We attended GSMA's webinar that shed light on global 5G success stories and discussed the risks that Malaysia faces in its 5G single wholesale network (SWN) approach. Unsurprisingly, global industry executives and experts stroke a cautious and dubious tone on DNB's SWN plans. We came away feeling reaffirmed of our view that the SWN deprives the MNOs the crucial network control for differentiation and innovation. Separately, Reuters reported that the MNOs have recommended to the government to allow for “two wholesale 5G networks, each to be built and operated by a consortium of carriers”. While we think that the MNOs' potentially greater involvement alleviates some problems around lack of competition and network control, we think the continued uncertainty and potentially undesirable operating environment dampen the MNOs' prospects. Maintain NEUTRAL on the sector, and UP on MAXIS and DIGI. We maintain our OP view on AXIATA for its regional OpCos, edotco and ADS.

General consensus that competition drives innovation... Among the panelists and speakers at the GSMA webinar, there was a general consensus among foreign industry veterans and experts that competition at both the network and service levels drive innovation and create new revenue streams. Dr. Sungho Choi of South Korea's Institute for ICT Planning & Evaluation attributes South Korea's 5G-rollout success to both network and service level competition, and emphasized that the competitive environment has expedited 5G deployment and encouraged adoption, laying the foundation for further innovation in the country. Sharing the view with most of the panelists and speakers, we are of the view that DNB's SWN significantly reduces scope for telco competition and differentiation, and thus reduces telcos' incentive to innovate in developing novel 5G-use cases.

… so, a second wholesale 5G network? As Reuters reported yesterday, it is rumored that the telcos: (i) recommended that the government allow two wholesale 5G networks, where the consortia will “commence the two networks in parallel next year and separate them from 2023” and (ii) are open to an equity stake in DNB, for greater inclusion in the government's rollout plans. While we believe that the telcos' greater involvement in DNB's 5G rollout could provide the telcos marginally more control over the network, the ideal scenario would still be one where each telco owns and controls their own networks using their spectrum. We believe complex structures and prolonged negotiations could further delay network deployment, exacerbating existing concerns around the industry.

Threats to govt’s ambition to be a regional leader. For Malaysia to achieve the government's ambition to be a regional leader in the digital economy, we believe there needs to be speedy 5G deployment and adoption. However, Malaysia currently lags behind peers. Thailand's AIS has launched 5G in February 2020 and Singapore continues to increase its 5G coverage. South Korea, Japan, China and Taiwan already have strong 5G coverage and adoption, and SK Telecom is already moving beyond connectivity to explore the Metaverse. Further rollout delays may leave Malaysia further behind its regional peers.

YTL Communications in favor of SWN, opposes second network. Speaking on the GSMA webinar, YTL Communications CEO, Wing Kui Lee, expressed YTL Communications’ support of DNB's SWN, which "levels the playing field". Its support did not come as a surprise to us, as we had suspected that the smaller MNOs likely favor the SWN model. YTL Communications’ support for the SWN is further evidenced in the Reuter's report, where it objected to the MNOs' proposal of a second network.

Continued uncertainty delays and hinders innovation. In addition to the uncertainty around the 5G network rollout structure, there continues to be uncertainty in the technical capabilities of the SWN and the potential uses for the telcos. Specifically, there has yet to be clarity on commercial terms and technical capabilities regarding the advanced 5G services for enterprises, such as on private networks. On the webinar, industry experts and veterans raised questions about how such arrangements would operate along the SWN. With uncertainties abound, telcos have less incentive to innovate, and consequentially, may forgo new revenue streams from 5G use cases.

Maintain NEUTRAL on the sector and UP calls on MAXIS and DIGI. We came away from GSMA's webinar reaffirmed of our view that the SWN could cause MNOs to lose out on new revenue streams from 5G use cases. The reportedly proposed second wholesale 5G network suggests that the MNOs may have an increasing say in the network deployment and structure, but we continue to remain cautious on the MNOs. Maintain UP on MAXIS and DIGI on the continued uncertainty and potentially unfavorable 5G prospects. Maintain OP on AXIATA, favoring it for its regional exposure, edotco and ADS.

Source: Kenanga Research - 15 Dec 2021