GSMA raises concerns over Malaysia’s 5G rollout

Malaysia aims to launch commercial 5G services by the end of 2021 through Digital Nasional Berhad (DNB), a special purpose vehicle (SPV) under the Ministry of Finance. GSMA Intelligence has released a paper which highlights potential risks and challenges of deploying 5G through a single wholesale network (SWN).

Instead of assigning 5G spectrum to multiple private mobile network operators, Malaysia has decided to go with a SWN approach which promises to accelerate 5G rollout and to lower cost of deployment. This means existing 4G telcos will only be able to offer 5G services through a wholesale agreement with DNB and there’s no difference of coverage between operators.

Single Wholesale Network challenges

The GSMA report said during the 4G era, some countries had tried the SWN approach hoping that it will achieve better coverage than the traditional deployment that’s based on market competition. However, evidence has shown that this model is risky and has shown little success.

The report states “Only three networks have been rolled out, with other markets beset by slow progress and delayed and/or cancelled launches. Kenya, Russia and South Africa abandoned SWN projects, while those that are live today have all experienced difficulties.”

However, having a SWN approach can be successful if it is adopted in the right situation such as focusing on areas where competitive networks are not commercially viable. In the UK, four operators EE (BT), Vodafone, O2 and Three UK have created a new company that’s tasked to build a single joint mobile network in areas where none of the operators provide coverage. The funding is supported through reduced spectrum fees.

Implications to the industry and consumers

The GSMA report has mentioned that Malaysian telcos have been focusing on deploying 5G in the past few years, conducting field trials, selecting vendors, establishing innovation centres and raising CAPEX to support future 5G deployment. It said that formation of DNB will disrupt operator’s 5G deployment and commercialisation strategies especially plans to increase infrastructure sharing to accelerate next-generation network rollouts. It also raised concerns that the DNB approach would dull incentives for telcos to invest into new technologies as the government’s intervention in 5G could lead to potential misdirected resources by operators.

Prior to the decision to assign 5G to a single government entity, Maxis has asserted its readiness to deploy 5G as soon as “spectrum is made available” while TM has expressed its eagerness to use the 700MHz spectrum to provide fixed wireless access in rural areas. There were even plans by TM to trial Dynamic Spectrum Sharing (DSS) on 700MHz which can serve both 4G and 5G users simultaneously.

To speed up deployment and to reduce cost for 5G rollout, local operators have collaborated to reduce duplication by sharing infrastructure. Celcom and Maxis were the first to conduct 5G Multi Operator Core Network (MOCN) trial in Southeast Asia, while Digi and U Mobile have also explored network sharing with TM.

It is also worth noting that TM is the first in the world to successfully conduct a 5G Standalone (SA) trial on both 700MHz and 3.5GHz bands simultaneously. During the early phase of the pandemic, TM had also deployed 5G base stations at COVID-19 quarantine centres to provide free WiFi.

The GSMA report states that the the SPV decision by the Malaysian government is reportedly made with limited industry consultation and it isn’t clear if the planned spectrum allocation will be enough to adequately serve all mobile operators. It added that not assigning valuable spectrum to operators directly constrains their ability to gain a competitive edge through coverage and service differenciation. Another concern is that the wholesale agreement could create inefficiency by preventing telcos from optimising their existing portfolio since the 700MHz, 3.5GHz and 28GHz spectrum will only be assigned to DNB.

The biggest challenge ahead is for the MCMC to provide appropriate oversight of DNB which is a government-owned entity. While the MCMC has assured that it will treat DNB like any other private telco, the GSMA report states that the regulator would need an effective framework for the new entity to ensure equal access on fair pricing terms. It said that the uncertainy of the ‘rules of the game’ may harm investor confidence and would slow the adoption of 5G services.

SWN could be more expensive

The report also shared concerns that a move to SWN could potentially be more expensive. The 5G Task Force had estimated in 2020 that the total cost of a network upgrade to 5G is RM7.5 billion, inclusive of RM5.1 billion required for 10,000 sites. With the recent announcement by DNB, the current 5G deployment will cost RM11 billion over 10 years.

DNB was first announced by the Ministry of Finance on the 1st of March 2021 to rollout 5G in the country. The company appointed Ericsson to build and manage Malaysia’s 5G network in a short 3-month tender process. According to the company, it invited a total of 8 network equipment providers but only 4 submitted their bids.

Responding to critics, DNB explained that Ericsson was picked as it ranked top in technical, commercial and socioeonomic factors. It also said that Ericsson’s estimated cost is around RM700 million lower than the next closest bid. Ericsson will provide financing for the network equipment while DNB will securitise future cashflows from its wholesale business via Sukuk to finance other operating expenditures. DNB aims to provide 80% 5G population coverage by 2024.

You can read the full GSMA report here.

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