Dr Rais Hussin is CEO of Emir Research, an independent think tank focused on strategic policy recommendations based on research.
EMIR Research firmly maintains hat the single wholesale network (SWN) model in all its ownership variations—whether it is wholly owned by the government, wholly owned by mobile network operators (MNOs) or held in joint ownership—is the least preferred model for the new generation network rollout, especially for 5G. This view is rooted in global empirical data, telecom industry specifics and economics.
In its series of seven articles on DNB-led rollout (all available here), Emir Research has consistently supported this view from various angles—nation-building, technical feasibility, financial and commercial viability, and governance integrity.
Industry experts have loudly echoed this opinion and also written on numerous occasions on the issue of SWN, even with a specific focus on Malaysia 5G “case study” and explicitly addressing the DNB officials.
For example, in this insightful article, GSM Association (GSMA) Intelligence succinctly summarises the research done by Oxford University and GSMA Intelligence economists on the outcomes of network sharing deals in Europe, looking at 140 mobile operators in 29 countries.
The data they have collected indicate a growing trend in passive infrastructure sharing and roaming over the years, even for previous generation networks in Europe. In contrast, the multi-operator core network (MOCN), the SWN model, constitutes an extremely meagre portion of all the announced sharing deals, notably remaining at exactly the same meagre level over the 2013-2019 period.
GSMA also underscores that voluntary network sharing (which SWN is not), such as passive infrastructure sharing and roaming, accelerates deployment, generates significant benefits for operators and consumers, including lower prices and improved network coverage and quality and, therefore, should become an even more significant trend for 5G.
The study of 5G rollout among the top 60 telecoms markets but already worldwide by The Economist Intelligence Unit finds exactly that—passive network sharing is the strong trend for 5G. In comparison, SWN is a clear anti-trend for the 5G rollout as none of those 60 countries adopted the SWN model for their 5G rollout.
Also, in its spotlight, GSMA specifically warns that deploying SWN for 5G would be even more inimical to the industry than the previous generation networks as it will negatively impact not only the telecom industry itself but industry 4.0. This is because SWN is synonymous with delinking of network ownership from service delivery and thus unavoidably leads to limited network (equipment) innovation, which will negatively impact the rollout of innovative services by the end-users of the network.
5G (and 4IR) is all about this innovation by the end-users rather than by the resellers of the network capacity. Therefore, it requires tight coordination between the network and end-user equipment—a fit-for-purpose network— which is unachievable under the SWN.
DT Economics LLP, a specialist consulting firm based in London focusing on regulation, competition and expert witness services commissioned by GSMA, has produced an independent economic expert report to qualitatively assess the Malaysian proposals for 5G network deployment, list very real risks to Malaysia putting its vision to become a regional leader in the digital economy under serious threat should the country proceed with the DNB proposal. Note that the most serious risks of creating this upstream monopoly remain regardless of the SWN ownership structure.
Looking at the overwhelming global evidence against the SWN, you probably can see for yourself whether we would be able to see effective implementation of the 5G network in Malaysia under the approved SWN rollout model even if MNOs hold a 70% stake in it. Something so obvious to the whole world is astonishingly (intentionally or not) beyond of the grasp by Malaysian policy-makers.
The recent decision by the Malaysian government to still stick with the problematic SWN model for the 5G network rollout, despite all the elegant evidence against the SWN case, clearly shows once again that, in this country, data, science, economics and plain logic falls on deaf ears of policy-makers, thus to no avail for the nation-building.
EMIR Research also called for considering alternative solutions (and EMIR Research has provided alternatives of “disrupting status quo” that are worth exploring) that appear to have a greater chance of improving the quality, cost and coverage of Malaysia’s connectivity and evaluating these solutions via comprehensive and transparent regulatory impact analysis. However, sadly and absolutely unacceptable for infrastructure projects of this size, complexity and strategic importance, none of such exercises has been conducted to date, according to the publicly available information, except “choreographed” stakeholders engagements.
Now, the new ownership structure of 70% owned by the MNOs raises new concerns and questions.
No details were provided vis-à-vis the type of shares offered to MNOs versus DNB. This is important to understand the extent to which MNOs would have their say in management.
If MNOs had their say, they would scrap DNB’s “supply-led” “cost recovery” rollout, and we would see at least a more reasonable, demand-driven approach to the 5G rollout. Even though it would still be an upstream monopoly with all the ensuing negative consequences to the Malaysian digital economy as highlighted above.
Do remember, though, that MNOs have different debt levels in their balance sheet structure to put up with the DNB’s cost-recovery model—the fact to which DNB has never given any consideration anyway.
Also, what happened to the concern about MNOs’ involvement in the wholesale market representing a conflict of interest since they are also the retailers?
If MNOs will not get their say, at least in the initial phases of deployment, this looks even more questionable and more like window dressing and an attempt by DNB to improve its funding ability through MNOs’ balance sheet while keeping its contracts intact.
After all, how to even value an entity with a significantly questionable and weak governance structure that does nothing, owns nothing, and already spends money full speed securitising it with uncertain future cash flows? And this is another interesting question regarding how a 70% equity stake will be carved out. How will the board of directors be structured with new shareholders? What will be their voting rights? Will what is “deemed national interests” (usually translated as political masters’ interests) overwhelm commercial viability? Will the 70% owners have a say in costs in DNB?
One thing is sure—the public will be very interested to see DNB’s books to figure out its real value. And do not forget that one other fundamental question that DNB has not addressed to date is, how many square kilometres are the so-called “population areas”? How many towers will be required? Does the budgeted amount sufficiently cover what’s required? Then you can count the billions.
The last question, if indeed MNOs actually take up the 70% equity and they have the skills, knowledge, abilities and wherewithal to deliver, and they can tap into their existing resources, why then the need for DNB? What is its value contribution? If it is to ensure delivery of 5G, why don’t make the make a licence mandatory? If it is to ensure 5G coverage in rural areas (though 4G is more than enough given the type of utilisation), there is the Malaysian Communications and Multimedia Commission’s Universal Service Provision funds to expand that coverage. If DNB exists as a project manager and “contract administrator” of the 5G rollout project, it surely must be one of the most expensive project manager cum contract administrator ever in Malaysian history.
Time will show how all of this will unfold. Except that time is an asset that Malaysia has nearly run out of, and DNB’s semantic acrobatics continue to waste this precious resource.