This article first appeared in The Edge Malaysia Weekly on May 1, 2023 - May 7, 2023
AFTER my last article on Digital Nasional Bhd (DNB) and the Single Wholesale Network (SWN) rollout model for 5G in Malaysia (please scan the QR code to read the full article titled “The context of how and why the 5G Single Wholesale Network model was chosen in Malaysia”), I had not intended to write another one on the issue — at least not until after the government had decided whether to proceed with DNB as a wholly government-owned entity, with the exclusive right to roll out 5G nationwide. Over the last couple of weeks, however, there was an orchestrated anti-DNB campaign in some media, ahead of last Wednesday’s Cabinet meeting. It would be wrong to allow those views to go unchallenged. Our future depends on the path we take to digitally transform our nation. All of us have huge stakes in this decision, for ourselves and our children.
I am aware that some people would prefer that I did not voice my view — they have insinuated that I have personal economic interests in DNB. Well, I do not. And I would like to return the favour by quoting Omar Suleiman: “What you see in other people is a reflection of yourself. A person of goodness sees goodness in others and a person of evil sees evil in others.”
The gist of the recent orchestrated articles is that DNB is a monopoly that will be bad; it will be necessarily inefficient. Hand DNB back to the private sector, the existing telcos. They will do good, offer cheap prices with services of excellent quality, and serve the interests of the rakyat and country.
Is it really the holy grail that it has been made out to be? The accusations against DNB are all based on supposition that all monopolies are necessarily bad, and that private enterprise is the solution. Let us look at facts and track records instead of just accusations and promises.
The whole reason that DNB was even contemplated as the SWN provider of 5G infrastructure in the first place was that the telcos were charging the rakyat high prices, offering low-quality services, falling behind in innovation and slow in rolling out 5G. Consider just Celcom, Digi, Maxis and U Mobile. They raked in RM100 billion in Ebitda (earnings before interest, taxes, depreciation and amortisation) over the last 10 years and RM42 billion in after-tax profit as well as paid themselves dividends of RM44 billion, which even exceeded their profits (by incurring more debts), and correspondingly underinvested (see Charts 1 and 2). Total capital investments of Celcom, Digi and Maxis over the last decade was RM32 billion, or just 14% of revenue, in comparison to the regional average of 20% to 25% (see Chart 3).
Because they are the gatekeepers of the digital ecosystem, their underinvestment — taking out the billions they made for themselves — resulted in our nation falling behind our neighbours in terms of the quality of network and availability. This is a fact, and the data proves it (see Charts 4 to 6 on Page 48).
Should the nation now hand DNB back to the telcos? Let us review DNB’s history. The latest announcement by the Minister of Communications and Digital is that DNB has successfully rolled out 5G infrastructure to cover some 55% of the population and is on track to providing up to 80% 5G coverage for the entire nation. This is over a period of only 18 months and widely recognised as one of the fastest globally.
Because it is an SWN — where costs are minimised, with only one shared infrastructure (like a shared highway for all cars), and, correspondingly, it gains from economies of scale in usage — it is able to sell the 5G to the telcos at only 13 sen per GB. This is far less than the existing cost of 4G by the telcos at some 50 sen per GB. Accordingly, Malaysians will benefit by paying far less, at RM1 per GB of 5G, versus the cost of RM2 per GB of 4G now — and for a far better quality of service (see Charts 7 and 8 on Page 49).
This is not merely a promise but a fact, as evidenced by telcos that have started offering 5G: YTL Communications with YES; and Telekom Malaysia with Unifi. Their 5G products (with an unlimited data plan) are cheaper — or, at the very least, competitive — compared with other Malaysian telcos as well as many global mobile network operators (MNOs) (see Charts 9 to 11 on Page 49).
In short, operationally, DNB has delivered. And fake accusations about a lack of transparency in past contracts have all but vanished.
There are a few specific criticisms of DNB that need to be addressed:
• The government is funding DNB, and its liabilities will be borne by the people. It is the next 1Malaysia Development Bhd. NO. Private sector banks are providing financing, with no government guarantee. It is nowhere close to a 1MDB structure (and where were all these people when the real 1MDB was happening?); and
• All monopolies are necessarily bad. First, this is 100% government-owned. It is not a private monopoly. There is no economic rent-seeking.
And not all monopolies are bad. There are many “natural monopolies”, such as the distribution of water and electricity, most public roads, the police force and the army. This is particularly true of necessities of life. And as I have argued before, the internet is now a necessity, no longer a “nice-to-have”. Every citizen has the right to have access to the internet, just like electricity and roads.
Acknowledging that there are valid fears that, over time, a government-owned entity may fall behind the curve and have less incentive to be efficient, given its monopolistic position, is there a rational win-win strategy that minimises the risk to the country while allowing the nation to rapidly move forward in the rollout of 5G at the lowest cost and a high quality of service to the people?
I would like to suggest the following:
• Let DNB continue to roll out the 5G infrastructure, as it has done an excellent job. To facilitate this, the government needs to decide on this matter quickly to enable DNB to draw on its financing facilities. Only then will it get its equipment, which is already delayed. The government does not want to be responsible for not delivering the 80% target by this year end;
• Get the last telco holdout to sign up for the Access Agreement with DNB, so that 5G is available to all Malaysians immediately. This attempt to hold back the country contrasts sharply with all the other telcos. For example, Celcom and Digi have offered all their current 4G plan subscribers a free upgrade to 5G till May 31, though this offer has not been widely marketed.
Costs to Malaysians will fall and this will help reduce the cost of living for the rakyat. It is perfectly understandable that the telcos do not wish to promote 5G plans now, as the lower price of 5G compared to 4G will negatively affect their profits.
Why? Because 5G will not be as profitable as 4G for the telcos. They prefer to sweat their existing 4G investments to maximise their profits first. And this is exactly the reason you need to separate the provider of the basic infrastructure from the retailers of the services. The real competition to benefit the rakyat is where there are no barriers to entry to provide retail cellular services. And this can be achieved by separating the provision of infrastructure from the services — much like separating the highway operators from the car vendors;
• Once 5G is rolled out, the government can then decide the next course of action. If it believes, then, that this infrastructure company, DNB, should not be owned by the government, sell it or list it on Bursa Malaysia. There was a valuation done by Maybank Investment Bank that puts a preliminary valuation of RM15 billion for DNB based on a 15-year spectrum assignment.
Have an open tender, invite foreign and local participants. Surely, this government will not do any direct negotiation with only some of the existing telcos, especially if the price falls significantly below the RM15 billion base valuation.
Alternatively, list DNB on Bursa Malaysia 24 months from now. It will be good for the development of our capital markets, and a feather in the cap for this government; and
• What about a Dual Wholesale Network (DWN) two to three years later? Go ahead, if there are valid reasons then. My belief is that this is only a red herring. The reason for low costs and high quality is because of economies of scale through an efficient single infrastructure for 5G — much like why we have only one highway system. And as technology progresses, with higher speed and lower latency, investment costs will escalate. For a fairly small economy, it will not be sustainable to have wasteful duplications. But this can be a subsequent decision, based on data and facts, when the time comes. There is no need to decide now.
In any case, what is being discussed now is NOT a DWN. It is not creating two competing wholesale networks but a duopoly, that is, two consortia of telcos — one Digi+Celcom and the other Maxis+U Mobile — each to build its own 5G infrastructure plus direct selling to its customers. The result is a worsening of what transpired in the past decade — by further concentrating economic power from four telcos to two. How is this better than an SWN owned by the government that expands competition, removing the telcos’ role as infrastructure gatekeepers and intensifying competition among the retailers?
Last but not least, it has been less than three years since Malaysia initiated the development of a digitalisation vision and plan, and little over a year since the then government decided to proceed with its 5G rollout via an SWN operated by DNB. While it is the right and responsibility of every government to review past decisions, to improve upon and to evaluate, and make better decisions to serve the people, reversing the 5G policy today would surely inflict reputational damage on the country — and further raise the perception risks of investing in Malaysia.
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