This article first appeared in The Edge Malaysia Weekly on December 26, 2022 - January 8, 2023

A well-established fact in telecom economics is that adoption of next-generation infrastructure drives economic growth (as measured by GDP growth) by ~1 to 2ppts. However, the extent of the impact depends on the quality of the network, how fast it is deployed and how affordable the services are. In all these dimensions, Digital Nasional Bhd (DNB) enables Malaysia to lead.

Globally, operators are struggling with the economics of upgrading infrastructure. Flat-to-declining revenues and ever-­increasing costs have put operators in a position where they struggle to build to the levels they are used to. Malaysia’s approach of concentrating 5G investments in a single shared network, utilising all available spectrum, improves industry economics by removing the waste of duplicated networks and driving scale economies. This has already led to:

Lower production costs and faster at-scale buildout of network translates into concrete benefits to consumers and businesses, accelerating economic activity as a result.

Benefits to consumers

Lower industry cost and better performance is already being enjoyed by Malaysian consumers and businesses. Price/GB for 5G in the market today is ~RM1 (versus the ­average 4G price of ~RM2 in 2021). Available download speeds on DNB’s network are faster by a factor 16 compared with legacy networks and ~50% higher than the global average for 5G (285Mbps versus 185Mbps). Beyond that, this will have broader social benefits, for example, enabling improved access to education and healthcare.

Given current inflationary pressures, a direct implication is the ability to lower household expenses. With DNB’s 5G single wholesale network (SWN), consumer mobile telecom spend is reduced by half versus current 4G levels, a material counter to inflationary forces in most other categories. This is especially true for the B40. A 50% reduction in mobile spend (RM1/GB versus RM2/GB) translates into household savings of between RM60 and RM70/month (or RM720 to RM840/year), >25% of average B40 household net income (or savings).

The reality is that if mobile network operators (MNOs) were to deploy 5G themselves, they would do it:

Benefits to businesses and economic activity

5G has the potential to drive significant improvements to economic productivity, enabling an additional 4% to 5% of GDP growth cumulatively over the next 10 years. This comes from enterprise adoption of 5G use cases that enable increased automation, workforce enablement, and real-world applications of artificial intelligence (AI). This has impact across most sectors and government, with the most important outcomes being increases in:

Beyond the direct GDP impact, this will also lead to broader structural benefits by moving “up the value chain”, for example, the creation of higher-paying jobs, reduced reliance on foreign labour and increased attractiveness as a target for foreign investments.

There has been discussion around spectrum refarming by the MNOs. This presents real tradeoffs for the nation (and regulator) to consider. On the one hand, there is merit to enabling maximum usage of scarce spectrum. As 4G traffic declines, 200MHZ to 400MHZ of valuable spectrum could over time be refarmed for 5G use.
However, counter-intuitively, spectrum refarming will result in higher 5G prices for consumers. Refarming spectrum would necessitate 5G network buildout by the MNOs, with anywhere between one (if shared) and three (if deployed independently) additional 5G networks getting deployed in Malaysia. Each of these scenarios results in higher cost for 5G, given demand will be split across any­where between two and four 5G networks (including the DNB network). Our estimates suggest the MNOs’ cost of providing 5G would be between 30% and 60% higher than that of DNB under a SWN construct. This has the additional adverse effect of increasing DNB’s own 5G cost — assuming one additional 5G network is launched and DNB’s network gets only half the available 5G traffic, prices to consumers would have to go up by 50% to 60% to provide the same returns profile and to avoid the need for subsidisation.

The currently earmarked cost is RM16.5 billion to roll out to 80% coverage. Given expected demand for an SWN, we would expect to “fill” the network by the 2027/28 timeframe, triggering then additional investment over the subsequent four to five years. DNB is expected to turn cash positive in 2025, cumulative cash positive by 2031, and secure an 8% internal rate of return by 2032/33. By the end of the licence period in May 2031, the government would have built out an asset worth ~RM15 billion to RM20 billion based on the value of running the 5G SWN as a going concern until the end of the 5G era. Beyond that, there is upside from expansion into the provision of private networks, edge computing infrastructure, and 5G “core as a service”. 

This creates value for MNOs as well. Beyond the dividends they will enjoy as shareholders of DNB, a single national shared network saves the industry ~RM15 billion in network investment over the next 10-year period — funds that can either be used by operators to fuel further investments in services and technology, or shared with consumers and shareholders.

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