As 5G launches rip across the globe, operators have been left scrambling for ways to absorb the heavy capital expenditure demanded by coverage expansion. GSMA estimates that operators will spend $890 billion over the next five years as global population coverage hits 45%. This expenditure is also set to escalate as operators move from non-standalone to standalone networks, and then to the utilisation of mmWave spectrum.
Both government and corporations have enacted strategies or innovations to raise capital or to reduce the capital expenditure including the formation of joint ventures, the formation and utilisation of towercos, the sale of tower assets for capital recycling and the implementation of dynamic spectrum sharing.
In this aspect, Malaysia and Brunei stand alone in Asia-Pacific with their approach to 5G by forming a nationalised single wholesale network (SWN), essentially a national towerco that will own the tower, backhaul and spectrum assets, selling access on a wholesale basis the operators.
Brunei and Malaysia arrived at the SWN approach under different circumstances
Brunei carved out and consolidated all telecom infrastructure under the stated-owned Unified National Networks (UNN) in 2019. The objective of this move is to level the playing field for the three telcos – TelBru, DST and Progresif – that will now focus solely on retail services. Meanwhile, UNN has committed into modernising the network infrastructure and expanding coverage to underserved areas. As such, the onus of 5G deployment has fallen to UNN.
Following the bungled allocation of 5G spectrum by Malaysia’s Perikatan Nasional (PN) administration, which was mired in controversy after awarding, without an open tender, spectrum to Altel, a firm control by the politically well-connect billionaire Syed Mokhtar, the PN administration under then Prime Minister Muhyiddin Yassin changed tack, voiding the spectrum allocations and then announcing in February 2021 the formation of the state-owned Special Purpose Vehicle (SPV), Digital Nasional Berhad (DNB), under the Ministry of Finance to build and own the nation’s 5G infrastructure asset as part of new national broadband plans “MyDIGITAL” and the Malaysia Digital Economy Blueprint. In some ways, the shift to an SWN approach appears to be a face-saving move.
For Brunei, the industry restructuring will have a less severe impact to the competitive dynamics as the three telcos were already state-owned, under the control of Darussalam Assets, the government holding company, before the formation of UNN. However, DNB will be a game changer for Malaysia’s telecom scene, where there are six MNOs, five if the merger of Celcom and Digi follows through, a dynamic MVNO landscape.
What implications does the SWN approach have on 5G adoption in these countries?
In theory, the SWN approach reduces capital expenditure for the operators involved by eliminating network duplication through complete infrastructure spending, improving ROI for all the parties involved, while promoting competition in the mobile segment.
However, the SWN approach also has its drawbacks. A state-driven rather than a commercially-driven deployment can be riddled with inefficiencies such as capital leakages in the form of corruption, misallocation of resources and overpayment for contracts. While 4G SWN’s across the globe have underdelivered on their promises, market competition driven deployment is a well-trodden path. The SWN has the additional complexity of navigating a larger bracket of stakeholders, which now includes the government, networking equipment vendors with existing contracts with the operators, and the competing band of operators themselves.
Further, while individual operators can deploy the network regionally on purely commercial considerations, such decisions can quickly become political if it is seen to be privileging one player over another. Additionally, the implementation of a SWN will require, on the part of regulators, concerted planning and a robust regulatory framework to ensure high quality, open access and cost-effectiveness, while at the same time achieving the social objectives of rural coverage.
Operators must work together
However, to capture the massive Machine Type Communications (mMTC) potential from 5G in the enterprise market, operators must work together with industry to develop use cases and experiment with 5G private networks. Operators in other markets such as China and South Korea have been working with industry and other technology ecosystem players to develop unique and innovative solutions based on 5G for enterprise applications. In the context of Malaysia and Brunei, this means working with industry champions in oil and gas companies (e.g. Petronas, Brunei Shell Petroleum) and palm oil (e.g. Sime Dharby) on solutions ranging from 5G powered automated vehicles, sensors and drones.
These innovations have depended on deep integration between technologies like cloud, IoT and the mobile network down to the physical level. Applications, like operator multi-access edge compute (MEC), that are being explored in other markets rely on tight integration between applications, edge servers and network elements including spectrum. An SWN approach could complicate how operators access important systems for the research and development phase of new solutions and could end up limiting what solutions services are developed.
Delayed 5G adoption
The early signs in Brunei seem to support the prediction that an SWN approach will delay 5G adoption. In spite of being a developed and affluent economy, Brunei is playing catch up on 5G deployment. Just after formation, UNN CEO Steffen Oehler had initially targeted 5G services by the end of 2021. By Jan 2021, the target was move back to mid-2022.
For Malaysia, the launch has already been delayed a number of times. The sudden swerve to the SWN approach has upended the initial plans of the mobile operators, which have mainly centred around 5G trials located in Langkawi. In fact, many vendors in Malaysia already had deals with the equipment vendors in place to upgrade their existing network infrastructure for 5G roll-outs. Celcom stated that it had already upgraded its core network for 5G and partnered with SIAE Microelettronica to upgrade its wireless backhaul for both 4G and 5G. Digi announced its partnership with ZTE in October 2020 to upgrade its radio network to be 5G ready. Maxis announced a network agreement with Huawei in October 2019 covering 5G network upgrades and stated last year that it is fully equipped to rollout the technology in August. This represents significant sunk costs into capital expenditure that is now unlikely to achieve targeted ROI.
Following an open tender process, Ericsson was selected in July 2021 to build and manage the entire 5G network, including end-to-end design & development and financing. Malaysia currently targets for launch first in the political and economic centres of Kuala Lumpur, Putrajaya and Cyberjaya by the end of 2021, before moving on to the population centres of Selangor, Pulau Pinang, Johor, Sabah and Sarawak by 2022, with expansion to 17 cities and the rural areas from 2023 onwards. It remains to be seen if Ericsson will be able to deliver on this major contract on behalf of DNB.
Down the road, the going concern of the SWN remains an issue to be resolved. Lessons can be learnt from national broadband network projects in Australia, New Zealand and Singapore. Continued government ownership and control is less than ideal, but if privatised without adequate safeguards, could result in commercial stagnation and monopoly power entrenched with the newly created towerco that may be abused to the detriment of open access principles.
Single Wholesale Network: A New Hope?
A fully completed DNB could potentially usher in a new era of competition in Malaysia to break the new duopoly between Maxis and Celcom Digi. The SWN will put all players on a level ground when it comes to 5G services, giving an opening for U Mobile, Yes (YTL Corporation), and Telekom Malaysia to claw market share. Barriers to entry will be lowered for new entrants and this will give the many MVNOs in Malaysia a leg up. As DNB extends coverage into the rural areas from 2023 onwards, a new front will be opened up for competition with 5G fixed wireless services. All these will be a boon for consumers.
Unfortunately, spotty track record of the SWN approach leaves us wanting. Based on GSMA case studies of 4G SWN projects, only three networks have rolled out thus far – in Mexico, Belarus and Rwanda – and many were cancelled – including those in Russia, Kenya and South Africa.
As Mark Twain once said, “History never repeats itself, but it does often rhyme.”