This article first appeared in The Edge Malaysia Weekly on October 14, 2024 - October 20, 2024

CelcomDigi Bhd (KL:CDB) CEO Datuk Idham Nawawi plainly admits that the group prefers to lead the second 5G network rather than take over the existing 5G network under state-owned Digital Nasional Bhd (DNB) when Malaysia transitions to a dual network model for 5G versus a single wholesale network (SWN).

In an interview with The Edge, Idham says CelcomDigi’s network of 18,000 sites has been upgraded to be 5G-ready and can be transformed into a 5G network by just adding network equipment and performing a software upgrade if it is granted use of 5G or 3.5GHz spectrum currently given only to DNB.

“We think we can do it in quite a short time — less than two years. It is just an upgrade. We have the ecosystem to take [the network] from 24,000 sites 1½ years ago, some duplicated, to 18,000 sites today [following integration]. We can do [it at this speed] because it is just putting up the equipment in our location. It is different when you build [from scratch],” he says.

According to Idham, building its own 5G network would not necessarily affect CelcomDigi’s dividend payments nor be more expensive versus paying for wholesale 5G capacity. Declining to divulge specific permutations, he would only say the cost of upgrading the 18,000 sites to 5G is “less than building a fresh” standalone 5G network.

DNB’s 5G network, covering 80% of populated areas by end-2023, is a newly built standalone one that some experts have said is better in terms of service quality compared to upgrades from legacy networks. DNB’s network coverage includes rural areas that are usually not favoured by commercially driven telecommunications operators but could bring about socioeconomic benefits to the community.

It is understood that DNB would incur additional cost for network upgrades if it were to lose half of its 5G spectrum to the winner of the second 5G network.

Apart from splitting the 5G spectrum into two equal blocks, it is not immediately certain how the government plans to create a level playing field between DNB (Entity A) and the second 5G network (Entity B).

Besides CelcomDigi, both Maxis Bhd (KL:MAXIS) and U Mobile Sdn Bhd had also submitted bids for the second 5G network. That is no surprise, given that whichever entity wins the bid is likely to get to build a 5G network at its own pace, starting where it deems it commercially viable.

Telekom Malaysia Bhd (KL:TM), which did not complete its share subscription agreement to take an equity stake in DNB, is likely to be out of the running, as an equity stake in DNB was a prerequisite to bid for the second 5G network. YTL Power International Bhd (KL:YTLPOWR), whose subsidiary YTL Communications Sdn Bhd (YES) is supportive of a 5G SWN, did not submit a bid for the second 5G network.

The government, via the Malaysian Communications and Multimedia Commission (MCMC), was expected to name the winner of the second 5G network by end-September but had not done so at press time.

In a Sept 25 report, CIMB Research says it expects Maxis to win the bid for the second 5G network because it reckons that the government “may want a government-linked company, meaning CelcomDigi, to lead DNB” and sees a CelcomDigi-YTL partnership as “a good counterweight to a Maxis-U Mobile partnership”.

Having said that, the research house did not rule out the possibility of CelcomDigi winning the bid for the second 5G network, with “Maxis-U Mobile-YTL staying put at DNB”. “Other permutations may be too lopsided,” writes CIMB Research, which thinks there could be a “knee-jerk” rise in the share price of whoever wins the bid. “This is because the second 5G network is expected to have better quality of service versus DNB, as the rollout will be largely mapped to the winning telco’s existing network grid, allowing for more seamless handovers when subscribers move between 2G/4G/5G networks. In addition, investors may also see the winner as having a cost advantage over telcos that stay on with DNB.”

Idham says CelcomDigi does not only have a Plan B but also a Plan C and Plan D, should it lose the bid for the second 5G network.

“There are pros and cons, whether you’re Entity A or Entity B, whether you start fresh or inherit the network that we have and then build on that. With the investment that we have made, it is a lot easier for us to build a second [5G network] in that it is just an upgrade. With an upgrade, we have 18,000 sites. DNB is not an upgrade. It’s a totally different network. So, the way to manage it is different, the [user] experience will be different, you have to manage different technologies. Instead of using Huawei and ZTE, we have to manage another technology, which is done by Ericsson. For this market, it’s very complex to manage more than two vendors,” Idham explains, noting that the group is currently managing three networks because of the merger and wholesale agreement with DNB.

“There are still parts of the Celcom network, parts of the Digi network, and there is a new network; [so,] the complexity is [higher]. The easier for us, the better it is to provide seamless connectivity for Malaysians, not just for our customers, but whatever else that needs the service,” he adds, explaining why incumbent mobile operators with existing networks prefer to build their own 5G network.

“The network is not something that is just put up. The network is actually alive. I’ve been doing this for the last 30 years and, every year, we fine-tune. We have built our network over so many years, from second generation, third generation, fourth generation. The location of the sites and all that are constantly optimised.

“So, putting a 5G layer on top of the 4G layer becomes a very seamless experience for our customers, the same way we put 3G on top of 2G, 4G on top of 3G. As you drive, for example, it becomes very seamless because you hand over from the same network. If you have another network, you may be jumping from one network to another. So, your experience also [differs].”

He notes that not having control of the 5G spectrum and network slows down the delivery of “mission-critical” enterprise services to its customers.

“The main use for 4G is you have Grab [ride-sharing], YouTube, Netflix. If 4G goes down for a while, you scream. But the only [damage] is, you just cannot watch videos. For 5G, [use cases include] microsurgery, autonomous driving — mission-critical applications. What happens if the 5G network goes down? Dropping to 4G network will not be able to handle these kinds of mission-critical applications,” he says, relating how CelcomDigi found it difficult to roll out 5G enterprise service because multiple approvals need to be sought from DNB to put up equipment.

Asked about the approval processes on private 5G networks, a DNB spokesperson says DNB “performs the necessary radio access network management to ensure spectrum efficiency, quality of service and interference mitigation”.

“It is important for DNB to coordinate the deployment of 5G to balance the needs of various users and 5G use cases. As a neutral party deploying the country’s 5G network, DNB must ensure that such deployment is done efficiently and equitably on the back of the available 5G spectrum in Malaysia — the 700MHz, 3.5GHz and 28GHz bands. Indeed, as spectrum is a finite resource, DNB must carefully manage its network to equitably support all mobile network operators (MNOs) so that end-users, be it consumers or enterprises (including private networks), can enjoy the best 5G services,” adds the DNB spokesperson, who also says it does not need to seek permission from other MNOs when evaluating requests from an MNO.

Would CelcomDigi integrate DNB’s network infrastructure with its network if it fails to win the bid for the second 5G network?

“There are many options for us. It depends on the situation. We can do that. We can decide to be an access seeker, that is, continue. We can have access from the second network,” Idham says.

Does that mean CelcomDigi will also choose to exit DNB even if it does not win the bid for the second 5G network?

“Hopefully, it doesn’t come to that … There’ll be equalisation; whoever takes Entity B will start on a level playing field. So, if we go into Entity B, for example, we make sure that we are at the level. We are committed.”

Asked how a level playing field can be created between Entity A and Entity B and what would be an appropriate compensation or equaliser, Idham says: “The government has to come up with that.”

It is understood that all parties that have signed agreements to buy wholesale capacity from DNB would have a chance to renegotiate pricing and lease terms if DNB is no longer the only party that can roll out 5G.

Idham believes having more than one 5G network competing on technology advancements and quality of service would result in better outcomes for consumers. “It is very different because this industry works on the ability to invest and continues to invest. If you look at our [growth], we didn’t invest in 2G and then stop; we didn’t invest in 3G and then stop … If we had invested in 4G and then stopped, you probably wouldn’t have seen any capex (capital expenditure) since 2015 but, every year, Maxis, Digi, us [Celcom] separately, we spent about RM1 billion [or] RM700 million to RM800 million a year continuously to build our networks. If you are moving to an opex (operating expenditure) model, that’s very, very hard.

“If we had done 5G three, four, five years ago, we should be upgrading ourselves to 5G advanced now, [whereas] Malaysia is talking about dual network versus single network. The [network] manager is not deploying 5G advance. Why? Because there is no competition. If I run my own network, the moment Maxis deploys LTE Plus, I’ll be scrambling to deploy LTE Plus tomorrow, and the moment I do LTE Plus Plus, they will be [doing the same] because there’s competition on technology upgrades.”

Critics dissatisfied with the quality of mobile network coverage wonder whether Malaysia would have already had 5G coverage for 80% of the population at end-2023 if MNOs had been granted 5G spectrum three years ago.

Established in March 2021, DNB was supposed to give the government control of the 5G network infrastructure built and paid for by MNOs that had no choice but to buy 5G wholesale capacity from DNB as the only party that could roll out 5G. This model could have meant that future network upgrades beyond 5G would also be in the hands of the government, and incumbent MNOs would no longer have spectrum or control of their network infrastructure once their 4G network was no longer relevant. Pushback from incumbent MNOs on the SWN model is therefore not unexpected.

“For the sector, this upcoming announcement from MCMC will mark the end of the SWN saga and remove regulatory uncertainties that have plagued the sector over the past three years. Next, we expect the Ministry of Finance (MoF) and exiting telcos to sell their stakes in DNB to telcos that stay on [in DNB], with DNB redeeming MoF’s special share 24 months after that. This will see DNB and Entity B function as network-sharing vehicles fully commercially run and owned by the telcos,” CIMB Research writes in its Sept 25 report.

Whatever the government’s policy decision on 5G, clarity is necessary for the industry to move forward, for better or worse. 

https://www.theedgemarkets.com/node/730235