Dual wholesale network adds another level of complexity, delay to 5G rollout, analyst says

by ANIS HAZIM / pic source: digital-nasional.com.my

DIGITAL Nasional Bhd (DNB) said a dual wholesale network (DWN) model will only add another level of complexity and delay the country’s 5G rollout.

RHB Research Bhd’s analyst Jeffrey Tan said DNB contends that a DWN model, while not inconceivable, would invoke more challenges (especially when rollout has begun), delay 5G execution and contribute to excess capacity in the long-run.

It asserts that the consortium model proposed is not new and was previously mooted (under the Pakatan Harapan government) with mobile network operators (MNOs) unable to agree on the operating model and strategic objectives.

“A DWN would also negate DNB’s strategic supply-driven model or mandate resulting in potentially higher cost to serve (as traffic and revenue will be shared). A consortium wholesale network, it believes, would also contravene the current regulatory framework as MNOs will also offer 5G retail services.

“The government had previously stated that it would make a decision on the single wholesale network (SWN) this month,” Tan said.

He added that under a cost recovery model the wholesale pricing would see MNOs committing to a minimum coverage capacity (1,200 gigabits per second [Gbps]) as a prerequisite.

Additional capacity demand (beyond the coverage commitment) would be on a pay-per-use at a lower price.

“DNB contends that the initial coverage capacity (7,509 sites) would translate into a steady state outlay of RM36 million per month per telecommunication company (RM432 million per annum or RM3.4 billion over 10 years).

“This works out to a blended price or cost per gigabytes of 13 sen (based on RM30,000 per Gbps per month). The outlay would be significantly lower than the cumulative RM7-RM9 billion capital expenditure that MNOs would need to invest on their own, individually (without the SWN) into FY30 as per DNB’s estimates,” said the analyst.

However, he added that DNB is hopeful that the four MNOs will ink 5G wholesale agreements.

“This follows numerous engagements and adjustments made to commercial terms within the reference access offer — to be published by February,” he added.

Aside from earlier pushbacks on pricing and the duration of the wholesale contract (10 years), DNB is of the view that the “decision” ultimately boils down to MNOs having to come to terms with the need to relinquish control over their networks, with the focus turning to innovative products, services and solutions.

MNOs now have the option to sign on a five-year agreement with the option for another five-year renewal.

“With MNOs granted the flexibility to invest in their own core network via MCMC’s new access list (published on Dec 15, 2021), we believe they can still look to rollout unique and differentiated offerings (more so within the enterprise segment) with the application of network slicing (a feature within a 5G core network) and control their customer journey and relationships,” Tan said.

The research outfit maintains ‘Neutral’ on the sector with Telekom Malaysia Bhd, Axiata Group Bhd and OCK Group Bhd as its top picks.

Key risks are competition, weaker than expected results and regulatory setbacks, he added.