The Real Solution To The Telco Prepaid 6% Tax Problem

I have been observing the media reports, from msm news items, blog postings, even radio interviews of prepaid mobile customers about this issue. The thing that concerns me about this issue is that the telcos seem to have succeeded in playing the innocent corporate citizens here...

For me, the 6% increase in prepaid rates is just a scheme for telcos to increase profits from existing customers. They are already paying the 6% tax off existing sales, but since the prepaid business in Malaysia is so cut-throat competitive, the margin of profitability has probably become too slim to be sustainable. Sure enough, it is understood that Digi is the telco that has been pushing this hard, and it should come as no surprise that prepaid is its largest revenue stream!

OK, if the price of prepaid is now so low that telcos do not find it sufficiently profitable to stay in the prepaid business, what should it do? The natural options to me would be to:

1. Raise the price. Ah, but this is not an easy solution to make. A price rise may result in better unit profitability, but the loss in market share, especially with removal of non-price barriers like the ability to swap the same number between services, may be too painfull.


2. Cut the cost. May be a little harder to do even than raising the price. With each additional new technology on offer, the cost of delivery to customers increase. And some costs that appear easy to cut have real medium to long term implications. e.g. cutting promotions budget means reduced market share or slowing of growth whilst cutting training, a firm favourite among Finance and HR managers, will lead to reduced staff competency...


3. Leave the business... ya lah, dah not profitable enough to be sustainable, tutup kedai la, what else!

However, the telcos as an industry have actually decided to go for option 1 above, only newly improved with some spinning! Also, to ensure a successful outcome of option without the penalty of loss of market share, they have chosen to do it collectively, together, like a cartel - something illegal in many developed countries and soon to be illegal in Malaysia come January 2012!

On the spin, instead of saying they are increasing the price to make more profits, they decided to 'pass on the 6% tax' to the customers. Pass on the 6% tax? What nonsense! Such a statement only makes sense if prepaid mobile charges are subsidised, but they are not! Telcos are already make a profit after paying the 6% tax. All this talk of telcos 'absorbing the taxes' so far is a load of nonsense! Customers are paying the taxes already via the current prices...

So all this talk of 'passing on' the 6% tax is just spin that sounds better than telcos saying, we will increase prices by 6%! In fact, it even helps avoid clever customers, or worse still, bloggers, from sitting down and calculating how much % profitability telcos will gain from increasing prepaid prices by 6%! 'Passing on' taxes my foot, it is the dishonesty to customers that really gets me about this spin!

Then, the telcos choose to perform the increase collectively, like a cartel! Such activities are 'anti-competitive' or rather, against consumer interests! The last time I looked, the telco industry is not heavily regulated for price, hence the myriad offers in the marketplace, which is good for consumer choice. Such collective behaviour in an industry, even among a few major players, would be criminal in more developed economies.

In fact, if the telcos chose to do this early next year, they would be subject to criminal action under Malaysia's own anti-competition laws, due to be debated and ratified by Parliament in December, with the enforcement under the purview of the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC). Interestingly, the MDTCC Minister, DS Ismail Sabri, has already shown himself to be not only competent, but determined to champion consumer choice!

Could the telcos be moving now due to the threat of the coming anti-competition law curtailing such actions by early next year? If so, this 'passing on of taxes' disguising a 6% price increase collectively moved by the industry in criminally insidious! In fact, perhaps some of the telcos with foreign ownerships, such as Digi or even Celcom Axiata should worry about anti-competition laws being brought against them in other countries! It can be done!

Locally, such behaviour by the industry should not be tolerated. Perhaps the MDTCC should consider tabling the new anti-competition act to be retrospective in application for at least 6 months! this should help curtail further corporate evils of this sort against the rakyat!