Internet Exchange


Economic News

22 Jul 2010
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On September 25, the Malaysian government announced that it would increase the efficiency of internet provision in the country by establishing an internet exchange and expanding broadband services to rural areas.

Lim Keng Yaik, the energy, water and communications minister said that the Malaysian Communications and Multimedia Commission (MCMC) was cooperating with internet service providers (ISPs), telecommunications companies and internet infrastructure companies in an effort to establish the Malaysian internet exchange before the end of 2006.

An internet exchange is primarily a point for networks to interconnect directly rather than through a third-party network. The move would provide a solution to present inefficiencies in the system. For example, voice over internet protocol (VoIP), an increasingly popular means of communication in Malaysia, routes calls from within the country to either Singapore or the US and then reroutes them back to Malaysia. Furthermore, according to Yaik, the present set up, where internet users surfing Malaysia-based websites are routed abroad, is inefficient and costly for consumers. The re-routing of calls and internet traffic has also led to an outflow in terms of foreign exchange. "The faster they implement the exchange the lesser the loss of millions of ringgit on a foreign (internet) exchange," he said.

Yaik also said that at present, Malaysian IT operators used Singapore as their gateway because it had more international cables and cheaper tariffs. Setting up an exchange would not only appeal to the domestic market, but would also create competition for Singapore, as neighbouring countries could potentially route to Malaysia instead.

With the establishment of an internet exchange, costs to the consumer would reduce while bandwidth speed would increase.

A Malaysian internet exchange was attempted three years ago, but plans were abandoned when the ISPs involved could not agree on terms.

The minister indicated that the new attempt would not tolerate bickering among companies involved, and that the ministry would rule on the matter if concerned parties could not cooperate, or failed to make the exchange a reality by year's end. "They need to be industry friendly. I hope they will undertake this voluntarily or I will have to take ministerial action," he said.

Once completed, the exchange would be industry neutral and independently run. It would likely operate on a non-profit basis. International ISPs would be encouraged to utilise the exchange.

The need for an internet exchange in Malaysia points to growing internet usage in the country, particularly users of broadband and VoIP applications. Broadband penetration figures for Malaysia remain quite modest, though increasing consistently. MCMC figures for 2006 indicate that 2.5% of Malaysians use broadband, and among those around 93% use ADSL.

Overall, internet penetration has experienced a four-fold increase since 2002. Although Malaysia is behind more developed countries in the West and northeast Asia, it compares quite favourably in broadband penetration to its southeast Asian counterparts. The government, under the 2004 National Broadband Plan, aims for a 10% penetration rate by 2010.

Malaysia's VoIP business is expected to generate RM1.5bn ($407m) in revenue by the end of 2010, almost double the figure seen this year.

There are indications that this target will become attainable, as the government devotes more attention to increasing the sophistication, competitiveness, and cost efficiency of the Malaysian broadband infrastructure.

It also intends to help broaden access to broadband networks. So far, these connections have been almost exclusively within urban centres. The government plans to launch them in rural areas as early as the first quarter of 2007.

The Universal Service Provision (USP) Fund, with the contribution of local telecommunications companies, was established to provide rural areas with basic telephone facilities, will also be used to fund the development of rural broadband infrastructure.

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