Malaysia’s dual wholesale 5G network could be boon for telcos, but questions remain: Analysts

MALAYSIA’S plan to introduce a second wholesale 5G network, confirmed on Wednesday (May 3), could be beneficial for the nation’s mobile network operators (MNOs) as it would allow for network and service differentiation, analysts said.

But questions remain around issues such as the type of spectrum that will be made available, as well as its ownership model.

Citi analysts Luis Hilado and Arthur Pineda said the announcement will likely bring share price rebounds for MNOs as the news lifts the sector’s overhang.

“Telekom Malaysia could emerge as the biggest winner if it gains new fibre contracts not only from the acceleration of Digital Nasional (DNB) rollout this year but from the (second entity) that will be formed next year,” they said.

DNB is a government-owned special purpose vehicle (SPV) that has been tasked to deploy the nation’s first wholesale network.

The government’s initial plan was to have just one 5G network for the whole country, built by DNB and partly owned by the telcos.

This idea had been unpopular, however, with some concern about transparency, pricing and the monopoly created. Maxis chose, at the last minute, to pull out.

“Meanwhile, the decision provides (clarity on) Maxis’ previously cloudy 5G fate and potential market share losses on the back of it,” the analysts added.

Maxis and U Mobile withdrew from the 5G single wholesale network programme in October last year as they did not see benefits in being a minority shareholder of the network.

CelcomDigi announced on Wednesday that both DigiTel and Celcom Mobile have also terminated their respective share subscription agreements. This comes as the long stop date to fulfil all the conditions under the agreement has lapsed, the company said.

Both companies, which merged to form CelcomDigi in December last year, had initially planned to take up a combined 25 per cent interest in the DNB.

Sai Tunuguntla, Alix Partners’ Asia-Pacific technology, media and telecom co-leader, said differentiation at the network layer is “vital” for telco operators and its customers.

“Given the diverse base of 5G customers and their needs, there will now be an opportunity to architect the networks differently and to pursue alternate service hypotheses,” he said.

He highlighted a number of “key elements” that will determine the success of the second wholesale network.

These elements include the ownership model and how it could be different from the current DNB, as well as how the government may reduce uncertainty for telcos during the transition.

Ideally, there would be true competition between the dual networks, he said, adding that addressing these issues will not be easy, given the legacy investments made and the need to bring diverse stakeholders together.

The Citi analysts also noted questions remain on how the DNB’s frequencies, built-out assets and networks will be transferred to the new network, and at what cost.

“The dissolution of the 5G wholesale concept completely and reversion to the individual company capex model would address the private sector’s prior concerns on the wholesale model – but could involve reversing prior stake purchase and access agreements and sorting out the distribution of DNB’s frequencies and assets,” they said in an earlier note on Mar 30.

They also cited uncertainty on whether existing 4G operators will be allowed to launch 5G on their existing 4G spectrum in the interim, as well as how the government would incentivise parties to be involved in the startup of the new 5G network.

“A new overhang could emerge if updates to the phase two portion by 2024 are not regularly provided,” they said.

Communications and Digital Minister Fahmi Fadzil told the press on Wednesday that the second wholesale network will be rolled out only after the first wholesale network reaches 80 per cent coverage of populated areas.

In January this year, DNB said that it aimed to achieve the milestone by end-2024.

Fahmi added that the nation’s network coverage of populated areas currently stands at 57.8 per cent. This leaves another 2,000, or 22.2 per cent of sites to be covered before achieving the 80 per cent target.