EVEN as Digital Nasional Bhd (DNB) and the Finance Ministry (MOF) continue to struggle in its attempts to coerce local telcos to buy into its single wholesale network (SWN), global 5G roll-outs carry on at varying level of success. And while even Malaysia’s more successful demand-driven counterparts experience hiccups on their 5G journey, DNB’s supply-driven strategy, against this backdrop, raises even more concerns.

According to Global mobile Suppliers Association’s (GSA) “5G-Market Snapshot”, from June 2022, 205 operators in 80 countries and territories had launched 5G mobile services, with Malaysia still cutting a lonely figure in its SWN approach to 5G roll-out.

As of mid-2022, South Korea appears to be the overall leader in the global 5G roll-out.

Although China and US are leading in global 5G coverage, with South Korea coming up fourth in this list after China, the US, and the Philippines, according to the 5G Speedcheck Index updated on June 2022, South Korea is leading in the 5G race in terms of highest download speed (eight times, 11 times and 58 times faster than the US, the Philippines and China respectively).

South Korea is also among the leaders in terms of 5G availability (the percentage of time users are connected to the 5G network), according to the latest OpenSignal data as of June 2022.

The above statistics make South Korea a suitable testing ground for 5G analysis, based on which it is already possible to draw important lessons.

5G adoption among customers seems to stall even in South Korea, and it is certainly not as enthusiastic as it was in the case of its predecessor networks.

On this account, interesting comparisons were reported by Reuters on May 13, 2022. As of March 2022 (three years into 5G), the number of 5G subscribers in South Korea was just under half the number of its 4G users, while over three years into 4G roll-out, the number of its users had more than doubled those of 3G.

Similarly, in the first two to three years of 4G, South Korean telcos saw their average revenue per user (ARPU) jump from 5% to 12% annually. By contrast, very meagre increases in ARPU (3.7% for KT and 0.6% for SK Telecom Co) or even decline (4.2% decline for LG Uplus Corp) from a year earlier forced South Korean telcos to start looking into ways to diversify their core business in – so that they are still able to pay off their investors. And all of this given that South Korean telcos already spent US$20 billion on boosting connection speed by just five-fold compared to 4G. However, given the unsavory outcome numbers, they are hugely hesitant to commit resources to boost it further.

The problem that could be seen from the very beginning is now crystal clear and summed by Kevin Loughran, wireless chief technology officer for Jabil, a global electronics manufacturing company: “…the investments in technology development and spectrum are by no means incremental. They lean more toward astronomical. In order to balance these investments, the user experience in 5G cannot be incremental. It needs to be disruptive.”

To create the demand, 5G requires a true “killing application”. Such killing application, by definition, must deploy the broad 5G feature spectrum.

However, even if telcos are willing to invest heavily to provide such a broad feature set, customers may have different strategies on how to deploy it – they may still focus on a subset of 5G features that they would purchase.  

Such a “dilution” on the demand side presents a serious challenge to the overall economics of the 5G roll-out. But this is for the future when most households start having numerous robots and truly connected smart homes, and the roads of our cities will be flooded with autonomous vehicles demanding grid traffic automation – a reality that is far away even for South Korea.

As of now, the majority of Malaysia’s households save every spare sen to be able to put food on the table. Therefore, they are likely to find it even more difficult than the South Koreans to justify an extra monthly outlay for a five-fold increase in their mobile internet speed.

If an average mobile internet user is not fully utilising even the potential of 4G anyway, the question arises: is it not logical to focus the efforts on roadblocks to a faster 4G – the network that is really needed here and now – by upgrading the network, increasing national fiberisation (focus on the backhaul, lack of which, is the main cause for the lack of progress for Malaysia’s broadband expansion, according to internet pioneer Dr Mohamed Awang Lah), and repurposing or releasing an additional spectrum?

Reading Jendela’s Q1 2022 report, which, Awang insists, is still “service provider-centric, not catering to end users”, Malaysia’s 4G population coverage is “on track”. It increased to 95.5% in Q1 2022, and is well poised to achieve its 96.9% populated area coverage target by the end of 2022. In addition, the average mobile broadband speed has increased to 40.13 mbps, surpassing the original Phase 1 target of 35 mbps.

In addition, the report states that the 3G spectrum is almost completely retired. Therefore, we could consider repurposing it to increase the 4G frequency band. And, if the government could reconsider assigning sub-6 GHz band to telcos rather than DNB, this would not only allow them to organically (based on demand) roll out 5G at globally comparable costs but also simultaneously speed up their 4G networks by extending their 4G frequency band even wider (See Figure 1). Meanwhile, DNB as a government-led entity should solely focus its efforts on sharing the passive infrastructure, especially the backhaul link (one of costliest components in the infrastructure), to enable last-mile competition. Now, this is the approach that will reap significant benefits to end users.

Therefore, it is timely to ask again how all the above stand against DNB’s projected costs, supply-driven approach, ambitious coverage targets and over-arching official choreographed “narrative” objective. And most importantly, who will make up for the potential losses encountered?

Unsurprisingly, we see no progress from where the issue of major telcos taking up a stake in DNB’s SWN since end June 2022 (see Figure 2), when the communications and multimedia minister assured the public that the equity uptake deal by the major telcos should be finalised and signed “in another week or so”.

However, a month and a half later, on August 14, the Finance Minister Tengku Zafrul Abdul Aziz’s press statement implied that some of the major telcos have yet to agree to the Reference Access Offer (RAO) terms, although they have agreed to take up the stake in DNB as offered by the government.

The finance minister further emphasised that the set deadline was August 31, 2022 for the telcos to sign up and that foreign international companies were “queuing up” for access into the Malaysian market. The finance minister added that it is very hard not to allow foreign players into the Malaysian market considering the potential for lower consumer prices.

However, the belief that DNB’s RAO terms are “not commercially viable” and likely to lead to higher customer costs and slower adoption rates is precisely one of the main points of contention between the local telcos and DNB, apart from the refusal to become a “passive shareholder” with restrictive terms.

And if the RAO terms are not commercially viable even for the local telcos that operate in the local currency, margins for the foreign telcos could be further squeezed due to a very weak ringgit, making it absolutely unclear how this can be translated into lower prices for Malaysian consumers.

Nevertheless, the deadline has come and gone. And two of Malaysia’s largest telcos have j reportedly declined to take up stake in DNB even though they are still open to continue discussing how to make the “not commercially viable” RAO, commercially viable. Here lies another problem: DNB and MOF reportedly dished out another deadline – September 30, 2022 for the local telcos to sign the access agreement. This, despite the absence of a regulatory framework for the 5G Access Agreement, as MCMC has yet to release the framework covering areas like Service Level Agreement (SLA), pricing, etc. Apparently, it will be ready only in December 2022. Sign first, framework later.

We can foresee that this may lead other local and foreign telcos, including those who have stake in local carriers, to question the reasons for such a refusal. No foreign telco or investor will sign up for DNB equity under present conditions, unless MOF underwrites the risks.

It is important to note, logically, that the four telcos that took up the stake earlier will have to answer to their respective boards, as it was previously a RM200 million per telco equity investment instead of RM300 million now, given that two telcos have reportedly declined, and that the total offer of equity investment is at RM1.2 billion for 70%.

Forget not Telenor which has a substantial shareholding (49%) in Digi, who is known for their good governance and integrity with impeccable transparency, will start asking serious questions.

And past the deadline, the Malaysian public is beyond excited to see which foreign telcos take up the stake in DNB. Foreign telcos have higher standards of governance and integrity with wholesome transparency and cannot be dictated by the whims and fancies of the political masters or unreasonable deadlines.

They normally have higher and more stringent standards of due diligence and what more if they are from a developed nation. Unless it is “North Korea Telecoms”.

So, the DNB saga will be a never-ending story with never-ending deadlines. 6G is undergoing trials now, and even before the waves of 5G settles in Malaysia, 6G will start its roll-out elsewhere. – September 1, 2022.

* Dr Rais Hussin is CEO of Emir 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.