Industry status

DNB-Led 5G Rollback Reflects Looming Change in Industry Status Quo

Last Wednesday (November 10), Reuters released a report titled “No takers for Malaysia’s 5G plan as major telecom operators balk at pricing, transparency,” claiming that none of the major mobile operators Malaysia had only agreed to use the government-owned 5G network, although initially the 5G rollout was slated for December.

In fact, Digital Nasional Bhd (DNB) had demonstrated to the media the same day that its 5G Multi-Operator Core Network (MOCN) had successfully integrated with five mobile operators.

Calling the article inaccurate the next day, DNB said price negotiations would not begin until an applicable Reference Access Offer (RAO) document was finalized, which forms the basis for the conclusion. commercial agreements by DNB with licensees seeking access to the 5G network. DNB expects the RAO to be finalized by the end of the month, with the approval of the Malaysian Communications and Multimedia Commission (MCMC).

“We will only be able to register telecom operators after the publication of the RAO. It is therefore clear that DNB has not requested any registration and does not expect mobile network operators (MNOs) to sign anything before the publication of the RAO, ”the DNB statement read.

Noting that the stock prices of all listed telecommunications companies have outperformed the wider FBM KLCI since the government announced the formation of DNB and its 5G mandate on February 18, DNB also refuted claims that the telecommunications would end up being less profitable by leasing 5G capacity and could end up paying more than if they deployed 5G themselves, factoring in emergency costs to determine the desired network quality.

DNB chief operating officer Dushyan Vaithiyanathan previously told Reuters the plan would cost only RM16.5 billion, about half of the RM30-35 billion it would cost operators to build them. – even a separate 5G infrastructure, avoiding duplication. He also said that DNB is working closely with MCMC to put in place strict guidelines that will ensure fair pricing and smooth deployment.

Ensuring that there are no excessive profits at DNB is positive for telecom operators and necessary to deliver what the structure promises to do for the country.

No commercial ambition, vested interest

Asked about fears that DNB is a competitor to its customers, DNB CEO Ralph Marshall told The Edge that “DNB has no retail ambition”, is not licensed to provide retail services. retail and may only provide wholesale services to persons authorized under the Communications. and Multimedia Act 1998. “DNB is therefore not in a position to reserve 5G capacity other than to provide wholesale 5G capacity to licensees. “

For those familiar with the business of the industry, however, the fact that it took nine months for news of serious dissent to appear in public is perhaps more surprising than there is hindsight. industry on how the government wants telecommunications infrastructure development to happen in the future. .

“We are talking about [contracts worth] Billions. Of course, there are special interests… many don’t want the status quo to change and not necessarily because they are concerned about the quality of service or have the best interests of the end customer at heart. There are always people out there who would like spectrum to continue being distributed to them at low cost and we know that not all of them actually build a network, ”said an industry observer.

Leveraging vendor funding and being the only party with 5G spectrum in Malaysia, DNB, 100% owned by Minister of Finance Inc, will own 5G infrastructure that is essentially paid for the use of the streams. securitized cash flow from its customers, the country’s mobile operators, who will use DNB’s 5G network to deliver 5G services to end users.

This means that the eventuality that mobile operators are no longer able to differentiate on network quality but will have to compete on service quality and product difference to retail and corporate customers will occur even more. sooner than expected. This is already happening globally as the industry matures and players begin to share network infrastructure to reduce costs.

In Malaysia, telecom operators had become more open to sharing ‘passive’ infrastructure such as towers in recent years, but were not as inclined to share ‘active’ or the dynamic electronic part of the core network, l ‘infrastructure. Sharing of active infrastructure is already taking place in countries like the United States, Australia and New Zealand.

Structural change

As reported by The Edge in March, a multibillion-dollar question is whether DNB’s infrastructure sharing model for 5G would accelerate the slicing of telecommunications infrastructure from legacy mobile operators to infrastructure managers. third parties such as the Axiata edotco tower unit. This is so that more value can be deducted upstream for the shareholders, since network sharing will be a possibility if the next generation spectrum is no longer allocated to the operators. If done right, this approach could even increase short-term valuations for sellers, if indeed more money can be released for dividends. (See also “The Government’s 5G SPV Plan May Accelerate Structural Change in the Telecommunications Industry,” The Edge, Issue 1359, March 1, 2021.)

The question of impending structural change is also implied, albeit in a different way, in the Reuters article, in which an anonymous source said that non-5G network assets would be worth much less by 2030, when the majority of the use of the network would be on 5G. rather than 4G, which prevails today. The source argued that shareholders of telecom operators would be harmed by lower valuations over time, due to the limitations of an existing network.

While telecom operators have until now owned their mobile network infrastructure, they have had the experience of selling broadband services with wholesale capacity purchased from Telekom Malaysia Bhd’s broadband network (HSBB). – evidence that profitable retail and corporate services can be built by third parties who do not own the network infrastructure provided that wholesale prices are well regulated to ensure fair access to all actors and profits without excess by the owner of the asset.

Astro Malaysia Bhd, which is also making good profits, also does not own the satellite it has used to provide live pay-TV service to homes for the past 25 years.

Will 5G still be available in December?

DNB clarified that it is still working with operators towards a December rollout in Putrajaya, Cyberjaya and parts of Kuala Lumpur, although it expects long-term trade agreements with the incumbents. license agreements are concluded early next year. Its supplier, Ericsson, has already secured funding of RM800 million to facilitate the early stages of 5G deployment, pending the signing of commercial agreements between DNB and its customers.

The fact that Khazanah Nasional Bhd is the main shareholder of Axiata – which owns 100% Celcom (M) Bhd, which is in the process of completing a merger with Digi.Com Bhd, run by Telenor ASA – means that at least two The Big 3 telecommunications operators should intervene once the pricing issues are resolved, according to an observer. Maxis Bhd, which prides itself on being a technology leader and already offers 5G roaming to overseas customers, isn’t risking the inability to offer its customers in Malaysia 5G services.

Besides the Big 3, Telekom Malaysia and the U Mobile Bhd network have also integrated into the DNB network. The integration of the network with a sixth operator is currently underway.

The plan is to achieve 39% coverage by the end of 2022, 73% by 2023 and 80% by the end of 2024, with full-fledged 5G capabilities and the super-fast connection needed to power machines. more sophisticated next-generation smart devices and enable businesses to fully digitize operations to move up the global value chain. Targeted coverage by 2024 is expected to place Malaysia ahead of most ASEAN countries except Singapore, which aims to have two national networks and at least 34% 5G penetration. by 2024. The DNB must exploit its potential, alongside the operators for which it was created. help, so that Malaysia can move faster.