IN the next few days, the future of the 5G network will be decided by high-level discussions that will determine whether a 5G single wholesale network (SWN) will be operated by a state-owned firm called Digital Nasional Bhd (DNB).
The discussion will be centred on the question of whether to allow DNB’s SWN structure to continue or to allow the existence of a dual wholesale network (DWN) which will be owned and run by privately owned mobile network operators (MNOs).
The Big Four MNOs – Celcom, Digi, Maxis and U Mobile – have submitted their joint-proposal to the government for the establishment of another wholesale network. In a recent statement, the companies said they are ready to invest for the 5G rollout.
The debate on the DWN has been well-publicised, with arguments for and against both propositions having been put forward.
Urgent requirement: Malaysia needs an accelerated 5G rollout if it is serious in ensuring the competitiveness of the domestic industries and continues to appeal to foreign investors.
But in the event the government decides to allow a DWN to exist, there will be serious implications.
The greatest implication to the rakyat and local businesses is that Malaysia’s 5G journey would be further delayed, as the second wholesale network or the consortium of MNOs would take some time to design and build its infrastructure.
This would put the country behind its regional peers in terms of wireless Internet speed and attractiveness to foreign investors.
The recent report by OpenSignal showed that Malaysia’s Internet download speed as of the fourth quarter of 2021 is behind Singapore, Thailand, Vietnam, the Philippines and Indonesia.
Due to Malaysia’s late 5G uptake, the country only has a download speed of 13.5Mbps, in contrast to Singapore’s 49.9Mbps.
The change into the DWN model, if it happens, would also have major implications on DNB.
Firstly, is the fact that DNB in its current form is highly unlikely to survive, should there be another wholesale network provider.
Under consortium
This has been admitted by DNB CEO Ralph Marshall himself.
Eventually, with the failure of DNB, the second wholesale provider will then become a private SWN monopoly.
In his reply to Bangi MP Ong Kian Ming, Ralph recently warned that the country would have “enormous implications”, should the government opt for DWN.
However, he also acknowledged that a 100% government-owned entity may be less efficient in the long term.
“As such, DNB has always proposed, which is known to senior officials and management of MNOs, that the government is open to reducing its stake in three years, after 5G is rolled out, so that MNOs can become shareholders of DNB.
“It is not practical to open the ownership now as DNB has adopted a cost recovery and supply-led approach to accelerate the implementation of 5G network at lower cost, with specific focus on narrowing the urban-rural digital divide as intended by the government,” he said in a statement earlier.
The second biggest issue that could arise from the DWN would be the legal and financial implications.
DNB could be facing legal suits for early termination of its contracts and this could force the company to pay hefty compensation.
The biggest legal threat could come from Ericsson Malaysia, which has entered into an exclusive 10-year partnership with DNB to deliver a nationwide 5G SWN for Malaysia.
There are concerns that Ericsson may sue DNB’s owner, the government, for allowing a DWN model as the initial understanding was that Malaysia will embrace a SWN model with Ericsson as the single provider.
Objectives of consortium
It is believed that Ericsson gave DNB a good price for its service on the basis of being the single provider under the SWN.
In a response to StarBizWeek, DNB declined to comment on whether a DWN would violate the agreement signed with Ericsson, citing “confidentiality obligation.”
The company, however, says that more than 100 contracts are already signed and a revocation of such contracts would lead to a substantial amount of claims and compensation.
The bulk of the payment will be for the Phase One execution contract with Ericsson.
It is noteworthy that Ericsson had in January 2022 announced the establishment of a Network Operations Centre in Malaysia to monitor, maintain and manage network faults, security and performance of the DNB network.
“In addition, total financing from local banks and Ericsson deferred payments amounting to RM1.2bil for Phase One implementation costs will need to be settled.
“(DNB will incur) termination costs of lease agreements for the lease of DNB office buildings and network infrastructure (site location, fibre and utilities),” it says.
Lawyer Datuk Lim Chee Wee points out that the government must uphold the rule of law and the confidence of investors by respecting the sanctity of its promises.
“The possible U-turn by the government on SWN would diminish rule of law and investor confidence in Malaysia.
“The sanctity of promise is that of the government and not of any particular prime minister or ruling coalition,” he says.
Lim is the lawyer for Dhaya Maju LTAT Sdn Bhd and Prestariang Skin Sdn Bhd (PSkin) that are suing the government for breach of contract sanctity.
It is noteworthy that Dhaya Maju’s multi-billion-ringgit Klang Valley Double Tracking Phase 2 was terminated by the Perikatan Nasional government in August 2020 and PSkin’s National Immigration Control System project was terminated by the Pakatan Harapan government in December 2018.
For now, the future of DNB remains uncertain, but the company says the engagements with MNOs are still on-going for both commercial and technical matters.
Merits of single
In the event DNB is sidelined after the introduction of the DWN model, the question is whether the wholesale network driven by the MNO-based consortium would be able to speedily roll out 5G access nationwide, including to the “less profitable” locations in the interiors.
Malaysian University of Science and Technology’s (MUST) professor Dr Geoffrey Williams, however, says the allegation that 5G rollout by the MNOs would be restricted to profitable locations and avoid rural communities is a “false argument.”
He points out that the SWN is a crowding out exercise which could stifle the 5G market and also damage the MNO market.
“The MNOs want an option to enter this market and they have made their collective call based on a business and economics assessment
“If it made no business sense then they wouldn’t do it.
“Having two providers promotes competition and innovation and maintains market access, diversity and public choice,” says Williams.
There is also the question as to whether the consortium of MNOs will be able to offer 5G accessibility at affordable pricing than what DNB has offered?
Previously, DNB has said that it will charge less than 20 sen per gigabyte (GB) for 5G service. The company is able to lower its pricing as it works on a cost-recovery model and is not profit motivated.
Among the merits of a SWN as adopted by DNB is a faster nationwide rollout, bridging digital divide, bringing in highest spectrum efficiency and it is highly transparent as the wholesale price to MNOs will be made public.
EMIR Research president and CEO Dr Rais Hussin, however, says that both SWN and DWN models are detrimental to the nation.
This is because both models lead to a highly undesirable monopolistic effect on the telecom industry leading to low competition and, as a result, low innovation and quality of the Internet.
“Rather than deciding between SWN or DWN, which both will lead us to a not-so-bright future, we should be looking for an alternative model as our national destiny is truly at stake.
“Also, note that this would not necessarily mean complete dismantling and reversal of DNB but rather its strategic restructuring,” he says.
EMIR Research has proposed the third option for 5G rollout, where DNB would become the neutral entity that will solely focus on actively expanding passive network infrastructure – fibre, backhaul and towers or poles.
“Furthermore, as far as financing is concerned, the Universal Service Provision (USP) fund should be continuously geared towards solving this problem.
“This government-built and government-owned passive network infrastructure is to be shared equally by all the telecom players while sharing active radio access network (RAN) equipment is optional,” says Rais.
Moving forward, Malaysia needs an accelerated 5G rollout if it is serious in ensuring the competitiveness of the domestic industries and continues to appeal to foreign investors.
The country and the business community could no longer wait as long as the time taken to deploy 4G in Malaysia, or eight years to be specific.
When contacted by StarBizWeek, the American Malaysian Chamber of Commerce says that it continues to monitor the development surrounding the 5G conundrum in Malaysia.
However, it declined to comment on whether Malaysia’s delay in implementing 5G has eroded the confidence of American investors.
Last week, it was reported that the envoys of five major trading partners namely, the United States, Japan, the United Kingdom, Australia and the European Union, had urged Malaysia not to revise Ericsson’s contract for 5G rollout.Beyond the legal and financial implications, Malaysia will suffer from the reputational risk if it decides to go ahead with the DWN model as favoured by the MNOs.
Malaysia, which is already seen as a nation of policy flip-flops after the 14th general election, could further see its reputation among foreign investors taking a hit.
However, EMIR Research’s Rais believes that Malaysia’s reputation will be affected even if the current SWN is continued.
He says that without an urgent restructuring of Malaysia’s 5G rollout, the current SWN model is going to be yet another important “negative milestone.”
“The failure of the SWN model is already evident from the international experience, as we indicated above.
“But, unfortunately, our policymakers decided not just to stop there but talk about ‘supply-driven’ SWN.
“An impaired telecom industry (and SWN or DWN will certainly lead us to this) will decapitate our Industry 4.0 progress and entrench us as a digital colony (value consumers rather than value producers) therefore limiting those future cash flows.
“How would our ‘sorry, we cannot reverse even if it is wrong’, putting it literally, sound to this group of investors?” he says.
MUST’s Geoffrey does not think that a transition to DWN from the current SWN model will tarnish Malaysia’s reputation globally.
In fact, the DWN provides more options for investors and foreign direct investments, he says.
“It also promotes a more competitive environment and signals a market friendly approach to infrastructure.
“Investors will balance the risk and returns and there could be opportunities in a DWN as opposed to the SWN monopoly,” he adds.
It is worth noting that the SWN model is not entirely the government’s idea, but was proposed by the MNOs in the form of a consortium back in 2020.
However, the consortium idea had a number of challenges that prevented the implementation of the model for over two years.
The challenges include complexity of implementing the model and getting consensus from multiple shareholders around various aspects of rollout, cash injection, procurement biases and governance issues.
Looking ahead, all eyes will be on the Cabinet’s decision with regard to the proposed DWN idea.
This decision will ultimately finalise Malaysia’s path to 5G adoption, albeit at a delayed duration.
In their reply to Bangi MP Ong Kian Ming recently, Celcom, Digi, Maxis and U Mobile jointly-said that the DWN model is a feasible option that “leverages MNOs capabilities, existing resources, including infrastructure, supply chain and the experience of thousands of Malaysian technical talents”.
Meanwhile, global mobile industry association GSMA says that a DWN would provide additional competition and is likely to incentivise the wholesale network providers to build the network faster and provide a better network or service.
“However, there are potential pros and cons with a DWN that would require a regulatory impact analysis by the Malaysian Communications and Multimedia Commission to assess the cost-benefit from such a proposal.
“An alternative option might have been to allow Malaysian MNOs to build their own 5G networks,” it says.
GSMA also points out that it is unclear whether the proposal to allow MNOs to buy stakes in DNB in the future, as mentioned by DNB’s Ralph Marshall, will lead to a more efficient outcome.
“Important economic and financial questions will need to be addressed before implementing such a proposal,” it says.