INNOBLOG

Recently a reader commented on our earlier piece on Clearwire that WiMax will probably meet with greater success in developing countries than in developed ones. We thought it was an intriguing comment so for this piece, we decided to look into Malaysias WiMax efforts.

Malaysias telecom regulator, the Malaysian Communication and Multimedia Commission (MCMC), recently awarded Wimax wireless high speed internet licenses to four companies. While the awarding of the licenses is not ground breaking in itself, the regulators motivation in choosing these 4 companies out of a field of 17 deserves a closer look.

The four firms chosen were all smaller firms while among the losers were some of the largest companies in Malaysia, including the largest mobile operator in the country, Maxis Communications. At first blush, this decision may seem to be an odd one. Wouldnt the larger, more established firms have an easier time rolling out a nationwide network? Wouldnt granting licenses to the market leaders be a less risky choice.

But MCMCs choice does makes sense if we look at the situation through the lens of disruptive innovation. The theory of disruptive innovation says that established firms have a tougher time taking advantage of disruptive innovations than smaller start-ups do. This happens because, over time, established firms optimize their processes, resources, and values, to succeed in their current environments. When faced with a truly disruptive innovation, these firms have difficulty changing their entire business models to take advantage of the new innovation. So, for example, instead of offering a quad-play package (traditional wireline voice, wireless, video, and internet) over the new WiMax network, these incumbents would be more inclined to try to use their existing infrastructure to leverage their existing investments as much as possible and only sparingly use WiMax to augment their offerings. Of course, this makes sense for the incumbent firms given their large investments in their current infrastructure but it also has the affect of slowing down innovation by keeping the market from realizing the full potential of the new network.

Smaller start-ups, on the other hand, have none of the historical baggage of the incumbents and are free to enter the market in a truly disruptive way. Since the MCMCs goal was to disrupt the market and increase competition and choice for the consumer, it made the right decision when it chose to award the licenses to smaller, more nimble firms instead of the market leaders with established processes.