Malaysia's telcos must compete on services with 5G rollout

Singapore

MALAYSIA'S plan for all its mobile network operators to use a single government-owned 5G network will mean the country's telcos have to differentiate themselves through the services they provide, said market watchers. There could also be an opportunity for smaller players to take share from larger ones as the playing field is levelled.

The plan for a wholesale 5G network was first proposed in 2019 and shelved. It was revived this year with an infrastructure contract worth RM4 billion (S$1.3 billion) awarded to Ericsson.

Digital Nasional Berhad (DNB), a government-owned special purpose vehicle, will deploy a single wholesale network that will be leased out to existing mobile network operators.

The 12th Malaysia Plan, passed by Parliament on Oct 7, also included an additional investment of RM15 billion for the network.

This is the first time Malaysia has opted for a national mobile network. Under this system, all telcos would essentially be competing on the same network instead of building their own and competing based on network performance.

Benefits for telcos would include lower capital expenditure, said vice-president and senior analyst at Moody's investor service, Nidhi Dhruv.

Building a network, she said, requires significant expense with a long payback, since the initial utilisation of consumer 5G networks will be low and it will take time for industrial users to adopt the network.

Janice Chong, Fitch Solutions' senior director of Asia-Pacific corporates, added that telcos in Malaysia would now be able to prioritise upgrades to their existing 4G and fibre network expansion.

Under the government's national digital infrastructure plan, Jalinan Digital Negara (Jendela), there are plans to increase 4G coverage from 91.8 per cent to 96.9 per cent, increase mobile broadband speeds, and bring gigabit-speed fixed broadband to 83 per cent of premises.

Johnson Loh, South-east Asia research analyst for private banking research at Credit Suisse, said a national network rollout would be able to achieve broader coverage, particularly in the less densely populated rural areas, since DNB will not need to maximise returns on capex.

"Since the telcos would not need to invest in the network on their own, this, in theory, could allow the telcos to better invest in more innovative services, increase competition, and lower prices for the consumers, assuming DNB will be able to roll out the network efficiently," he said.

One enhanced service offering Loh expects to see is the bundling of products and services such as Disney+, event experiences and augmented and virtual reality apps for consumers.

Referencing an Ericsson report on 5G's consumer potential, Loh said service revenue from bundling such use cases could grow to US$131 billion globally by 2030.

"To differentiate their services, it will be important for the telcos to select the right partners. The key is not to go after the whole market but for telcos to pick the segments or verticals where they have the strongest internal capabilities, external ecosystem, and partnerships," Loh said.

He added that the low latency of 5G as well as the lower power consumption supported by network slicing could enable different enterprise use cases over time.

"Importantly, telcos will need to work with enterprises to identify pain points, develop use cases and help them understand the efficacy and benefits of 5G," he said.

Fitch Solutions' Chong, too, said the focus of competition will shift from infrastructure to service innovation - requiring deeper collaboration within industry verticals to develop ecosystems. She added that 4G service standards will remain a differentiating factor until then.

Moody's Dhruv also noted that the single wholesale network could change the competitive telco landscape in Malaysia as all telcos would compete on a level playing field for 5G network access.

"If telcos were allowed to build their own networks, then the larger telcos would have a head start on the 5G network rollout," she said.

According to Malaysian Communications and Multimedia Commission (MCMC) data, Malaysia's largest telco, by market share, is Maxis, with 28.2 per cent of total mobile subscribers as at 2020. This is followed by Digi, Celcom and U Mobile with 22.8 per cent, 18.3 per cent and 16.4 per cent, respectively. Mobile virtual network operators held the remaining 14.2 per cent share of total mobile subscribers.

There are, however, some concerns about whether DNB will be able to build the nationwide network efficiently and meet its target of 80 per cent 5G coverage by 2024.

While Loh is confident that the RM15 billion set aside for the project will be sufficient, he pointed out that countries that have attempted such single wholesale network projects have seen greater inefficiencies due to the sub-optimal usage of spectrum and lower competition.

Industry organisation GSM Association (GSMA) had released a report in July this year noting that Kenya, Russia and South Africa abandoned their 4G single wholesale network projects, while Mexico has seen rollout delays and Belarus has had comparatively lower mobile broadband penetration and speeds.

Mr Loh said that while some 5G trials have been conducted in the education, agriculture, healthcare, and public sectors, the scope of uses such as 5G-ambulances or smart cameras and sensors to manage traffic could be hampered if DNB fails to deliver on its network.

Fitch's Chong suggested mitigation strategies such as network collaboration and joint investments with existing telcos should be put in place to ensure an efficient rollout of 5G core infrastructure.

"We believe there is urgency for DNB to jumpstart 5G in Malaysia to catch up with regional peers such as the Philippines, Thailand, Singapore and Vietnam," she added.

In the meantime, Chong noted that telcos' pursuit of scale and spectrum ownership are likely to drive industry consolidation. The telcos are under pressure to improve cost efficiencies amid the subdued growth and high investment cost in the telecom sector, she added.

Axiata Group, parent company of Celcom, said in August that its merger with Digi was being considered by the MCMC.