ONE major hurdle in Malaysia’s 5G journey was finally resolved this week, but there is a chance the road ahead could turn bumpy once again.
It all depends on whether the government and the telecommunications companies (telcos) can expeditiously reach a consensus before end-June 2022.
This is the deadline to complete the sale of Digital Nasional Bhd’s (DNB) 70% equity to the telcos.
DNB is the government-owned entity that was entrusted to roll out 5G connectivity across Malaysia on a cost-recovery approach.
The total cost to deploy 5G is estimated at RM16.5bil, but it could swell up to RM20bil over a 10-year period of rollout.
Failure to complete DNB’s share sale on time could result in Malaysians waiting even longer to enjoy the high-speed 5G access, while neighbouring countries continue to expand their domestic 5G coverage.
In a reply to StarBizWeek, DNB chief corporate affairs officer Zuraida Jamaluddin, however, reaffirmed the company’s target to reach 80% coverage of populated areas by 2024.
“The joint statement released on March 16 by the Finance Ministry and the Communications and Multimedia Ministry emphasised the importance of continuing the 5G rollout without delay,” she says.
On March 16, the government announced that it will be disposing of up to a 70% stake in DNB to the telcos and that the controversial single wholesale network (SWN) model will be maintained.
The Finance Ministry will hold a “golden share” and the remaining 30% stake in DNB.
The decision was reached as a compromise between the telcos and the government, in order to address the earlier resistance among the Big Four mobile network operators (MNOs) like Maxis Bhd, Celcom Axiata Bhd, Digi.Com Bhd and U-Mobile Sdn Bhd to participate in the SWN model.
The Big Four MNOs had previously called for a dual wholesale network (DWN), with the second network run entirely by a consortium of telcos.
Without the compromise between the telcos and the government, Malaysia risks falling further behind its regional peers with regard to the 5G rollout.
In Singapore, for example, the 5G network of its largest telco Singtel currently covers two-thirds of the island-state.
In Thailand, its largest telco Advanced Info Service Plc ended last year with over 90% 5G coverage in Bangkok and 76% 5G coverage nationwide.
Meanwhile, in Indonesia, the major telcos have also been rolling out their 5G networks, although coverage remains limited at the moment.
Back in Malaysia, 5G network coverage has been switched on in Kuala Lumpur, Cyberjaya and Putrajaya, and DNB has started to roll out the network in Johor Baru recently.
However, only users of YTL Communications’ YES network can enjoy 5G access for now.
This is because only YTL Communications has agreed to participate under DNB’s 5G pilot run until March 31, while the other telcos were hoping to establish their own wholesale network.
This week, DNB said it will be extending its ongoing commercial pilot to June 30.
Malaysia’s late 5G uptake and the lack of telco participation in DNB’s network dragged the country’s Internet download speed behind Singapore, Thailand, Vietnam, the Philippines and Indonesia.
According to OpenSignal, Malaysia only had a download speed of 13.5Mbps as of the fourth quarter of 2021, in contrast to Singapore’s 49.9Mbps.
In a joint-statement issued by the Big Four telcos after the government announced its plan to sell DNB equity, they welcomed the decision.
Both the telcos and the government will begin their discussion on how the public-private partnership will take place for the 5G rollout.
Among the issues that need to be addressed are how the equity interest in DNB will be allocated, the valuation for the telcos’ stake, the role of the telcos in DNB’s decision-making process and the pricing mechanism.
UOB Kay Hian Malaysia Research says that the actual timeline of the 5G rollout for Malaysia could be dragged further, following the change in DNB’s shareholding.
“That the government is now offering equity participation to the telcos means that earlier discussions and agreements between MNOs and DNB may have to go back to the drawing board in order to reach a deal that is mutually agreed.
“Moreover, the pricing mechanism and details of the wholesale agreements remain vague. Hence, we expect a further delay in the actual implementation of 5G in Malaysia,” it says in an earlier note.
Over the next few months, it would be interesting to note whether DNB tweaks its rollout strategy to appease the incoming new shareholders.
As known by many, DNB is focused on narrowing the urban-rural digital divide and it wants to fast-track the 5G rollout, including into the “less profitable” rural areas.
Will the emergence of telcos in DNB impede this objective?
Would the telcos prioritise areas where return on investment may not be as lucrative?
Institute for Democracy and Economic Affairs (IDEAS) CEO Tricia Yeoh, however, does not see this as an issue.
She points out that the government could tap into the Universal Service Provision Fund to roll out 5G in less profitable areas. This is an existing scheme that requires all MNOs to contribute 6% of their revenue to the fund.
“Nevertheless, it is clear that the government can and should determine certain criteria by which the MNOs take up the stake in DNB, and this should be based on policy mandates of an equitable 5G rollout,” she tells StarBizWeek.
On the bright side, the presence of telcos in DNB could help to reduce the current cost of the 5G rollout of RM16.5bil, inclusive of a RM4bil corporate cost, as well as raise the proportion of leasing from MNO-owned sites, according to CGS-CIMB Research.
“With this, coupled with a lower reliance on debt, DNB may be able to cut the 5G wholesale fees and change the charging structure to be more traffic-based, in our view.
“This would hit MNOs’ earnings less, while any share of DNB’s net losses will only be accounted for via a reduction in the investment value in MNOs’ balance sheets.
“Having equity ownership also gives MNOs greater assurance that DNB will continue to be well managed in the long term,” it says.
Lowest 5G cost
DNB’s Zuraida says that DNB’s cost-recovery pricing is already the “lowest possible” for a 5G network capacity.
She says this when asked whether there is a possibility for DNB to offer a lower wholesale price than what was committed earlier, considering that telcos would need to deal with legacy costs associated with the 4G infrastructure rollout.
“The network allows for the provision of wholesale capacity pricing that will deliver a per gigabyte cost of less than 20 sen,” according to Zuraida.
YTL Communications also tells StarBizWeek that the SWN model is cheaper to implement, compared to the cost that would be incurred had the 5G infrastructure been deployed by individual telcos.
The telco also adds that the SWN removes duplication of infrastructure, by enabling all MNOs to share a single network.
When asked whether telcos could build their own network even when they are part of a consortium with DNB, YTL Communications says it is not possible.
“With the SWN in place, all 5G spectrum and rights to build 5G will be assigned to DNB and regulated by the Malaysian Communications and Multimedia Commission or MCMC,” it says.
The problem with a single network or provider is that any access disruption could adversely affect everyone across the board.
In the case of DNB, it is utilising a single radio access network (RAN), which essentially transfers the 5G connectivity to the core networks of the telcos. The telcos’ end-users are linked to the respective core networks.
DNB chief technology officer Ken Tan explains that a single RAN reduces the technical complexity to integrate with six different telco cores.
Meanwhile, the multi operator core network (MOCN) architecture utilised by DNB allows all telcos to access its RAN, while maximising spectral efficiency.
MOCN ensures the seamless integration of DNB’s wholesale network with existing 4G networks and avoids the duplication of active infrastructure, according to him.
Tan says that DNB has implemented several safeguards against a single point of network failure.
These include all solutions being deployed in the DNB network having application and geographical redundancies.
“For RAN specific, any network failure will be limited to cluster or geographical impact. In any case, the 5G network will integrate with the existing 4G network.
“For core specific, the network has been designed with telcos’ core to carry the traffic and each telco core is itself designed with redundancies.
“Therefore, there is no single point of failure of DNB’s 5G core impacting 5G traffic.
“For Operating Support System specific, the solution is shared across all telcos. However, the network disruption is limited to operational impact where the operations team can perform manually.
“For Business Support System specific, the solution has been designed as a post-paid solution shared across all telcos. This is not a real-time solution that would impact 5G traffic in the event of a failure,” he says.
More details needed
After many policy flip-flops in the past few years, the government’s decision to retain the SWN model, albeit with criticism, is seen as positive by some quarters.
IDEAS’ Yeoh says this signifies policy certainty and regulatory continuity from the government, although she notes that the exact details of the offer to sell DNB shares have not been spelt out.
“By the time the stake is offered, would there have been certain policies implemented that the MNOs would not be able to comment on and therefore amend or adapt?
“For instance, if the stake is offered and taken up after 80% of 5G rollout has transpired, what say would MNOs have in its implementation?
“Overall, having MNOs included in the decision-making process can be positive for greater due diligence and an additional layer of scrutiny, but the relationship between both parties needs to be made much clearer than is currently the case,” she tells StarBizWeek.
Meanwhile, EMIR Research CEO and president Datuk Dr Rais Hussin Mohamed Ariff believes that the SWN model in all its ownership variations – whether it is wholly owned by the government, wholly owned by the MNOs or held in joint ownership – is the least preferred model for 5G.
“The recent decision by the government to still stick with the problematic SWN model for the 5G network rollout, despite all the elegant evidence against the SWN case, clearly shows once again that, in this country, data, science, economics and plain logic falls on deaf ears of policy-makers, thus to no avail for nation-building,” he says.
Rais argues that deploying SWN for 5G would be even more devastating than for the previous generation networks.
“This is because SWN is synonymous to delinking of network ownership from service delivery and thus unavoidably leads to limited network innovation which will negatively impact the rollout of innovative services by the end-users.
“In other words, a fit-for-purpose network direly needed for 5G is unachievable under the SWN,” he adds.
DNB had previously argued that MNOs would be able to focus more and re-prioritise their resources towards product innovation as the role of deploying 5G infrastructure is taken over by DNB.
Under the SWN, the network is no longer a competitive differentiator and MNOs must actively offer attractive service value propositions to retain their respective market share.
One area where MNOs could focus is fixed wireless access (FWA). In order to bring consumer and enterprise applications to rural and outlying areas, DNB will enable operators to provide FWA as a means to bridge last-mile 5G connectivity without the need for physical or wired connections.
An industry veteran points out that MNOs could also face profit margin dilution due to the SWN.
“So, they need a good cost management strategy in place that is essential to defend the profit margin,” he says,
IDEAS’ Yeoh says that the effective implementation of 5G is predicated on a wide range of factors.
These include the transparency in pricing for wholesale access to 5G, robust oversight mechanisms as well as measures to ensure there is no leakage or political interference in contract procurement, suppliers contracts and leasing of land and space for 5G towers and antennae.
“In addition, we still have not seen any feasibility study that compares the costs and benefits of the SWN chosen by the government, and it would be in the consumer interest for the government (MCMC, Finance Ministry and DNB) to provide clear evidence that this model is the most cost-efficient one,” she says.
Commenting on the 70% equity sale to the MNOs, EMIR Research’s Rais says the new ownership structure raises new concerns and questions.
“If MNOs would have their say, they would scrap DNB’s ‘supply led’ rollout and we would see at least a more reasonable, demand-driven approach to the 5G rollout.
“Even though it would still be an upstream monopoly with all the ensuing consequences to the Malaysian digital economy as highlighted above.
“Also how about MNOs involved in the wholesale market representing a conflict of interest since they are also the retailers?” he asks.
In the event MNOs cannot have their say in DNB, despite being the majority owners, Rais says the whole process of bringing in the telcos as shareholders would only look like window dressing.
“In fact, it would look like DNB’s attempt to improve their funding ability through MNOs’ balance sheets while keeping its contracts intact,” he adds.
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