5G, 5G, 5G

Wong Chin Yoong

Malaysia will transition from a single wholesale network to a dual wholesale network model once it attains 80% of 5G coverage for the country’s populated areas by the end of the year. – EPA pic, May 11, 2023.

IT was an eventful week for 5G development in Malaysia. The government announced a transition from a single wholesale network (SWN) to a dual wholesale network (DWN) model once it attains 80% of 5G coverage for the country’s populated areas by the end of the year.

CelcomDigi Bhd terminated DNB’s share subscription while Malaysia was allegedly warned by US and EU envoys about the risk to national security if untrustworthy suppliers were allowed to participate in the 5G rollout, and the likely hesitation of Western direct investment in Malaysia if the existing model were to be upended.

The government did not only indicate that it has no intention to be part of the second network operator but that it will also will be selling off stake in DNB so that the entity can be wholly owned by a private company.

The envoys’ letters to the Malaysian government opposing the transition were the least important news.

The letters are more about Ericsson’s business interest if the existing contract is revoked rather than a genuine concern about Malaysia’s national security risks. 

And there is no reason for the US or EU to object to the opening of the tender for the remaining 20% of potential vendors, including Huawei, as the DWN is meant to hedge against disruptions and risks on one of the networks.

Foreign companies uncomfortable with one network can always opt for the other.

Having said that, risks to national security risk, unlikely as it seems to be now, are not something we should dismiss just because the EU countries warning us about them are perceived to be hypocritical, being themselves users of Huawei 4G and 5G equipment.

They receive no less criticism for their overexposure to Huawei equipment, self-creating a Keohane and Nye’s sense of vulnerability interdependence with China for a strategically sensitive area as telecommunication.

They should know better after going through an expensive fall and winter last year when Russia terminated the gas supply.

Unfortunately, by letting the selection of the second network infrastructure operator be wholly market-driven, national security risk has no chance to enter the equation. But fortunately, a DWN model is a natural hedge against such risk as users have choices.

The more important issue in this saga is whether dualistic competition can really spark retail innovations, driving down end-user prices. Frankly speaking, no one knows.

The prior insistence of adopting SWN managed by the non-telco entity is to end telecom oligopoly and lower average per-user cost, as the cost of network construction is shared across the entire population.

What mobile network operators (MNOs) need to do is to solely focus on retail innovation to deliver better quality at lower prices. This sounds superb, at least principally.

However, now we are told that the shift to DWN would foster market competition even at the wholesale level, leading to better network infrastructure performance for a more satisfying customer experience, which is, well, equally probable at face value.

But vice versa cannot be ruled out completely. The cost per user for the construction of the second network to cover the remaining 20% coverage is likely to be higher.

At the same time, they would still need to subscribe to DNB’s 5G wholesale services to offer coverage of 80% for their customers. How exactly multiple layers of pricing structure as such would lead to a lower retail price than the SWN model remains to be seen.

There is also no guarantee that dual networks will compete in prices for market share, through which retail prices can be driven downward to approximate the cost per user.

What’s more likely, however, is the Cournot competition, where the network operators compete by differentiating their products given the market prices, which often results in a smaller consumer surplus.

Leaving prices aside, perhaps the most important yet under-discussed aspect is what we can do with our current 5G network.

Unlike the partnership between Singtel and Ericsson in Singapore which launched the standalone network, the 5G deployed in Malaysia is a non-standalone architecture that relies on 4G as the anchor.

The differences between the technical capabilities of the two networks are not trivial

Although non-standalone networks can still deliver unprecedented data speed, standalone (SA) is the one considered the true 5G network by providing ultra-low latency and network slicing critical to realising the potential of IR4.0 and opening a plethora of possibilities in businesses.

Without the standalone network, will we again miss the opportunity of digital transformation impactful for long-term potential growth? After all, 5G shall be more than just speed.

Alas, we have more questions than answers now. – May 11, 2023.

* Wong Chin Yoong is a professor of economics at Universiti Tunku Abdul Rahman, Kampar campus.

* 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.

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