700MHz band for 4G first, then 5G

IN the telecommunications industry, spectrum is most valuable to operators running networks.

And for some time now, operators in Malaysia had been pining for a slice of the 700MHz spectrum that had been freed up as a result of the migration of terrestrial TV signals which moved from the analogue to the digital system.

They had hoped of getting slices of the 700MHz spectrum to expand their 4G networks.

On New Year’s day though, the telecoms industry regulator announced that the 700MHz spectrum is one of the spectra meant to roll out 5G.

Complicating matters is the fact that existing telecom operators have to be partners in a consortium to be formed, to build and own the next generation, 5G infrastructure.

However, while the big players are outwardly supportive of the deal, they have some concerns.

For one, it isn’t clear which party will be allowed to take the lead in the consortium and whether there will be equal sharing of resources as promised. Existing players are also concerned about whether this new consortium could offer services which could impact players’ current pricing and services.

Telecom operators in Malaysia have made huge investments into their networks and business. These are namely Celcom Axiata Bhd, Digi.Com Bhd and Maxis Bhd.

There is also a concern that Telekom Malaysia Bhd (TM) – which is trying to stamp its mark in the mobile space – will lead in terms of shareholding and decision making in the consortium.

The rationale for the creation of a consortium is to reduce duplicity and overall cost in the rollout of the 5G infrastructure.

“It is a concept of sharing infrastructure for 5G to reduce redundancies and cost instead of each player having to build individual network. The intent is to have equal sharing, equal partners. Hence no one party should have a very strong say in the consortium. It should be fairly distributed, ” notes one industry player.

He added that “all the new towers that will be built will be based on a sharing model too. It is cheaper to share’’.

The industry regulator Malaysian Communications and Multimedia Commission’s chairman Al-Ishsal Ishak says the corporate structure of the consortium will be in the regulator’s marketing plan expected to be issued by the first quarter of 2020.

“So, while it is not about forcing anyone to be a partner in the consortium, the plan is to promote infrastructure sharing and the government will be open to discussions if there is a better model, ’’ says an industry executive.

It is understood that players have one month to revert to the government if they have any grouses or a better plan.

With the sharing concept, not only the networks will become less, it could also lead to an industry consolidation where players will merge with one another.

AmInvestment Research says that while the pragmatic 5G approach by the MCMC partly offers relief for the sector, it highlights that the infrastructure and network costs could be substantially higher.

“It remains to be seen whether operators can pass on these costs to consumers with adequate investment returns, ’’ the research says.

Maybank Investment Bank Research adds that with details still lacking of what constitutes a consortium, it was difficult to pinpoint the potential winners and losers.

“One possible outcome, in our view, is for the existing dominant telcos (possibly the Big 3 of Celcom, Digi and Maxis along with TM) to group together given their common needs and balance sheet strength. In such a scenario and depending on the eventual access requirements, the smaller telcos could be left out.’’

700MHz for 4G first

As for the 700MHz, and contrary to common belief that it is meant for 5G only, the industry executive says that “it will be first used for 4G and later with the evolution it will move to 5G. It is a brand new band and sharing the band seems to be the best way forward’’.

Despite all the meetings between the government and the players, many questions still loom as to why did the regulator and government decide to go for a single consortium? Has there been not enough evidence of failures of creating monopolies?

“Other countries are allowing multiple players to sink in money for 5G, why is Malaysia limiting it to one consortium? Have we not learnt of the high speed broadband example and only after the mandatory access pricing was implemented that consumers saw huge drops in broadband pricing and will the monopoly not be creating a cartel on pricing?’’ asked another industry player.

However, some reckon that a 5G network running on the 700MHz spectrum is not ideal and that speeds will not be much of an improvement over 4G levels.

“Malaysia’s 5G may then benchmark poorly against other countries like South Korea, Singapore and the United States which have opted for 3.5GHz as their main band, claims an industry executive.

He also claims that 5G on 700MHz will be more expensive to deploy and for end users given the lack of vendor support in the medium term. For now most of the 5G deployments are on 3.5GHz globally. Having 5G on 700MHz will mean that users have to wait for the ecosystem to mature before we see cheaper handsets and services.

Spectrum cheaper?

“The government valued part of the 700MHz spectrum (2x30MHz) previously at RM1.293bil, plus an annual fee of RM111.234mil. Under the apparatus assignment (AA) model, the cost for 5,000 sites is RM35.7mil only, and it appears that the government is deprived of revenue, ’’ he adds.

A cell site is to facilitate cellular phone and other wireless communication device signal reception in a cellular network.

AA is given on a per site basis and subject to renewal every year whereas spectrum assignment (SA) is given for a fixed number of years, normally 15 years. The cost of using the AA mode is cheaper than the SA because there is no upfront payment involved for the spectrum. This simply means the consortium will not have to pay large lump-sum payments upfront which can run into billions of ringgit for the use of the spectrum.He added that the holding back of some spectrum for both the 700MHz and 3.5GHz bands by the regulator suggests that they may want to introduce competition for 5G later. This is risky as competition introduced later will not be even. The regulator has to be transparent from the onset about spectrum allocation, he adds.

That aside, MCMC in its statement issued on Jan 1 had identified the 700MHz, 3.5GHz and 26/28GHz as the pioneer spectrum bands for the roll-out of 5G in Malaysia in view of the rapid developments and the global 5G ecosystem and deployment.

It wants to allocate 2x30MHz of the entire 2x45MHz 700MHz band for 5G, and 1x100MHz instead of two blocks for 3.5GHz to the 5G consortium. It will also release 26/28GHz (four blocks 1x400MHz nationwide, four blocks of 1x400MHz localised). No timeline is indicated for the release of the remaining spectrum.

Celcom Axiata Bhd CEO Idham Nawawi says that 3.5GHz and 28GHz are very important spectrum bands for 5G and we are pleased that.

“MCMC has accepted the 5G taskforce proposal to prioritise these bands and making it available early, allowing the industry to be ahead of the game and more prepared, ’’ he adds.

Idham adds that MCMC’s approach to award spectrum by way of beauty contest is welcomed, as supposed to an auction process that could have made the spectrum overly expensive. This will quickly reduce digital gaps and meet the NFCP (National Fiberalisation Connectivity Plan) objectives for the benefit of the rakyat. We will be working closely with MCMC for clarification on how spectrum will be allocated, ’’ he says.

Digi.Com Bhd CEO Albern Murty says “we have always viewed partnerships as a positive way forward in delivering efficient and widespread access to Malaysians as seen in our various collaborations across towers, fibre, undersea cables, WiFi hotspots, and more. We will share more related comments as we get further clarification from MCMC.”

Telekom Malaysia Bhd (TM) managing director/CEO Datuk Noor Kamarul Anuar Nuruddin claims that it is the first telco to deploy the first 700MHz dedicated network outside China, making it the first in the region.

“700MHz will enable fast and wide 5G deployment and together with 3.5GHz, the network will be ready to take on the traffic of multiple network operators and enterprise verticals, ’’ he said.

He added that “allocating it for 4G will create legacy issues which will cost the industry more, especially for 4G-5G migration later. And we may not be able to use it for full-fledged 5G service as quickly as we would like, ’’ he says.

Why not two consortium instead of one?

Some players are even saying that to avoid an anti-competitive environment, there should be two consortium instead of one. Players can then choose who they want to partner with for the consortium. This will then allow for competition among the consortium and it does not limit to sharing of infrastructure as well.

Singapore’s regulator, Infocomm Media Development Authority (IMDA) has taken the approach of two nationwide networks as a start. In its document it said the limited spectrum resources in the initial few years are not able to support more than two nationwide networks with optimal capacity to deliver the full potential of 5G technology.

IMDA in its executive summary document on decision on policy for 5G mobile networks and services in Singapore says it will facilitate further competition at the services or retail layer. This will put Singapore in a stronger position to realise our 5G policy outcomes and grow our 5G innovation ecosystem.

IMDA will allocate equal amounts of the forerunner 3.5 GHz band, i.e., 100 MHz lot each.

“This is what MCMC should propagate instead of opting for one consortium, a small country like Singapore can think of two, why are we restricting to one, ’’ asked an industry expert.

An industry executive says “let’s start working on 700MHz sharing first and start with one consortium.He noted that creating two will create competition but it will also divide the players. However, it is really up to the players to decide which direction they want to take”.

However, another executive says “as it is the players have been sharing infrastructure among themselves for years and they don’t need the regulator to tell them to do so. They know how much of savings there is by sharing. The sharing is more intense in rural areas and just for zone 3 and 4 there is RM2bil of cost savings by sharing of infrastructure”.

“Granted, the investment for 5G is too huge and sharing is inevitable, but instead of having one consortium, have two. The two will be able to share, collaborate where necessary, and also compete. Let the market forces dictate the direction.’’

Interestingly for the allocation of 26GHz and 28GHz bands for 5G the document says that any party could apply for them.

Does it mean that it is open to foreign players?

Al-Ishsal says it was for the purpose of deploying localised and/or private networks for industrial and enterprise services and applications.

“If it involves providing communication services to third parties/general public within a localised area, then licensing requirement applies and this would be subject to equity condition.

“If the party intends to only deploy a private network for its own use (eg. factory, etc) with no provisioning of services to any third party, then no licensing requirements come into play and no equity conditions apply, ’’ he says.

Noor Kamarul adds that “we expect the requirement for a local company will still be required, consistent with MCMC’s operating licence requirements. However, it may not restrict a foreign-owned locally registered company from applying’’.