Businesses impeded by high cost of broadband services

THE good news is that Malaysians are highly connected to the Internet. The bad news is that businesses are not and the penetration of high-speed broadband in the country is impeded by its high cost.

The World Bank, in a report entitled Malaysia Economic Monitor for June, says the adoption of digital technologies in Malaysia is high, higher than any country in the region except for Singapore and that of many high-income economies.

“The (World Bank’s) DAI (Digital Adoption Index) indicates that Malaysia does well in terms of the level of digital adoption by people and government. Malaysia’s citizens are among the most digitally connected in the world, with the country having made great progress in terms of closing gaps to access to basic Internet services in recent years,” it says.

It adds that most Malaysians are connected to the Internet through mobile networks, with Malaysia’s mobile broadband penetration rate being one of the highest in the region, ahead of many OECD countries.

“The level of adoption by Malaysia’s government is also high, comparable with many high-income economies. The government has invested heavily in digital technologies to modernise and digitise its systems, and processes, such as the implementation of the electronic tax filing and digital identification systems,” it says.

The glaring gap, however, is in digital adoption by businesses in Malaysia. Only 62% of businesses in Malaysia are connected to the Internet and 46% have access to fixed broadband services, with only 28% having some form of web presence as of 2015, according to the report.

The World Bank says that by comparison, in the European Union, 96% of businesses have Internet connection, 95% have access to broadband services, and 75% have a web presence.

“In addition, the DAI for businesses also shows that Malaysia has more limited international bandwidth and a smaller number of secure servers. In general, in terms of the level of digital adoption by businesses, Malaysia’s performance is roughly average for a lower middle-income country,” it says.

The report highlights that Malaysian businesses use digital services mainly only to establish a web presence, to conduct business communications, and to conduct banking transactions, with comparatively few engaging in e-commerce.

“The most common use of the Internet by businesses is to send and receive emails, to conduct Internet banking transactions, and to obtain information from other businesses and the government. Firms that engage in e-commerce are usually bigger firms with greater assets, more employees and higher revenues. The use of the Internet for more sophisticated, innovative functions such as big data and artificial intelligence remains relatively low,” it says.

The report points out that there are significant disparities between highly urbanised states and the rest of the country when it comes to the level of digital adoption by businesses. The developed states have higher levels of digital adoption, as the cost of connection is lower in urban areas and there have been initiatives to drive digital adoption in those areas.

“There is also a strong positive correlation between the level of adoption and the level of sectorial productivity, with manufacturing and mining, in particular, having higher levels of adoption. In states where the services sector has a relatively high level of productivity, businesses are also more likely to be connected.

“The size of a firm is also a significant determining factor, with the level of digital adoption by smaller firms remaining limited, as only about 20% of SMEs in Malaysia use the Internet for business operations,” it says.

The report says that the two major barriers to digital adoption cited by businesses are quality and affordability – slow Internet connection and lack of affordable broadband plans. It quotes a survey conducted by the Malaysia Digital Economy Corp and the Federation of Malaysian Manufacturers where more than 50% of manufacturing firms listed lack of access to the Internet and slow Internet speed as the most significant constraints to utilising digital technologies.

“In addition, the market lacks broadband plans that adequately meet the needs and budgets of businesses, particularly SMEs. Until recently, Malaysia’s fixed broadband services have been focused either on enterprise businesses, with these services being too expensive for the vast majority of small enterprises, or on mass-market services, with these services not offering the degree of reliability necessary for advanced business purposes.

“In the future, the adoption of digital services by the private sector may be constrained if businesses are not able to fully utilise digital technologies,” it says.

The report says that efforts to promote e-commerce may not achieve their full potential if firms are not able to use digital technologies that underpin digital operations.

“Thus, providing high-quality Internet services is crucial for businesses, as high-intensity use of productivity-boosting digital services tends to consume more bandwidth. Without access to high-speed broadband connections, the widespread use and development of more advanced applications such as data analytics, the Internet of Things and artificial intelligence is unlikely. The lack of high-quality and affordable broadband services may result in Malaysian firms foregoing opportunities for growth, productivity gains and innovation.”