Tuesday 16 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on March 1, 2021 - March 7, 2021

WHATEVER one’s thoughts on the government’s surprise pronouncement to own the fifth generation (5G) spectrum and build the country’s only 5G network instead of leaving it to the telecommunications operators, Malaysia is rightly expediting the availability of the necessary digital infrastructure in the race to transform the country into an advanced digital economy and attract higher quality investments.

While attention is understandably on the structure of the government’s special purpose vehicle (GOMSPV) for 5G — the full details of which had yet to be announced at the time of writing — the RM15 billion 5G network is only one of four game-changing but fundamental digital infrastructure “building blocks” necessary to accelerate innovation and build a robust digital ecosystem here.

The desire for investments to power the more sophisticated next-generation intelligent machines and enterprise innovations such as robotics for smart manufacturing, autonomous cars and unmanned aerial vehicles is why Malaysia — like all countries vying to reposition themselves in the fourth industrial revolution (4IR) — need 5G capabilities to be ready by year end or earlier, instead of the later part of 2022.

“There will be private sector involvement [in 5G], which will be explained in greater detail by GOMSPV in due course,” the Malaysian Communications and Multimedia Commission (MCMC) clarified in a statement on Feb 24. Its chairman Dr Fadhlullah Suhaimi Abdul Malek had said earlier that the 5G spectrum — in the 3.5GHz, 2.8GHz and 700Mhz — will be given to the MCMC-regulated GOMSPV building the network and offering wholesale capacity to service providers which, in turn, will offer retail services.

“This [sharing structure] will be a strong indication of reducing infrastructure-based competition and enhancing service-based competition that will only benefit end-users while reducing foreign outflow, especially for new equipment if multiple players were to build out a network,” says MCMC, noting that “existing service providers can continue rolling out fibre as well as improve 4G coverage and quality” without having “the burden of [building out a] 5G [network]”.

According to MCMC, the GOMSPV that will own both the 5G spectrum and infrastructure will come under the Ministry of Finance and not see any ownership change for at least 10 years.

Will it spur industry consolidation?

Given the emphasis on not duplicating infrastructure, expectations are that existing telecoms infrastructure — including fibre-optic cables and telecoms towers that are owned by various parties, including telecoms operators and state-owned entities — could be utilised by GOMSPV in building out the 5G network.

One multibillion-ringgit question is just how much the 5G GOMSPV sharing structure will hasten the carving out of telecoms infrastructure by incumbent mobile operators to third party infrastructure managers such as Axiata Group Bhd’s tower infrastructure unit edotco Group, which already derives 46% of its revenue from third parties and only 54% from Axiata.

In a recent interview with The Edge, Datuk Mohd Izzaddin Idris, who took over as group CEO of Axiata in January, said industry consolidation would be positive for the group and edotco, which had spent at least six years building up capabilities to eventually be a standalone global tower player with a strong home base. Indeed, 70% of synergies from the botched Axiata-Telenor Asia mega merger were from network efficiencies, half of which would have come from merging Celcom Axiata Bhd and Digi.Com Bhd.

According to an estimate by TowerXchange in 2019, there are at least 22,682 towers in Malaysia and edotco owns/manages over 11,000 of them, including about 4,000 sites that had been carved out from its sister company Celcom Axiata. TowerXchange also estimates Maxis Bhd to have about 3,800 sites, Digi about 3,400 sites, and U Mobile Sdn Bhd 1,000 sites while state-backed and independent tower companies own at least another 3,500 sites.

It remains to be seen whether mobile operators here would be willing to at least monetise their tower assets by spinning them off to independent tower companies such as edotco, given the route the government is taking with 5G and regulators’ preference for operators to compete on services rather than on infrastructure.

Globally, mobile operators that are monetising their tower assets via initial public offerings include Vodafone Group plc. On Feb 24, Vodafone said it intends to list its European telecoms infrastructure unit Vantage Towers on the Frankfurt Stock Exchange by end-March, subject to market conditions.

If executed well, the Malaysian government’s full ownership of the 5G core network infrastructure should bring down capital expenditure for the telecoms operators, which have in recent years become more open to sharing passive network infrastructure such as telecoms towers to balance the need between paying more dividends to shareholders and continuing to invest in their network infrastructure.

Even under the previously announced consortium structure for 5G, it is understood that telecoms operators here were already negotiating to share the cost of building the 5G infrastructure, but expected to have at least two networks when plans for a single 5G consortium was seen to be out the window last June after valuable spectrum in the 700MHz, 900MHz and 2,600MHz frequency bands — including those previously earmarked for 5G — were quietly awarded to eight players in May 2020 but were revoked in less than a month.

While there will be only one 5G network as existing players will not be allowed to use their existing spectrums to offer 5G services, MCMC assures that wholesale prices will be regulated and the GOMSPV structure is meant to save costs for industry players so that the savings and benefits can be passed on to consumers, businesses and, ultimately, the country.

Being government-owned, GOMSPV also has an advantage over the private sector when dealing with state and local agencies in securing sites and approvals for infrastructure — an area in which telecoms operators have faced significant challenges for some time.

While concerns have been raised over the government’s fiscal space, a financially savvy dealmaker says the government can work around the need to come up with large upfront capital if it can leverage vendor financing and strike a good deal with its potential customers — the telecoms operators. “It’s like how concessions do not need to fork out money to build highways [they just need to have the concessions].”

Competing on service

As mentioned by MCMC, telecoms operators should be competing to offer more innovative services that can be game-changing for consumers, enterprises and the country rather than competing to build duplicate infrastructure that results in more money being paid to foreign vendors rather than being invested in Malaysia.

If the cost of one network is shared by two to four operators, the operators should, in theory, have savings on capital expenditure even after taking into account higher operating expenditure from leasing capacity from GOMSPV. This is akin to newcomers leasing 2G, 3G and 4G capacity from the incumbent mobile operators — Maxis, Digi, Celcom and U Mobile — to offer services to retailers as mobile virtual network operators (MVNOs).

Executives at the mobile operators contacted by The Edge prefer to wait for more details before officially commenting on the GOMSPV structure, but say they remain “hopeful” that industry feedback will be gathered before the 5G network is built to ensure a win-win formula is arrived at for all parties. This would make sense, especially if there is a revenue-sharing model between GOMSPV and its customers, the mobile operators.

Among known positive factors so far is the fact that spectrum is being given entirely to a government-controlled entity, which cuts the risk of spectrum being under-utilised by some recipients while not being enough for larger players that find themselves needing to lease more spectrum.

More details are expected to be announced when the line-up for GOMSPV is unveiled to allay concern over the lack of experience on the part of the government in terms of building, owning and operating a 5G network. To be a convincing beacon for the industry from the get-go, the people leading and overseeing GOMSPV will have to include names that are not only familiar but also have standing among existing private sector players, say observers.

It was speculated that Ralph Marshall, who had more than 40 years of experience in financial and general management when he retired from billionaire Ananda Krishnan’s private vehicle Usaha Tegas Sdn Bhd in 2017, is a front runner to lead GOMSPV. Whether there is any truth to such talk, it should be known by end-March or even as early as this week.

Transparent public tender and parliamentary oversight through the Public Accounts Committee (PAC) will also help allay concerns about potential cost overruns from procurement shortfalls.

Building on strategic advantage

Credibility is essential if Malaysia hopes to win sizeable and meaningful investments beyond the basic digital infrastructure.

When the RM21 billion National Digital Network Plan (Jendela) was unveiled in August last year, 5G was believed to have been pushed back to at least 2022 with policymakers prioritising upgrades to broadband and 4G and shutting down 3G by the end of this year. Sunsetting 3G by year end continues to be a target, says Fadhlullah, but added that prioritising 4G upgrades and fiberisation didn’t mean 5G investments were not important. The GOMSPV set-up that is part of the broader national digital agenda proves Malaysia’s commitment to investments in next-generation digital infrastructure.

Malaysia needs to step up efforts on 5G to regain lost ground even as regional peers such as Singapore, Thailand and even Vietnam pushed ahead. In January, Vietnam’s Viettel, which has more than 50% share of the broadband market, said it had developed its own 5G radio network base stations and would be rolling out commercial 5G mobile services in June. Singapore is expected to see full commercial launch by mid-2021 after limited commercial trials since last August. When launching commercial 5G services last August, the Thai government said 5G technologies would be used to turn the country’s Eastern Economic Corridor and large cities into smart cities.

The most basic digital infrastructure foundation block is the fast and reliable broadband connectivity for all through fiberisation and the long overdue making of the internet as the third utility (like water and electricity) that is being pushed via Jendela, which was an enhancement of the National Fiberisation and Connectivity Plan (NFCP).

Apart from the renewed emphasis on 5G infrastructure, international connectivity and the availability of hyperscale data centres plus cloud services are also fundamental digital infrastructure necessary to attract high-quality digital investments to accelerate digital innovations across various industries by businesses seeking to future-proof themselves.

As announced during the launch of MyDIGITAL and the Malaysia Digital Economy Blueprint on Feb 19, RM1.65 billion will be invested by several telecoms companies to strengthen connectivity to the international submarine cable network. Between RM12 billion and RM15 billion will be invested over five years by cloud service providers (CSPs) in hyperscale data centres and cloud services necessary to support the expected surge in data storage requirements and the need to improve analytical efficiency and reduce operating costs. Microsoft, Google, Amazon and Telekom Malaysia Bhd are the four CSPs given conditional approvals so far.

To become an agile and data-driven administration, all government ministries and agencies are to use cashless payments and 80% of the public sector will be on cloud storage by 2022, according to the blueprint. The Malaysian Administrative Modernisation and Management Planning Unit (Mampu) has been mandated as the sole agency to drive the public sector digital transformation agenda.

As mentioned by Fadhlullah at a briefing on Feb 22, Malaysia will continue to build and attract submarine cable systems here as international connectivity not only lowers internet costs but also has income-enhancing spillover effects. It is understood that the country has a strategic geographical advantage when it comes to attracting investments in this key area.

Whether there will be yet another change in 5G direction should there be another political leadership change is a key question that policymakers would have to address clearly if Malaysia hopes to convince businesses and investors to put their money here and not somewhere else.

 

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