5G spectrum U-turn could delay deployment

The govt might be reviewing the overall spectrum allocation process to enable more efficient utilisation of scarce spectrum resources

By SHAZNI ONG / Pic BLOOMBERG

THE 5G deployment in Malaysia could be delayed until next year following the government’s move to rescind the award of 700MHz spectrum frequency bands to several telecommunication companies (telcos), said analysts.

Commercialisation of 5G technology was planned for the third quarter of 2020 (3Q20), the Malaysian Communications and Multimedia Commission (MCMC) said in January this year.

It said the 700MHz and 3.5GHz bands would be assigned to a single entity comprising a consortium formed by multiple licensees, and this would be done through an open tender to lower the capital expenditure (capex) burden on telcos.

However, a letter dated May 15, 2020, surfaced earlier this week, in which the MCMC was instructed to appoint Telekom Malaysia Bhd (TM), DiGi.Com Bhd (Digi), Maxis Bhd, Axiata Group Bhd and Altel Communications Sdn Bhd as the licence holders for the 700MHz band.

The letter was signed by Communications and Multimedia (KKMM) Minister Datuk Saifuddin Abdullah.

On Wednesday, however, the minister said in a statement that he had directed MCMC to “revoke the instructions directed” on the basis of technical and legal issues, “as well as the need of a transparent process”.

Kenanga Investment Bank Bhd analyst Clement Chua said the decision came as a surprise when the MCMC apparently penned the allocation without undergoing a public tender process.

“The above allocations could have otherwise derailed the previous vision to establish a consortium to manage the national 5G deployment.

“Such imbroglio could delay the national 5G deployment even further, possibly until 2021 by our estimates,” he wrote in a note yesterday.

The direct spectrum award had raised questions, being a big step away from the planned open tender process. Altel also came as a surprise choice to some, as U Mobile Sdn Bhd — the country’s fourth-largest telco — was seen as a bigger contender.

Spectrum costs were also not revealed despite it being a material component in the award of new frequencies.

The awardee(s) — whether a consortium or individual telcos — would have to bear the brunt of these costs and incur higher capex spending to build the necessary infrastructure for the new network.

“We would not be surprised if the readiness and commercialisation of the network are delayed towards 2021 (from the initial 3Q20 target),” Chua said.

He noted the spectrum award cancellation was accompanied by the cancellation and inquiry of specific use in the 700MHz, 900MHz and 2600MHz frequencies, which could pave the way for another re-farming of these bands.

Currently, the 900MHz frequency is utilised by Celcom, Digi, Maxis and U Mobile for 4G/LTE services and has been paired with the 1800MHz band since July 2017 for 15 years expiry till 2032, while the 2600MHz spectrum is part of a public inquiry conducted by the MCMC in September 2019.

Retracting the 700MHz spectrum assignment would for now return the industry to the drawing board in 5G deployment, Chua said.

According to MCMC, the 700MHz, 3.5GHz and 26/28GHz would be pioneer spectrum bands for 5G implementation in Malaysia.

Return on investments from running the 5G network are also likely limited to enterprise adoption in the near-term as commercial demand may be restricted by the narrow network coverage and the affordability of 5G devices and subscription plans.

It is unclear whether the government will proceed with the earlier plan to award the spectrum bands to a consortium, or opt for beauty contests/open tenders, Affin Hwang Investment Bank Bhd analyst Isaac Chow noted.

“Broadly, we prefer a single consortium allocation strategy. The approach should lead to a faster rollout of 5G networks with better cost efficiencies, reduce the upfront spectrum fees, and lower the total industry capex for the 5G rollout,” he wrote in a report yesterday.

AmInvestment Bank Bhd analyst Alex Goh believed the government might be reviewing the overall spectrum allocation process to enable more efficient utilisation of scarce spectrum resources in the race to develop high-speed broadband capabilities.

“At this stage, we are uncertain if the MCMC has discontinued its pragmatic approach to encourage collaboration among 5G operators.

“Being negative on the earlier direct ministerial award without tender, we are neutral for now on this turn of events pending further clarification from the MCMC,” he said in a note yesterday.