In HPAIR’s 2018 Asia conference I had the privilege of participating in a workshop with the World Bank in Malaysia to come up with a tentative policy proposal for providing internet access for rural Malaysia. The key issues are spotty and inconsistent internet coverage across Malaysia as well as slow adoption of digital tools by SME’s in rural areas.
Malaysia’s digital adoption rate has been very slow; between 2014 and 2016, its Digital Adoption Index only increased by 3 percentage points from 65% to 68%. According to the World Bank, nearly a quarter of all Malaysians live in non-urban areas, but only a third of them use the internet on a regular basis.
Anecdotal evidence from experiencing everyday life in Malaysia and hearing testimonies given by local university students further corroborate the situation that there is a digital divide between urban and rural areas. While cashless payment systems are prevalent and fiber optic cables are being laid in urban areas, rural areas have yet to see these improvements.
Goals
The objectives for our scheme is to improve internet coverage to promote economic inclusion for rural Malaysia. Telekom Malaysia Unifi is the largest telecommunications service provider in the country and has been rolling out 800 MBPs internet since 2018 so interim goals for 2020 are as follows:
- Minimum broadband speed of 800 mbps in all areas,
- Minimum broadband speed of 1 gbps in urban core areas, and
- Increase the national rate of internet usage from 67.2% to 95%.
Final goals for 2025 are:
- 2G minimum coverage for all areas within 30km of paved roads,
- 3G minimum coverage for all villages with over 50 people,
- 4G minimum coverage for all towns with over 300 people,
- LTE in all urban core areas of cities over 500,000 people, and
- Increase rural internet users from 32.8% to 51%, with the goal of increasing that to 80% in 2030.
Since most support networks for utilities need to have regular maintenance and require large utility trucks to set up and maintain, the benchmark for bare minimum coverage is congruous with road coverage. Unpaved roads typically branch out from paved roads for rural connections so setup within a one-hour drive from the nearest paved road has been determined to be practicable.
Three-pronged Approach
There are main three elements in the scheme in working towards achieving these goals. The first element is to introduce the obligatory service requirement, familiar in many EU states especially in public transportation. When the government issues a permit for a telecommunications firm to operate in lucrative high-income urban cores, then the company is obligated to also provide equal access of a same quality in a designated rural area. This proposed policy is intended to redistribute a portion of the high costs of upgrading sparse rural networks by letting wealthy urban cores shoulder it.
The second element is a setup incentive provided by the local state government. The state government in question will provide land concessions and streamline the permit application process for telecommunication companies setting up infrastructure or upgrading the infrastructure in eligible areas. 25 years of rent-free land will be provided on the condition that it is only used for the purpose of setting up telecommunication infrastructure, subject to third-party monitoring supervised by the Ministry of Communications and Multimedia and renewable if the ministry’s conditions are met.
The third and most lucrative financial incentive is the urban-rural coverage tax discount where tax incentives will be applied to telecommunication companies who provide rural internet coverage at a level satisfactory to the Ministry. The discount will be applied on a pro-rata basis proportional to the rate of rural coverage as follows:
- The current corporate tax rate is 24%
- The percentage of Malaysians living in rural areas is 24%
- Rural Coverage Rate = Rural coverage / All coverage provided by the company
- 0% Rural coverage = 0% Discount
- 4.8% Rural coverage = 1% Discount (23% payable)
- 24% Rural coverage (full coverage) = 5% Discount (19% payable)
- Tax discount applied to the income of the entire company, not limited to telecommunications division
Pilot Program
A pilot program can be used to prove that the three-pronged method is effective and allow for continuous assessment to improve the plan for nationwide implementation. In the states of Kenlantan and Sabah collectively have 5 million people. Rent-free land and the processes for obtaining permissions will be simplified as these states have a surplus of government land.
Data indicates that 45% of all SMEs in Malaysia are located in rural states. The states are chosen for their low income rates and low internet penetration rates where the impact of providing high-speed internet will likely be the greatest to encourage other states to adopt the plan and push for federal approval.
Predicted Outcomes
On the state level, higher income urban cores will subsidize the infrastructure costs of rural areas while the tax discounts free up capital for rural investment. In the long-term, digital access stimulates the economy, resulting in increased consumption and production that adds to state coffers through tax income. E-learning and e-commerce provides additional education and economic inclusion for rural populations.
On the federal level, the government does not need to raise additional public funds or take on public debt to find the program, though there may be a short-term decrease in tax revenue, which will eventually be compensated with increased economic activity. Through obligatory service requirements, the same level of service will be available for the same price nationwide, paving the way for more equitable access to the internet and digital services all across the country.
