DNB’s window dressing continues

MALAYSIA’S sad 5G roll-out through the single wholesale network (SWN) model saga continues with government officials still ardently trying to convince us that our telecommunication’s industry descent is proceeding “according to plan”.

However, red flags suggest that the public must ramp up its vigilance over the Digital Nasional Bhd (DNB)-led 5G roll-out. Sadly enough, this issue is no longer about protecting our national competitiveness on the pathway to the fourth industrial revolution, which has already been severely hampered. Instead, there is a more mundane task now in front of the public watchdogs: at least save the taxpayers’ money.

More so, in line with the statement by the Minister in the Prime Minister’s Department (Economy) Mustapa Mohamed to postpone or discontinue any mega project that has yet to commence to save public expenditure and focus on what is important for the people, the DNB certainly sounds like a good candidate.

To recap a very unusual and winding pathway to the 5G roll-out Malaysia has taken thus far, we try to reconstruct its timeline below.

As you can see, at the very onset of this unusual journey, Malaysia’s biggest telcos were ready for 5G implementation as early as 2019, which at that time, could have been crucial to on-board our industry on the fourth industrial revolution.

The journey is unusual in that Malaysia is using a globally unpopular and problematic SWN model. With none among about 70 other countries already rolling out 5G adopting this model, Malaysia indeed cuts a lonely figure in its approach.

Notably, the Malaysian government has decided to stick with this very unusual path to 5G even after continuous persuasion by industry experts – local and international – backed by data, science, economics, and plain logic pointing towards the damaging impact of the SWN approach on telecommunication industry, especially for 5G, while also not solving the digital divide problem in any manner under the currently proposed DNB structure. 

A veteran of Malaysia’s telecommunication industry, Dr Muhammad Awang Lah, wrote countless articles published in the media on DNB-led roll-out from various angles and levels of technicality, appealing to the wisdom of policymakers. According to the expert, there is a need to restructure DNB to focus solely on owning, expanding and sharing the fibre backhaul among all the industry players, thus reducing the backhaul cost for the benefit of end-users while maintaining competition in the last mile, which is crucial to improve quality of service. Lack of fibre backhaul is also at the heart of Malaysia’s digital divide problem.

The years of experience in the industry also prompted Awang to underscore the importance of separation between wholesalers (lessors) and retailers (lessees). The violation of this fundamental principle is ALWAYS detrimental to the industry and the end-users.

However, DNB-led or telco consortium-led or even recently proposed jointly owned SWN model grossly violates this principle.

Furthermore, a Universal Service Provision (USP) fund is more than apt to serve the purpose of fibre backhaul expansion. It is a big question, though: why has it not been done until now if the earnest desire to bridge the digital divide keeps our policymakers awake at night (their other “jihad”)? Why is the fund sitting there merely accumulating interest with no impact on the rural areas for a decade?

Nevertheless, in complete disregard of this wise and powerful solution to the benefit of many, Malaysia’s policymakers insist on introducing DNB as one of the most expensive project management or middleman type of a company that sub-contracts everything to third parties. Note that even Telekom Malaysia does not provide “fibre leasing” – a misleading term used by DNB – to DNB. Instead, it will provide bandwidth leasing based on gbps for existing fibre.

Now the question is, who would lay the fibre and backhaul to go to the rural areas and how it will be reflected in the costs and prices of DNB and the telcos? This is not clear and never was answered by DNB! It is also not clear how they are going to solve the digital divide without this clarity.

On June 30, the communications and multimedia minister reportedly announced that six telcos, including Celcom, Digi, Maxis and U Mobile, have agreed to take up stakes in DNB while also assuring that everything is going according to plan, and that this is just a matter of another week for the equity uptake deal by the major telcos to be finalised and signed.

However, according to industry sources, what telcos have signed is just the Access Request Application Form, which is non-binding, and merely allows continued technical testing. 

Furthermore, this non-binding agreement is only a first small step in the overall standard transaction process, which is more rigorous and, importantly, includes the due diligence procedure that must be completed before public listed companies such as Celcom, Digi, Maxis can sign a shareholders agreement for a stake in DNB. 

On top of that, the outcomes of such a due diligence exercise shall become part of public knowledge since public money is involved.

This June 30 statement implying that the telcos have agreed to take up stakes in DNB is even more interesting when we remember that on May 9, these same telcos reportedly sent a letter to the Finance Ministry. 

In this letter, the four telcos used powerful words, basically seriously questioning the fundamentals and viability of the current DNB-proposed business model and making it clear that only a controlling 51% joint stake for their group is the “most viable to reach an agreement” to be able “exercise influence and control to safeguard (their) investments”.

They also clearly expressed concern over the proposed Reference Access Offer being “not commercially viable” and likely to lead to higher customer costs and slower adoption rates. 

Has DNB addressed these points of contention to claim that the four telcos agreed or will agree to the DNB terms? Or is this only a desperate “narrative management” attempt to convince the public and the banks that everything is going as planned and there is cash flow in sight for DNB?

As a reminder, DNB, in order to finance its “cost-recovery” model, is planning to issue sukuk. The sukuk will be raised as it would be given a high rating not because of its business model but because of the guarantee by the government. After all, Malaysia still has oil and gas (people’s resources). Therefore, should the DNB’s cash flows falter, covering the agency’s debt will quickly become taxpayers’ responsibility.

However, how does all of this go with the fresh statement by the finance minister on Tuesday that Malaysia can’t take on anymore debt?

Meanwhile, the telecommunication industry in Malaysia appears to have caught a high fever as the government’s seriousness in proceeding with the problematic SWN model becomes clear.

Previously blue-chip stocks of Axiata, Digi and Maxis are now in permanent decline, and, as brought into focus by The Edge Malaysia analysts, all three are paying their earnings in full as dividends lately. The corporates know that companies would do this only under circumstances where they see no prospects for industry growth and investment opportunities.

All of this is not because of, as some quarters claim, “uncertainty” associated with the 5G roll-out, but rather due to the uncertainty of a globally unpopular and problematic model for 5G roll-out.

This model has already rolled us back a few years in terms of our fourth industrial revolution development, continues destroying our telecommunications industry, which is at the core of digital economy, compromises our credibility in the eyes of global investors and places taxpayers’ money at risk. – July 22, 2022.

* Dr Rais Hussin is president and CEO at Emir Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

Sign up or sign in here to comment.