Malaysia’s 5G Roll-Out Monopoly Faces Headwinds

By Raman Letchumanan

KUALA LUMPUR, Malaysia--A few days ago Reuters reported, citing industry sources, there are no takers for the government’s 5G network, as major telecommunication providers (telcos) balk over pricing and transparency, even as the 5G roll-out is scheduled for Dec. 2021.

In an immediate response, Digital Nasional Berhad (DNB) countered by saying Reuters elected to ignore the facts, and presented an inaccurate and lop-sided view. DNB clarified the telcos have yet to sign up because the Reference Access Offer (RAO), basically the terms and conditions for access, has yet to be finalized.

At first glance, if such a contradictory stance reminds us of the cabotage wrangle we witnessed, you are right on, but with a slight difference. The cabotage issue is about facilitating digital network connectivity between Malaysia and the rest of the world, while the national 5G roll-out is about employing the latest digital network access within Malaysia.

Both complement and seamlessly deliver the world’s digital connectivity and control to the palm of your hands.

The contending parties are similar, the government/state owned entity versus multinational high-tech giants/local telcos or mobile service providers respectively. This undue government intervention and influence into the thriving private business has certainly raised eyebrows.

DNB is a government owned entity given exclusive 5G spectrum rights and to build the network infrastructure facilities, which telcos could access for a fee to provide retail services and products; compared to the current arrangement where telcos own/share infrastructure facilities, spectrum rights, products and services.

However, such a model was not successfully implemented elsewhere. Mexico’s state entity, Altan Redes with such a monopoly, has ended up under bankruptcy protection.

As the government and the big private players slog it out with incomprehensible technical jargon and vague answers, the public are naturally caught in a bind. My friend who bought a 5G enabled device based on the promised roll-out early this year is still waiting, but the device is now outdated.

More importantly, consumers and taxpayers should be concerned about its impact on our already bleeding national economy, dire fiscal position, record budget deficits, bursting debt ceilings, and the need to borrow for development, and even operating expenditures.

Why would the government spend RM16.5 billion of taxpayers' money on an initiative, which the industry is clamouring to do themselves at no cost to the government, based on an industry arrangement that has worked well so far?  

Eerily, this raises the spectre of the 1MDB debacle being played all over again.

To compound this, the government’s trust-and-transparency deficit is at an all-time low. Major off-budget expenditures are only made known upon Parliament query, and the answers raise even more questions.

The DNB is one such initiative that caught the industry by surprise.

I would like to give a hypothetical analogy to better understand the DNB 5G roll-out model.

Imagine the government undertaking nationwide housing development, with the government building infrastructure and bare-bone houses, and the private sector leasing them and packaging it with further enhancements to meet specific needs of consumers.

In effect, the housing developers would become mere real estate agents, renovators or interior designers. Please ignore for the time being the real case of PR1MA which is haemorrhaging with missed targets, terminated projects, delayed completion, and a host of other issues.

Too good to believe

Augustus Ralph Marshall, the CEO of DNB, was quoted by the Star on 10 Oct as claiming under this DNB model:

(i) DNB just needs to invest RM16.5 billion, compared  to industry infrastructure capital expenditure (capex) of  RM30-35 billion.

(ii) Allows the industry to access 5G network at one-third the cost, and therefore offer lower blended unit costs to consumers.

(iii) Allows the industry to focus on the high-margin retail service and products, while DNB takes on and cushions the impact of high infrastructure capex.

(iv) Allows new and more industry players to emerge on a level-playing field, thereby promoting intense competition.

(v) In 3-years up to 2024, DNB will enable 80 percent 5G coverage compared to 4G which took 7-years.

(vi) Enjoy speeds of up to 100Mbps compared to 18Mbps currently to cater to the expected data usage surge.

It is no brainer that anyone would welcome such an offering, if this is delivered and works. Malaysia would be a trendsetter in the world for government owned 5G network delivery and its future generations.

But the question that immediately springs to our mind is, why such an effective model wasn’t adopted earlier when the industry was struggling to grow on its own, at the time such government assistance was most needed.

Or is the time right for the picking as they would say. It simply sounds too good to believe.

Telco’s would be queuing up to sign up to the RAO with such lower costs, extra funds saved from capex, and ability to profit from high-margin services and products.

But the fact DNB says more time is needed to convince the industry indicates something is not right. Maybe the telcos are ganging up to extract even more concessions from DNB, which means further costs to the rakyat.

DNB explains this delay as their initial timeline was “too optimistic”. So much for planning.

I rather trust the industry voices reported by Reuters, than DNB blowing its own trumpet.

I believe telcos are more concerned about its industry structure being relegated from housing developers to mere real estate agents and such.

Furthermore, its umbilical cord will be permanently attached to the vagaries of the ruling politicians, dictating the policies of DNB.

Therefore the issue of the industry losing its value in the longer term is real. However, DNB counters it disingenuously by saying the stock prices of all listed telcos have outperformed the larger FTSE Bursa Malaysia KLCI since the announcement of DNB in Feb 2021.

Even a novice trader will know stock prices have generally improved as COVID-19 restrictions were relaxed, that telcos being the mainstay of digital economy would perform better during the pandemic, and more importantly value dilution occurs over a longer period of time after the full impact of roll-out is felt.

The killer punch in the CEO’s claim is, “Our model is 100 percent debt-financed and is based on securitization of cash flow and contracts”.

Yes, this is how 1MDB was modelled, and debt-financed to about the same amount of US$6 billion loan. 1MDB had a similar lofty mission, to invest in assets of national strategic and security interest.

But now the rakyat are burdened with about RM40 billion debt, incurring about RM2 billion annually in interest payments. There is absolutely no cash flow from contracts and investments to pay off the debt and interest.

1MDB was helmed by the Prime Minister and Finance Minister then, and the corporate who's who were in the Board of Advisors, Directors and top management. Now from the Prime Minister down, each of them are saying they are faultless, duped, followed instructions blindly, and blaming each other.

I don’t know what direction DNB will take, but 1MDB is world renowned for squandering a sovereign development fund.

There is ample evidence that the government doing business through monopoly can sap the vitality of the industry. Our telcos have done very well on their own and are making inroads overseas, so why disturb them now.

The industry takes its own risk and reward with no financial impact on the rakyat. Haven’t we learnt our lesson in bailing out government linked private entities, such as Felda and Tabung Haji, when its industry peers are thriving?

Many of these telcos earn above the threshold of RM100 million profit. The government could just collect 33% in prosperity tax, and let these companies sweat it out and earn the revenue for us.

Rich nation, poor citizens

The government justifies DNB’s intervention in terms of providing access to all, which the profit-minded private sector would neglect. That was the same argument for PR1MA.

It is a basic tenet of development planning that prosperity for all with no poverty would create the demand for basic goods and services for the private sector to venture into. But our government does the opposite, by maintaining the poverty level.

As I wrote in my recent opinion piece, based on the 12th Malaysia Plan, even as the government aspires to become a high income nation by 2025 at RM57,882 per person, the government only targets to eradicate hard core poverty (earning less than RM1,168) for 27,158 households or 0.4 percent.