The University of Hull TELEKOM MALAYSIA: PRIVATISATION AND STRATEGIC MANAGEMENT being a Thesis submitted for the Degree of Doctor of Philosophy in The University of Hull by Zainal Abdul Samad (MBA, University of Dubuque) July 1996 I Abstract This thesis is concerned with an evaluation of decisions and practices of the government of Malaysia and top management of Telekom Malaysia (TM) in the preparation for and after privatisation of the entity. The thesis shows that in reality the Malaysian government has pursued policies contrary to its stated privatisation goals by denying independent decision making in TM and hence the evolution of strategic management practices in the privatised entity. Instead of an independent decision-making body, the top management of TM are little more than acquiescent political and civil service appointees, who are obliged to accept passively directives from the government which clearly will affect the ability to achieve the stated corporate goals of Telecommunications Vision 2005 - to put in place a first class network and organisation which is capable of providing services on a par with those existing in the advanced countries by the year 2005. On the basis of this study, the researcher has arrived at several propositions. The most important contribution of the thesis is that it presents to both the government and top management of TM, recommendations to adopt an appropriate strategic management and long-term approach to achieve the stated goals based on long-term growth, efficiency and higher bumiputra equity, that supports the realisation of TM's ambitious goal of Telecommunications Vision 2005. II Acknowledgements In the Name of Allah, Most Merciful, Most Gracious. I offer my sincere thanks to both my supervisors, John Walton, a senior lecturer at the Centre for the Southeast Asian Studies and B.E.Partridge, a senior lecturer at the International Management Centre, of the University of Hull, for their academic guidance, friendship and encouragement throughout the period of the study. I would like to extend my gratitude to both the Centre for Southeast Asian Studies and the International Management Centre, of the University of Hull for their friendly co-operation. My thanks also to the Public Services Department of Malaysia for granting me a Scholarship to pursue my studies, with special thanks to Haji Kasmuddin Basrah of the Malaysian Students Department London for his kind support during the critical period of the completion of this study. These acknowledgements would not be complete without expressing my thanks to senior officials of the various Ministries and Departments of the Federal Government of Malaysia and, most important, Telekom Malaysia, for their support throughout the field work. I am also grateful to my colleagues in the Ministry of Finance, who introduced me to senior staff of Telekom Malaysia. I must also thank Mrs. Kathryn Spry for editing the final draft of this thesis; her assistance was much appreciated. My thanks also to Mr George Dixon, who did the typing and formatting. III My greatest debt of gratitude is due to my wife and children, who made the sacrifice of being without the full attention of husband and father, especially during my absence for several months in Kuala Lumpur. I owe a special debt to Mohd Yasin Mohd Salleh, the Special Secretary to the Deputy Prime Minister of Malaysia for his kind support and encouragement throughout the period of this study. Finally, sincere thanks are extended to my brother-in-law Haron Mohammed for his prayers and encouragement. I hope that this study will be of use, and lead to further improvements within the Government of Malaysia and Telekom Malaysia. IV Table of Contents PAGE ABSTRACT I ACKNOWLEDGEMENTS II TABLE OF CONTENTS IV LIST OF ABBREVIATIONS IX CHAPTER ONE: INTRODUCTION 1.1 Statement of the Problem 1 1.2 Approach for Solving the Problem 4 1.3 Objectives of the Study 6 1.4 The Research Questions 8 1.5 Methods of Study 10 1.6 Research and Interview Strategy 11 1.7 The Research Fieldwork 1 3 1.7.1. Phase 1 (September-November, 1991) 13 1.7.2. Phase 2 (July-November, 1992) 15 1.8 Interviews and Other Sources of Information 1 5 1.9 Scope and Limitations of the Study 1 7 1.10 Organisation of the Thesis 1 7 1.11 Conclusion 20 CHAPTER TWO PRIVATISATION IN MALAYSIA 2.1 Introduction 21 2.2 Literature Review on Privatisation 21 2.3 Defining Privatisation 22 2.4 The Rationale of Privatisation 25 2.5 The Multiplicity of Privatisation Objectives 28 2.6 Privatisation in the Industrialised Economies 30 2.7 Privatisation in Asia-Pacific/LDCs 32 2.8 Privatisation in Malaysia: Its Origin, Strategic Dimension and Implications 35 2.8.1. The Rationale for Privatisation 35 2.8.2. The Strategic Shift to Privatisation 39 2.8.3. Government's Decision-Making Process 49 2.9 Claims of Privatisation Success 54 2.10 Conclusion 60 CHAPTER THREE LITERATURE REVIEW OF STRATEGIC MANAGEMENT 3.1 Evolution of the Subject 64 3.2 Business Policy 67 3.3 Long Range Planning 70 3.3.1. Definitions 72 3.3.2. Criticism of Long Range Planning 73 3.4 The Strategy-Structure or Organisation School 75 3.5 Incrementalism 77 3.6 Environment School 80 3.7 Developments in the 1980's 82 3.7.1. Competition School 82 3.7.2. Core Competence School 88 3.8. Strategic Management in the Public Sector 90 3.9 The Evolution of Planning Systems in Large Companies 93 3.10. The Stakeholder School 97 V PAGE CHAPTER FOUR THE HISTORICAL PERSPECTIVE OF JTM: THE "CORPORATISATION" OF JTM AND THE PREPARATION FOR THE FLOTATION AND PRIVATISATION OF THE ORGANISATION 4.1 Introduction 104 4.2 Organisational Changes of JTM Prior to Privatisation 104 4.3 Decision to Privatise JTM 118 4.3.1. AMMB Report, August 1984 121 4.4 Establishment of Syarikat Telekom Malaysia (STM) 124 4.5 ADL Consultant Report 1988 127 4.6 Government Relationship With STM 134 4.7 Executive Share Option Scheme 136 4.8 Conclusion 137 CHAPTER FIVE THE POST PRIVATISATION OF TM 5.1 Introduction 139 5.2 Flotation and Privatisation of STM 139 5.3 TM's Corporate Mission 140 5.4 TM's Financial Performance 141 5.4.1. Growth of Operating Revenue 144 5.4.2. Share Prices 145 5.4.3. TM's Network Services Expansion 145 5.5 TM's Market Position 148 5.6 TM's Structure and Decision-Making Process 151 5.7 Resignation of Executive Director 160 5.8 Capital/Financial Policy 163 5.8.1. TM's Sustainable Growth Rate 164 5.8.2. Actual Funds for Expansion and Modernisation of Network in the Sixth Plan Period (1991-95) 167 5.9 Government Intervention and Attitude Towards TM 172 5.10 Executive Shares Option Scheme (ESOS) 183 5.11 A Survey of Strategic Priorities 185 5.12 Conclusion 190 CHAPTER SIX MARRYING STRATEGIC MANAGEMENT THEORY AND PRACTICE 6.1 Introduction 192 6.2 Privatisation Framework 192 6.3 Strategic Management Framework for Privatised TM 195 6.4 Preparation for the Privatisation of TM 197 6.5 Post Privatisation of TM 201 6.6 TM's Approach and Performance Towards Telecommunications Vision 2005 210 6.7 Government Priorities in Telecommunications Sector 214 6.8 Strategic Priorities 215 6.9 Conclusion 217 6.10 Recommendations 221 6.10.1. Recommendations for Government 221 6.10.2 Recommendations for Top Management of TM 224 6.11 Future Research 226 VI PAGE POSTSCRIPT 228 APPENDIX 1 List of Organisations and Corporations Whose Officials Were Interviewed During the Study. 235 APPENDIX 2 Major Players in the Malaysian Telecommunications Sector 236 APPENDIX 3 Analysis of Board of Directors of Telekom Malaysia 238 APPENDIX 4 Telekom Malaysia, The Management Committee Members 240 APPENDIX 5 TM Key Officials Private Sector Recruitment 243 APPENDIX 6 Senior Executives From Former TM Engineers 244 APPENDIX 7a TM Sustainable Growth Rate for the Financial Year 1987 245 APPENDIX 7b TM Sustainable Growth Rate for the Financial Year 1988 246 APPENDIX 7c TM Sustainable Growth Rate for the Financial Year 1989 247 APPENDIX 7d TM Sustainable Growth Rate for the Financial Year 1990 248 APPENDIX 7e TM Sustainable Growth Rate for the Financial Year 1991 249 APPENDIX 7f TM Sustainable Growth Rate for the Financial Year 1992 250 APPENDIX 7g TM Sustainable Growth Rate for the Financial Year 1993 251 APPENDIX 7h TM Sustainable Growth Rate for the Financial Year 1994 252 APPENDIX 8 Selection of contractors for Digital Switching Equipment of MYR 2 Billion (1992/93) 253 APPENDIX 9 Telekom Malaysia - The Perceived Order of Priorities of Privatisation Goals (Senior Officials A) 254 APPENDIX 10 Telekom Malaysia - The Perceived Order of Priorities of Privatisation Goals (Senior Officials B) 255 APPENDIX 11 Telecommunications Environment Overall Perceived Order of Priorities of Major Interest Groups of the Privatisation Goals 256 BIBLIOGRAPHY 257 VII List of Tables Table Page 4 .1 Malaysian Telecommunications Department Loans from the Federal Treasury: 1972-88 (MYR million) 108 4.2 Original and Revised Allocations for the Telecommunications Sector under the Various Five Year Malaysia Plans (MYR million) 108 4.3 Total Subscribers and Waiting List of JTM (1970-1981) 109 4.4 Installation of Effective Cable Pairs (ECPs) by Contractors 115 5.1 Telekom Malaysia Financial Performance (1987-1994) 142 5.2 Telekom Malaysia Growth of Operating Revenue (1987-1994) 143 5.3 Telekom Malaysia: Network Services Expansion (1987-1994) 146 5.4 The Actual and Forecasted Market Share of TM, Celcom and Mobikom in Mobile Services (1990-1995) 150 5.5 Actual and Estimated Capital Expenditure (1991-1995) 165 List of Figures Figure Page 2.1 Decision-Making Process of Privatisation in Malaysia 50 4.1 The Organisation Structure of STM Until October 1988 126 4.2 Organisation Structure 1989 129 4.3 Proposed Overall Structure for 1989 131 5.1 TM's Organisation Structure 1994 152 5.2 Telekom Malaysia: Policy Decision-Making Process 153 5.3 Privatisation Environment of Telekom Malaysia 174 IX List of Abbreviations AMMB Arab Malaysian Merchant Bank ADL Arthur D.