NOW that it has been affirmed that Malaysia will have a single wholesale network (SWN) model for the rollout of the country’s 5G network, the question is, how will this impact the performance of local mobile network operators or MNOs, most of which are public-listed companies?

       Right after the government’s announcement on March 16 that there will only be a single network, a joint statement was issued by the four MNOs in the country – Celcom Axiata Bhd, Digi.com Bhd, Maxis Bhd and U Mobile Sdn Bhd.

       The statement revealed that the Big Four mobile players welcomed the decision to continue with the SWN model and offer for MNOs to take up an equity stake in Digital Nasional Bhd (DNB), a special-purpose vehicle owned by the Finance Ministry (MoF), and regulated by the Malaysian Communications and Multimedia Commission (MCMC).

       The MNOs disclosed that they would engage with the MoF, MCMC, the Communications and Multimedia Ministry and key industry players on further details on the implementation of the model, including the proposed shareholding offer and transaction process.

       “We believe that a successful 5G deployment for Malaysia will be built on the principles of transparency, sustainability, and security. We look forward to working on the next steps to build a robust and future-proof communications infrastructure for Malaysia,” say the telco players.

       Apart from the big telco players, Telekom Malaysia Bhd (TM) also supports the government’s decision to opt for the SWN model, saying that telcos would now focus on investing and developing innovative 5G products and solutions for end-customers.

       Fast move: A woman is seen walking past a 5G logo at the Mobile World Congress in Barcelona recently. Analysts say the single wholesale network model is more efficient to accelerate the 5G rollout in the country. - Reuters

       “We look forward to rolling out 5G-enabled products and solutions to our unifi and TM ONE customers.

       “As such, we are currently undertaking internal customer and network trials to bring an improved convergence proposition of fiber plus 5G services to our unifi and TM ONE customers. This is subject to finalising our wholesale agreement with DNB,” the company said in a statement issued recently.

       A telco source says that based on this Cabinet’s decision, the industry will now need to immediately address a number of key areas to make this work effectively for the people of Malaysia.

       “One area is how the SWN will be comprehensively regulated to benefit the industry and all Malaysians to support progress for all sectors of the economy. Given how critical this is, it should not be rushed. Operators have been in discussions with DNB and MCMC on many of these issues since last year and it needs to be finalised,” says the source.

       The source says the key areas are clarity on DNB’s mandate, whether DNB should remain a 5G-only radio access wholesale network and not provide near retail solutions to end-users, nor enter into areas of business other than 5G networks, and DNB’s pricing should be efficient, which means that prices will need to decline over time to reflect cost efficiencies gained.

       “This is such that consumers do not have to pay substantially more as applications that they use will be more data-heavy in the future,” says the source.

       The next issue that also needs to be clarified is to ensure the quality of service. “In view that there is only a single 5G network infrastructure, the SWN should deliver a world-leading performance and ensure it builds critical redundancies in their network to avoid a single point of failure,” says the source.

       “In addition, given the offer of the 70% equity stake of DNB by the government, the industry will have to evaluate the offer and present their recommendations to their respective shareholders. It is important to ensure that there is a balanced MNO and national interests under the proposed structures. The MNOs should be allowed and expected to leverage their experience and existing assets to ensure an efficient delivery of 5G network in the country,” says the source.

       Whether the SWN model is cheaper than the DWN model, the source feels that is not true and it will be more expensive.

       “One or more telcos can build the same network DNB claims to build for half the price. Remember that DNB has to build a new company, hire new staff, develop a new IT system, take new leases on towers which DNB had previously estimated will cost RM4bil over 10 years, all of these are expenses that the existing operators would not face. It is also a known fact that 5G network collaborations, which the industry had already publicly discussed, would bring down costs substantially,” says the source.

       On the question whether telcos can build their own network even when part of a consortium with DNB, the source says telcos should be able to use and synergise their resources, starting with allowing to use their current spectrum for 5G and enhance their existing 4G networks to become complementary and competitive 5G networks, if they choose to.

       “Also worth noting is that if telcos are not permitted to evolve their 4G networks into 5G networks, then further investments in the 4G networks at this stage become much less viable,” says the source.

       The source also feels that the potential downside risk is having too many shareholders and the possibility of the government intervening in the operations.

       “The government’s role shall be to drive the policies and regulation that delivers the right outcome for the industry, businesses and all Malaysians, and delivery left to MNOs to drive and influence the delivery of 5G services in the most efficient and transparent way for the country going forward, and not the financial interest from the shareholding,” says the source.

       The source says it is also important that costs are recovered but not at the expense of making a reasonable profit.

       With much at stake for both sides – DNB and the MNOs – RHB Investment Bank says telcos would be able to optimise the overall cost of the rollout with the potential for savings on capital expenditure.

       “We anticipate better collaboration with DNB on the rollout of 5G, with greater access to sites. However, there will possibly be scope to decrease the wholesale cost as the interest of the industry is better aligned with telcos by having direct ownership in DNB.

       “As such, this would benefit consumers with more innovative use cases in the longer term from the decrease in the cost of 5G services,” RHB Investment Bank tells StarBizWeek.

       It also notes that the focus will be on the MNOs to differentiate and innovate their services at the retail level.

       This suggests that consumers would benefit from telcos’ intense competition in the retail segment for more innovative products and faster service to them.

       RHB Investment Bank foresees some operational impediments for telcos under the SWN model.

       It confides that among the concerns include a “single point of failure, prohibitive wholesale rates or contracts, inability to control the customer journey as well as the time to market new products and services”.

       Certainly, the SWN model does come with some risk to MNO profitability as well.

       Kenanga Research believes that MNO profitability would be weighed down in the next three to five years, as telcos would have limited room to raise the average revenue per user on 5G services.

       The research house believes that telcos are unlikely to raise 5G plan prices due to stiff competition as well as going against the government’s desire for affordable 5G mobile services.

       Elaborating further, it estimates that in the initial years of the rollout, MNOs will have to pay upfront wholesale fees while not earning much from 5G services.

       This is due to slower 5G adoption from the limited adoption of 5G handsets as well as continued price competition from smaller MNOs.

       “This puts the MNOs in a position where the incremental costs could potentially exceed incremental revenue,” explains the research house.

       Overall, it is clear that telcos may have to bear the brunt of the dilution in profit margins in the next three to five years.

       But in the long run, they are expected to benefit from growing 5G traffic.

       TA Securities Research in its note on the telco sector says the renewed decision to bring forward the proposed sale of the 70% stake in DNB would provide MNOs the comfort over its governance and transparency and support DNB in accelerating the 5G rollout at a lower cost.

       “We believe MNOs, including Malaysia’s Big Four (Celcom, Digi, Maxis and U Mobile), would be keen on the 5G rollout via the SWN model as the opportunity to become shareholders of DNB, which has been deemed monopolistic by certain quarters, would provide them comfort over its governance and transparency,” it says.

       MIDF Research says the SWN model is more efficient to accelerate the 5G rollout as the continuation of this model could “avoid risks of compensation cost, a prolonged delay in the 5G network rollout, negative impact on foreign direct investment into Malaysia and widen urban-rural digital divide to the sector, government and nation.

       “On top of that, DNB will not be fully-owned by the Malaysian government as formerly announced. Therefore, there will be no issue of monopoly,” the research house explains.