Analysis: Big Tech fires first salvo against Malaysia’s licensing regime, but faces tricky next steps

KUALA LUMPUR: An open letter by a coalition of leading technology and internet firms pushing back against the Malaysian government’s proposed licensing regime for social media platforms and messaging applications is just the start of a campaign to find an acceptable middle ground, analysts said.

The opening gambit by the Asia Internet Coalition (AIC), which claims to represent some of the largest tech firms like Meta and Google, was likely a “diplomatic protest” against the proposed regulation, the analysts said, adding that the companies sought to find strength in numbers by pooling under the AIC’s banner.

But a representation faux pas by AIC - which was forced to reissue multiple versions of its letter after one of its members distanced itself from the original one - has hurt the campaign’s credibility, analysts said.

The Malaysian government was also quick to jump on the misstep in its sharply-worded response to the letter.

Still, analysts expect the campaign to continue, with the tech firms hoping to exert more pressure and have more say in the proposed regulation, despite knowing that they will eventually have to comply amid an unwillingness to pull out of the Malaysian market entirely.

Civil society groups in Malaysia have also previously criticised the licensing regime as one that could stifle free speech and criticism of the government, but authorities have reiterated that it is necessary at a time of rising cybercrime and a perceived lack of effort by tech firms in tackling it.

“(The tech firms) will likely persist in their efforts to challenge or at least seek revisions to the licensing requirements, even as the Malaysian government stands firm,” Dr Shafizan Mohamed, a communications lecturer at the International Islamic University Malaysia, told CNA.

“However, given the significant financial repercussions of withdrawing from Malaysia, I don't think these firms would be very outright (in their demands).”

“NOT HAPPY”

The AIC - which was established in 2010 - released the latest version of its open letter on Monday (Aug 26), urging the government to reconsider the upcoming licensing regime, criticising the costs of compliance and what it said was insufficient time to prepare before the regulation kicks in from Jan 1, 2025.

Firms that fail to get the class licence could face penalties of up to five years’ jail and a maximum fine of RM500,000 (US$115,650). Operators could also be fined RM1,000 for each day they remain unlicensed.

AIC also warned in its letter that the proposed regulation will hinder ongoing investments and deter future ones, adding that the tech industry is ready to “work together” with the Malaysian government in tackling issues of cybercrime on their platforms.

Dr Shafizan said the letter, which was addressed to Prime Minister Anwar Ibrahim, showed that the tech firms were “not happy” with the government trying to regulate their activities and are trying to have their voices heard.

“I would say that this letter is somewhat like a diplomatic protest by the industry. They want to protest, but in a nice way, telling the government that they’re not trying to go against or dispute the regulation outright,” she said.

“But they want the government to give more thought about this and allow them to contribute more.”

Dr Shafizan said the AIC’s letter highlighted macro issues like the impact on investment and innovation with a hope that the government could be persuaded that the economic harms of regulation would outweigh its benefits.

“Throughout the letter, we can see that they were really focusing on economic impact, investments and things like that, which are obviously the main arguments that they can use,” she said.

Dr Shafizan believes there is “some weight” to the AIC’s argument on the timeline for implementation, noting that public consultations on the licensing regime were completed only in June before details were released in August, five months ahead of enforcement from the start of next year.

“I think the whole process of imposing this regulation was done rather hastily,” she added.

MCMC FIRES BACK

But Communications Minister Fahmi Fadzil on Aug 27 stressed that the licensing regime will not be delayed, with the Malaysian Communications and Multimedia Commission (MCMC) saying in its response letter that the five-month grace period was “reasonable and aligned with international best practices”.

“This timeline was established to balance the urgent need to address cyber threats with the practical requirements for compliance by the online service providers,” it said.

“Extending the grace period further would compromise the objective of enhancing user safety and mitigating the rapidly growing risks in the digital space.”

The MCMC dismissed suggestions of the negative impact on investment and innovation, saying that the licensing regime was “carefully designed” to balance regulatory requirements with the need for flexibility.

“By holding online service providers accountable, the framework will increase investor confidence, knowing that Malaysia prioritises a stable and legally compliant digital ecosystem,” it said.

The commission also brushed off the notion that the regulations were excessive, comparing it to similar laws like Singapore’s Protection from Online Falsehoods and Manipulation Act (POFMA), and saying that Malaysia’s version was “proportionate”.

The licensing regime targets only “irresponsible” platforms that meet the specific criteria of having at least eight million users in Malaysia, therefore minimising regulatory burden on smaller or less impactful services, it said.

“If the online service providers’ unilateral initiative to impose community guidelines can be welcomed as a reasonable safety measure, there is no reason why a regulatory framework grounded on safety, security, transparency and accountability features cannot be accepted and adhered to,” MCMC added.

REISSUED LETTERS “REFLECT POORLY” ON TECH FIRMS

Dr Benjamin Loh, a senior lecturer in media and communication at Taylor’s University, told CNA that the “main ask” in the AIC’s letter seems to be for platforms to self-regulate, something that he said has not quite worked out.

For instance, he pointed to the Cambridge Analytica scandal in 2018, when it was revealed that the British consulting firm collected personal data belonging to millions of Facebook users without their consent, mainly to be used for political advertising. Meta is the parent company of Facebook. 

“Personally, the main issues that still need to be addressed, and are paramount, would be increased and improved localised content moderation,” Dr Loh said.

“There is no mention (in the AIC letter) of improved content moderation nor how it will work under these conditions. Since this is only presented as ‘costly compliance’, this letter fundamentally sidesteps the only major issue that needs to be addressed.”

Dr Shafizan said the tech firms had made a “strategic” decision to voice opposition under the AIC instead of individually, wary of the “negative attention” that could ensue should the government hit back by “singling out” any one platform.

“They can make a stronger protest if it comes from a coordinated agreement among all the players in the industry,” she said, adding that this allows the tech firms to highlight the broader impact on the entire digital ecosystem.

But the multiple versions of AIC’s letter had also hurt the tech firms’ credibility, Dr Loh said.

The first version, dated Aug 23, contained the logos of all its 17 members and said the licensing regime would be “unworkable” for the industry.

Regional multi-purpose app Grab, one of its members, subsequently issued a statement distancing itself from the letter, saying that it was not consulted and that the proposed regulation would not impact its operations.

AIC then issued the second version of its letter dated Aug 26, containing the logos of only six companies as “applicable representation” and removing the part about the legislation being “unworkable”. Meanwhile, a third version - also dated Aug 26 - did not contain any company logos.

“These letters reflect poorly on these companies due to the constant recalls and changes in just a few days. It suggests that it was hastily put together and without proper consultation with all members involved,” Dr Loh said.

“The reasons cited are also not presented well where it appears that economic constraints are the main reason why this won't work, citing similar practices in other markets but offering no local figures for comparison.”

In its response to AIC, the MCMC said the first version of the letter - containing the logos of all 16 AIC members - gave the impression that the companies had authorised and agreed to the letter.

Citing Grab’s statement, the MCMC also requested “written authorisation” from AIC that allows it to write on behalf of its members.

“Kindly provide MCMC with this authorisation on an immediate basis so that we may understand more fully subsequent developments that as of this letter we find difficult to comprehend,” MCMC said, adding that it had not officially received AIC’s second and third letter.

CNA has contacted AIC for comments on how the issues with representation arose and what the coalition plans to do next.

Nevertheless, Dr Loh believes that AIC’s letter is “just the start” of negotiations between the tech firms and the government on the proposed regulation, with the implementation date still some months away.

Mr Fahmi, the Communications Minister, has also said the government is open to meeting with AIC or any other firms for further discussions, although it remains unclear how much wiggle room there is in tweaking the licensing regime.

“However, based on MCMC's response, they are seeking to sideline the AIC and engage primarily with the tech companies directly,” Dr Loh said.

“The nature of the letter has led to that and, for better or worse, the collective bargaining of these tech companies has been weakened. There is a high chance that the AIC will just be ignored in consultation and discussions.”

“TREAD CAREFULLY”

Like Dr Loh, Dr Shafizan predicted that the open letter was probably the beginning of a “broader campaign” by the tech companies to address the proposed regulation.

Tech firms are likely to apply “continuous pressure” through efforts to challenge or revise the licensing requirements, she said.

However, she warned that the AIC will have to navigate wisely, noting that its previous protests against social media laws in countries like India, Indonesia and Vietnam have bore little fruit.

“This pattern suggests that while the AIC’s protests are part of a larger strategy, achieving regulatory changes may be challenging, because most of these governments, including Malaysia, are firm with their decision,” she said.

In July 2022, Indonesia set a hard deadline for tech companies both locally and abroad to register themselves under a new regime first released in 2020 that allows authorities to order platforms to take down content deemed unlawful or that “disturbs public order” within four hours if considered urgent, and 24 hours if not.

On Jul 18 that year, Reuters reported that platforms such as Alphabet’s Google and Meta-owned Facebook, Instagram and WhatsApp had yet to register ahead of the Jul 27 deadline, raising fears that they would cease operating in the country.

AIC had submitted its comments and recommendations on the new regulations more than a year earlier in January 2021, saying that the latest iteration of the regulations “continues to include and even add worrisome provisions”.

In particular, AIC took aim at the requirement for providers based in other countries to also register, saying that any forced local incorporation will have a “deleterious” impact on foreign direct investment. This mirrors one of AIC’s main arguments in the Malaysia case.

Despite that, CNA reported on Jul 27, 2022 - on the day of Indonesia’s deadline - that Alphabet and Meta had complied with the registration requirement, with analysts saying that only tech companies which do not consider Indonesia an important market could afford not to comply.

Meanwhile, Dr Shafizan does not expect tech firms to threaten to stop their operations in Malaysia, highlighting that they still see potential in the Malaysian market and are guided by profits as their bottom line.
According to DataReportal, Malaysia was home to 28.68 million social media users in January 2024, making up 83.1 per cent of the country’s total population.

“They will eventually have to accept some of the new regulations, because obviously the tech industry, while dominated by these few major players, is highly competitive,” she said.

“Here, there are emerging companies seeking opportunities, so these existing tech firms must tread carefully in their protest efforts.”

Dr Shafizan believes the tech companies will pull out of Malaysia only as a “last resort”, if negotiations have been exhausted and the licensing requirements remain excessive with “prohibitively high” costs.

She cited how Google eventually exited China after the search giant decided in 2010 it was no longer willing to continue censoring results shown to Chinese users.

According to a 2018 MIT Technology Review article, Chinese authorities refused to budge at the time, saying that the government welcomes international internet businesses developing services in China according to the law.

Google soon abandoned its Chinese website and retreated to a Hong Kong–based search engine. In response, the Chinese government decided not to fully block services like Gmail and Google Maps, and for a while it allowed sporadic access from the mainland to the Hong Kong search engine, the report said.

As the Chinese internet sector boomed between 2010 and 2015, producing high-value, homegrown tech companies that offered worthy substitutes for western platforms, the Chinese government decided to break its uneasy truce with Google.

In mid-2014, the government blocked virtually all Google services in China, including many considered essential for international business, such as Gmail, Google Maps and Google Scholar.

“We can see from other cases that tech companies would only withdraw from a country when they can no longer fight, and it’s usually against big governments with a strong economy - for example, Google and China,” Dr Shafizan said.

“But in Malaysia, there is no desire for the government or among the public to basically cancel these companies. So I think in the end, there must be a balanced agreement between the government and the tech companies.”