-to-lower-operating-costs-DK927720
http://www. infernalramblings. com/articles/Malaysian_Economy/537/
