More parties express concern over risk of govt-owned 5G rollout model

DNB is responsible for the infrastructure rollout, while the existing MNOs were demoted to only offering variations of retail service 

by AUFA MARDHIAH / pic source:

THE Institute for Democracy and Economic Affairs (IDEAS) expresses its concern towards potential risk of a government-owned single wholesale network (SWN) for the 5G rollout model. 

The institute calls for several clarifications on the government to be more transparent over the long-term costs of the model to the public and not just enable an interconnected, competitive market, in a statement recently. 

This is due to the licence for 5G being given only to government-owned Digital Nasional Bhd (DNB). 

Under the current SWN proposal, DNB is responsible for the infrastructure rollout, while the existing mobile network operators (MNOs) were demoted to only offering variations of retail service. 

As a result, the existing competitive wholesale market structure has been replaced by a nationalised upstream monopoly regulated by the Malaysian Communications and Multimedia Commission (MCMC). 

“IDEAS is concerned by the way in which justifications for the SWN came after its announcement in 2021, with no independent economic or regulatory study published beforehand. 

Publishing the feasibility study and deliberations are important to provide evidence on the government’s position in reversing the MCMC’s long-held policy to enable market competition at both the infrastructure and retail levels. This is especially so given that other SWN models from around the world have not been successful to date. It is important that international best practice is referenced,” said IDEAS CEO Tricia Yeoh. 

Furthermore, the Malaysian government involvement as licensee is seen as an unusual retreat from the market-enabling framework provided for in the Communications and Multimedia Act 1998 (CMA). 

Initially, CMA provides regulatory tools for MCMC to determine the minimum criteria for access and pricing; hence enabling service providers competing at the infrastructure level to open up access to each other. 

Additionally, MNO is expected to provide the best possible service in the form of access and pricing, while MCMC is the sole regulatory mandate and has the shared responsibility to ensure that MNO does what it should be. 

Nonetheless, MCMC will only determine the wholesale rate of DNB offered to MNOs under the SWN arrangement. 

DNB demands a full cost recovery model with low prices, but the potential value of billions in procurement from private suppliers could add up to higher wholesale prices and lower overall quality if costs increase with uncompetitive state-owned enterprises, making the economy scale ineffective. 

Despite that, the wholly government-owned DNB indicates that the risks of the project are socialised, following the government’s implicit support in ensuring cost recovery. 

This is either by regulating whole-sale prices upwards, or incurring bills for governance failures or failure to control costs. 

“Hence, DNB’s appointment and the government’s involvement in the market is seen against the notion of competitive neutrality which may affect the market attractiveness of the sector; in which will impact Malaysia’s attractiveness as an investment destination and trade partner in the area of telecommunications and data services,” said Tricia. 

IDEAS said there are potential risks of a monopolised 5G infrastructure, which DNB and the government of Malaysia must seriously consider and take mitigation measures over. 

Lack of competition and supply-based launches can ultimately result in increased costs for consumers and a lack of choice for quality, price and innovation based on actual demand. 

In short, competition at the infrastructure level would provide more advantages than a monopoly, the latter of which may ultimately deter innovation and investments by MNOs in the long run. 

“Without competitive pressures in the form of alternative infrastructure, DNB has reduced incentives to ensure quality of service (QoS) for MNOs and consumers. 

The government should provide clear evidence of how DNB, which is a company formed within the span of a year without any previous infrastructure, would roll out a cost-efficient 5G infrastructure across the country,” she added. 

However, to ensure regulatory predictability, IDEAS acknowledges that the government cannot afford to abandon the SWN model it has invested heavily in, but moving forward, IDEAS will appreciate it if the government prioritises urgency to put in place risk mitigation measures. 

In addition to ensure transparency, IDEAS require clarification of several questions that include an independently conducted feasibility study comparing the costs and benefits of various models, including competition rules already provided for in the Multimedia and Communications Act, and a consortium-led model developed in the 5G Task Force Report published by the Ministry of Communications and Multimedia in December 2019 as well as details about the parameters of modelling exercises. 

Transparency of immediate preparation of Reference Access Offer (RAO) on 5G wholesale access prices that will be controlled by MCMC for public use, Guarantee or support of DNB’s current and future liability funding sources (both express and implied), the implications of Ministry of Finance’s (MoF) ownership on DNB in terms of risk to public funds and the additional external oversight mechanisms that exist on DNB in addition to MCMC’s regulatory oversight, as well as mechanisms provided by the DNB and the government to ensure no leakages and political interference in the procurement of contracts. 

It also demanded clarification on the supplier contracts and in the lease of land and space for 5G towers and antennas. 

On Saturday, Global Mobile Industry Association (GSMA) also weighed in on the issue of the 5G rollout model in response to former International Trade and Industry Deputy Minister Dr Ong Kian Ming’s questions on the government’s 5G proposals. 

The Bangi MP raised 10 questions concerning MNOs in Malaysia and the 5G rollout. 

Titled “GSMA’s response to questions raised by Malaysian MP Ong on the government’s 5G development proposals in Malaysia”, GSMA’s prepared six-page statement. 

The overarching observation made by GSMA is that although a debate on the options for deploying a national 5G network is welcome, such a debate should have taken place before the decision to proceed with the SWN was taken and DNB was established. 

The report showed that national SWNs have a poor track record of successful implementation in other countries and of the 70-plus countries that have launched 5G networks, none have adopted a 5G SWN. 

Against this international context, it would have been beneficial for stakeholders to have had access to MCMC’s Regulatory Impact Assessment outlining the cost and benefits of implementing a SWN in Malaysia. 

It added that the impact of the government’s 5G proposals risks leading to a less efficient provision of 5G services in the medium to long term, where end-users may be unable to get the services they value most. We explain this in more detail below. 

“To date, there is little evidence quantifying the impact of the proposals on the costs of providing 5G services to end-users. 

On the one hand, there could be significant efficiency gains from building a single national 5G network: This removes the additional costs of network duplication that occur when multiple operators roll out their own networks,” the report stated. 

However, on the other hand, creating a SWN at the expense of the current competitive wholesale market structure is not a guarantee that customers will pay a lower price for their 5G services at the retail level. 

DNB is likely to lack some of the economies of scope enjoyed by the MNOs which might lead to higher unit costs (this is because DNB will only be providing 5G services, while MNOs will continue to provide services based on 3G and 4G, as well as 5G). 

In addition, the MNOs’ networks were built with forward-looking expectations that they would have been used to provide 5G services at the wholesale level. 

“To the extent that this is no longer possible, MNOs — faced with reduced economies of scale and scope — may end up with stranded assets which would no longer be able to earn an economic return leading to significant economic inefficiencies at the detriment of consumers. 

“Evidence to date also shows that the total cost estimates to build DNB in Malaysia have been increasing over time. In the absence of competitive pressure on network deployment, it is unclear how the government and the regulator will ensure that DNB has incurred an ‘efficient’ level of costs to deploy a national 5G network,” the report noted. 

In the long term, end users may lose out due to reduced innovation. One of the potential drawbacks from having a national wholesale only 5G provider in the market is that decisions on investments and service offering are made without the benefit of having ‘direct’ access to end-users, the report further said. 

Last Friday, MCMC minister Tan Sri Annuar Musa said his ministry and MoF will table a Cabinet Ministers’ memorandum next month to resolve the issues relating to DNB “once and for all” as the SWN or dual wholesale network system which has become a debate. 

He hopes to resolve it following the findings of the National Digital Economy and Fourth Industrial Revolution Council (MED4IRN) meeting last Thursday. 

“If we allow it to prolong, it will affect the 5G rollout programme which is a key factor to Malaysia’s Digital Economy Framework of Action and implementation of MyDIGITAL,” he told the media after attending an Appreciation Ceremony of Volunteers of “Operasi Bantu Hingga Selesai” last Friday.