We can all agree that digital transformation is key to Malaysia catching up with its regional peers, in terms of improving productivity, creating jobs and opportunities, and raising the standard of living of the people, as well as profits and wealth. By most yardsticks, we have taken a decisive and successful first step — in laying out the digital foundation, upon which the digital ecosystem can now grow. A key part of this digital foundation is the 5G single wholesale network (SWN) undertaken by Digital Nasional Bhd (DNB).
The high-speed and ultra-low latency achievable by 5G networks will be the key driving force for innovation and productivity enhancements across almost every industry for the foreseeable future. Clearly, it is crucial for every country, in order to remain globally competitive.
Why 5G has to be a public infrastructure — to ensure rapid rollout
DNB is a government-led initiative, first mooted under MyDIGITAL — the Malaysia Digital Economy Blueprint — that was launched back in early-2021. It is 100%-owned by the government under Minister of Finance (Incorporated) (MOF Inc), at least as at December 2023.
The decision to bypass the private sector telcos and roll out 5G as a public infrastructure (a strategy that was carefully put in place in 2021) was not without controversy, especially after the change in government in 2022. There were many naysayers raising questions about the ability of DNB, a government-owned special purpose vehicle, to execute the 5G rollout plan within the promised timeframe and budget. The proof, as they say, is in the pudding.
In less than three short years, DNB has expanded 5G network coverage to 80% of the population, a veritable record rollout speed for Malaysia and one of the fastest in the world. For comparison, it took the three major telcos six years — more than double the time — to reach a similar percentage population coverage for 4G. Why? Simple — because of economics.
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Telcos are private companies, whose primary objective is to maximise profits and shareholder value. Hence, they will only roll out coverage to areas if and when there are sufficient users and revenue to justify the costs. We are almost certain that the 5G rollout would have been even slower than that of 4G if left to the telcos — due to the high upfront capex, limited enterprise user cases and lack of killer app for retail users currently. Indeed, prior to DNB, our 5G rollout was dismal, lagging far behind many Asean countries including Indonesia, Vietnam and Thailand (see Chart 1). And Malaysia could hardly afford to lag, again.
We are already falling behind in terms of attracting Asean foreign direct investment (FDI). Malaysia has been stuck in the “middle-income trap” — we became an upper-middle income country way back in 1996. Nearly three decades on, we have yet to progress to high-income nation status. At the start of 1980, our per capita income was not much different from that of Taiwan and South Korea. Today, we have fallen far, far behind (see Chart 2). As we have emphasised time and again, digital transformation is key to regaining competitiveness in the region. And to do that, we need 5G infrastructure. As with most critical infrastructure — such as highways, power, water, sewerage, airports and ports — the government must be the catalyst.
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“Build and they will come” — to accelerate the digital transformation that is so critical for jobs and livelihoods. Thanks to DNB, Malaysia has leap-frogged all its Asean peers — and indeed, much of the rest of the world, to the forefront of 5G, giving the country a leg-up in the global digital transformation race (see Chart 3). Can you name another positive economic indicator where Malaysia ranks above Singapore, other than our 5G data speed?
Yes, one could argue that the high tested speed is down to low adoption among Malaysians. This is a fact — adoption is poor, with less than 11% of the population, or 3.6 million, 5G users currently, when 80% of the population have access. Why?
We attribute this to serious pushback from the major telcos, delaying their signing of access agreements with DNB. This is no surprise. The telcos have been highly profitable. They do not want to disrupt the status quo. All previous generations of mobile networks have been awarded to, and rolled out by, these companies. Thus, losing 5G spectrum ownership is perceived as a threat to their existing business models and future profitability.
Case in point, less burdened by legacy network, Yes was the first operator to launch 5G services in 4Q2021 while Maxis was the last telco holdout, only signing on to DNB’s network in August 2023. Even then, Maxis, Celcom and DiGi — which collectively account for a 67% market share of Malaysia’s mobile subscribers — are charging their subscribers extra for 5G.
In the absence of compelling enterprise user case and retail killer app, not many are inclined to pay the additional surcharge. If 5G had been automatically upgraded and offered to all users as part of their existing packages — as Yes, UMobile and Unifi have done — we have little doubt that adoption among Malaysians would be much higher. Why would anyone turn down the offer for higher speed at the same price, or even better, lower price (more on this later)?
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As we noted, the telcos’ primary objective is to maximise their shareholder returns. And that means they will sweat out their existing 4G assets for as long as possible. This is yet more evidence why allowing government-owned DNB to roll out 5G was the right decision for Malaysia.
Why a SWN — operational and cost efficiency
The previous government made the decision that DNB will be solely responsible for the rollout of 5G network in the country, operating a SWN. That means all mobile network operators as well as mobile virtual network service providers will share this one single core network infrastructure, using the Multi-Operator Core Network (MOCN) technology.
Given that the SWN is a new structure for Malaysia — as we mentioned, telcos separately owned and operated previous generations of mobile networks — some scepticism is to be expected. But it has since been proven to work well — Malaysians are now able to enjoy 5G speeds, whether they are subscribers of Yes, Maxis, Celcom or any other telco.
The sharing of spectrum ensures maximum efficiency and thus optimal utilisation of this scarce resource. Equally important, it is cost-efficient. In the most simplistic terms, the cost of one wholesale network is RM16 billion (for full nationwide coverage). This cost will be shared among Malaysia’s 48 million mobile subscribers. To build two parallel networks, the costs will double — so too will the price for the 48 million users (we have no doubt the entire cost spent by the telcos will be passed on to their subscribers).
For Malaysians, it is estimated that the cost for 5G by DNB for a SWN is 13 sen per GB, and about 25 sen per GB if two to three networks are deployed. Put it another way, sharing one wholesale network will lead to huge cost savings for the telcos — and ultimately, consumers — compared to if each were to build its own parallel networks. Imagine the duplicity and wasted resources, not to mention forex loss for the country as most equipment must be imported. And make no mistake, Malaysians (every mobile subscriber) will be footing this bill for a long time to come.
Lowering the cost to consumers will boost demand — thereby growing the ecosystem of users, developers, employment and business opportunities. The goal was that Malaysians will be paying for 5G at half the current cost of their 4G plans, while telcos will still retain their profits. And yes, the usage of 5G will take off, as why would anyone opt for slower speed at double the cost? To cynics who argue that a SWN risks a single point of failure, we are not going to waste time explaining, as any technically competent person knows this is no more than a red herring.
Despite the proven SWN, the current government recently decided to implement a dual network model. Will the second network ever be built? Perhaps, if there are economic justifications for it. As we mentioned above, any rollout undertaken by the private sector will be driven by economic feasibility, as assessed by the telcos. Good thing then that Malaysia does not have to wait for and rely on this second network.
The availability and accessibility to highspeed data at affordable prices today, not tomorrow or next year, is critical to catalyse the country’s digital transformation. It will help attract high-value investments and create high-paying jobs. Remember, the most important user cases for 5G will be enterprise-driven. For this to happen, the infrastructure must first be in place.
Availability and lower cost for data will also bridge the current digital divide, between states, rural and urban, rich and poor. Digital service is a basic utility that must be available to all Malaysians, not just a privilege for those who can afford to pay premium prices.
We need to elaborate — with all the telcos already signed up to the access agreement with DNB and sharing its 5G network and that this MOCN technology has proven successful, why would anyone want to build a second network or DWN? Where is the economic justification? There can only be two possible motives.
One is to share out DNB and the second network among the five telcos to ensure they operate as a duopoly (just like in the past where the telcos operated as oligopolies) — thereby ensuring no new competitors to protect their “excess” profits, high dividends but offer inferior quality (scan the QR codes to see the charts included in two of our past articles, “5G infrastructure — the bottom line” published in The Edge issue March 8, 2021 and “Safeguarding the road to 5G in Malaysia … but for whom?” dated Sept 20, 2021).
And two, that the second network will NOT be a true 5G network, that is, it will be a non-standalone (NSA) instead of a standalone (SA) 5G network, as that owned by DNB. In effect, the telcos will be using their current 4G infrastructure with an upgrade. It meets the needs of retail applications but do not possess the high-speed, ultra-low latency required for enterprise applications such as artificial intelligence, robotics and so on. The telcos will then leech onto DNB’s SA infrastructure when connecting to businesses. The net effect is “bankrupting” DNB since it carries the higher cost of real 5G, only for others to reap the benefits.
As an analogy, DNB would own, build, operate and maintain the highways while the telcos would only build the ancillary roads connecting to the housing estates and industrial parks — and collect all the revenue.
We hope DNB will continue to be at least partially government-owned, with a golden share. The telcos can be shareholders to align mutual interests, as always intended and articulated since 2021. But they must not be allowed to act in anti-competitive behaviour, blocking competition, restricting access to the 5G infrastructure and price discriminate. DNB is proven to be a financially sustainable 5G catalyst, becoming cash flow positive by 2025, with an estimated IRR (internal rate of return) in excess of 8% and worth an estimated RM15 billion to RM20 billion. Let this not be another case of “piratisation”.
An agnostic SWN operator will enhance rather than suppress competition
The argument that DNB is a monopoly that will necessarily charge high prices and stifle competition is hugely flawed. The pricing under the access agreements is transparent. The wholesale price of 13 sen per GB is cheaper than the current 4G cost of about 50 sen per GB. It is also a myth that a SWN owned by DNB will stifle competition. Quite the contrary.
As owners of spectrum and mobile networks, the telcos are the gatekeepers to the country’s digital ecosystem. This is a highly effective form of barrier to entry. New service providers without spectrum and network cannot hope to compete effectively — even when they have superior products and service quality. In effect, Malaysia’s telco industry is an oligopoly. Additionally, these mobile network operators differentiate themselves in terms of network coverage, at the expense of service quality and product innovation, which is detrimental to consumers.
The SWN is structured to provide equal access to all sorts of service providers, including those targeting different market segments, with differing purposes and/or strategies. All of which is necessary to grow a robust digitalised ecosystem. Using our highway analogy, think of the SWN as the main trunk highway that still needs the auxiliay roads to connect the cities, towns, ports, airports and, ultimately, the businesses and the people who will ultimately drive economic growth.
And DNB as the agnostic wholesale network operator ensures fair market competition. As we wrote last week, free markets in the US underpinned the dynamism of its economy and companies, driving innovation. Similarly, competitive pressures, not protectionism, drove innovation and adaptability in South Korea, creating global champions.
Malaysia has taken the first step in laying the digital foundation — the infrastructure and legislation. Now, we must promote and build the ecosystem to leverage on this infrastructure, and enable new players and new products and services. It is time to increase competition, to innovate, to let the best and the brightest flourish — and not continue with the rent-seeking of the past, where the state is captured by a few elites!
The Malaysian Portfolio chalked up another week of gains, rising 1.3%, this time led by Bursa Malaysia-listed stocks. The local bourse has been an outperformer so far this year, driven by speculative interest in smaller-cap stocks. The top gainers were REDtone Digital Holdings Bhd (+4.8%), Insas Bhd (+2.8%) and UOA Development Bhd (+1.7%). On the other hand, Mapletree Pan Asia Commercial Trust N2IU (-1.9%), Frasers Logistics & Commercial Trust BUOU (-1.7%) and DBS Group Holdings Ltd (-1.4%) were the big losers. Last week’s gains lifted total portfolio returns to 172.2% since inception. This portfolio is outperforming the benchmark FBM KLCI, which is down 18.7%, by a long, long way.
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/ or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
