BY SIMULTANEOUSLY increasing the prices of prepaid cards on April 1 to pass on the 6% Goods and Services Tax (GST) to consumers, the telcos in this country have raised questions about potentially anti-competitive behaviour.

In comparison, the tobacco companies do not simultaneously raise prices in line with the new tax hikes. Usually, British American Tobacco (M) Bhd takes the lead and raises its prices first since it has the largest market share. The other players usually, but not always, follow suit.

On top of that, GST is not a tax increase for the telcos. The new regime simply replaced the 6% sales and service tax (SST) that the telcos had always been paying.

In fact, had the telcos acted competitively from the start, there might have been no reason for intervention from the Minister of Communication and Multimedia Datuk Seri Ahmad Shabery Cheek, or for prepaid card pricing to be politicised at all.

It is important to note that the rates and pricing in the telecommunications industry are not regulated — it is entirely up to the telcos to raise or lower their prices as per Section 197 of the Communications and Multimedia Act 1998. This includes the decision to pass on any consumption tax to consumers — SST or GST.

“The telcos have every right to pass on the tax by raising prices. They could have done it anytime. Why do it on April 1 to confuse consumers? Furthermore, why do it all at the same time?” asks an industry veteran.

In a nutshell, there is nothing wrong with the decision of the telcos to raise prices. But to do it at the same time and by the same quantum could be construed as collusion, a big no-no under the Competition Act 2010.

However, the telecoms industry is exempt from the Competition Act. Instead, competition among the telcos is managed by the Malaysian Communication and Multimedia Commission (MCMC) through the Communications and Multimedia Act 1998 (CMA).

Section 135 of the CMA states, “A licensee shall not enter into any understanding, agreement or arrangement, whether legally enforceable or not, which provides for — rate fixing.”

When contacted, MCMC declined to comment, following instructions from Prime Minister Datuk Seri Najib Razak last week that only Minister Ahmad Shabery could release statements with regard to the prepaid phone reloads.

Ahmad Shabery had on May 4 decided that mobile prepaid cards should revert to the old, pre-GST prices as soon as possible.

“The rakyat want to purchase RM10 worth of prepaid credit, and they want to get airtime worth RM10. That’s what the people want. That’s why I have made the decision that if this is what the rakyat wants, then that is my decision,” he had said during an interview with national broadcasting station RTM1.

It is not known if MCMC, which falls under the purview of Ahmad Shabery’s ministry, is conducting or planning to conduct an investigation into the matter, but proving anti-competitive behaviour is notoriously difficult.

Among other things, MCMC would have to show that the telcos had somehow communicated or signalled intent to increase prices to each other and reached some sort of agreement.

The Big Three — Maxis Bhd, Celcom Axiata Bhd and DiGi.com Bhd — did not comment when asked if they had prior knowledge of the other telcos planning to increase their prices on April 1, citing the prime minister’s gag order.

“We are supportive of the minister’s directive and we are working with the minister’s department to ensure we know what are the next steps,” DiGi CEO Albern Murty told the press after its annual general meeting last Thursday.

Passing on the tax to consumers isn’t so straightforward and this isn’t the first time telcos have attempted it. The difference is that the last time some attempted to pass on the 6% SST to consumers by increasing prices, not all the telcos did it.

Those that did found that consumers were not willing to accept higher prices and often switched to another service provider. The plan was quickly scrapped and all telcos reverted to absorbing the SST. This was many years ago.

In a nutshell, prepaid users were highly averse to price increases and telcos found it challenging to raise them.

The alternative would have been to gradually increase the rates, which are often difficult to compare between different prepaid plans.

So, why did the telcos choose to increase prices in unison on April 1?

They are not commenting on the matter, but analysts agree that if the telcos are allowed to increase the selling price of prepaid cards to pass on GST to consumers, it would boost their earnings.

The total annual revenue of the telcos from prepaid cards is estimated at RM13 billion or more. That works out to almost RM800 million in tax revenue for the government, notes Ahmad Shabery.

On the flip side, if the 6% is passed to the consumer (making an RM10 reload RM10.60), it would be a huge boost to the industry.

Arguably, some comsumers might purchase less reloads, but most might end up spending more. This is because the reload cards have an expiry period and many consumers are forced to reload on a regular basis.

In essence, the telcos have increased their minimum selling price and it will directly boost their revenue and bottomlines.

The alternative of keeping the RM10 reload price, with GST included but 6% less airtime, would not be as lucrative for the telcos.

Even if allegations of price-fixing remain unproved, news of an investigation could hurt customer trust and brand image.

Competition issues aside, the telcos yielding to government intervention and populist policymaking to dictate their pricing are setting an uncomfortable precedent for the industry.

For foreign investors, the introduction of political risk to the telcos’ pricing could be an additional risk factor that they will have to consider going forward.

This article first appeared in The Edge Malaysia Weekly, on May 11 - 17, 2015.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.