Malaysia’s 5G race

KUCHING: Last year, the world witnessed a global economic and health crisis brought on by the Covid-19 pandemic.

To curb the spread of this pandemic, countries worldwide enforced lockdowns and shut their borders, pushing businesses and operations of various sectors to utilise digital technologies that rely heavily on a stable communications network.

The massive scale of this shift towards digitalising a business or operation has further emphasized the need to upgrade the world’s digital infrastructure including the possibility of accelerating to deployment of ultra high-speed fifth-generation (5G) network to meet the rapid increase in Internet demand.

For Malaysia, aware that its information and communication technology (ICT) segment which has amassed RM289 billion – accounting for 19.1 per cent of GDP in 2019 – the country has begun its journey in transforming its digital economy. However, its 5G technology plans are still in its infancy.

Malaysia’s 5G journey began with the setting up of the National 5G Task Force in November 2018. It comprised of 114 members from service providers, academia, ministries and agencies.

The Malaysian government at that time had also planned to launch the commercialisation of the 5G network by the third quarter of 2020.

However, the nation’s 5G plans hit a speed bump when Malaysia saw an unexpected change in its political landscape, followed closely by the implementation of a nationwide movement restrictions under the Movement Control Order (MCO) to stop the spread of Covid-19 which hit the nation early last year.

Despite these major setbacks, Malaysia resumed its plans on deploying the 5G network via its new national digital infrastructure plan; the Jalinan Digital Negara (Jendela), which aims to improve Malaysia’s digital connectivity whilst preparing the country for 5G technology.

This plan is further supported by the recently announced Digital Economy Blueprint; the MyDIGITAL plan which also emphasizes on bringing forward the plan to roll-out of 5G technology from year 2022 to the last quarter of 2021.

The government hopes that this would create approximately a total of 105,000 job opportunities. This effort will be carried out by a special purpose vehicle under the Malaysian Government. This entity will then be given the appropriate spectrum to own, implement and manage the 5G infrastructure.

Besides, the 5G deployment will provide the country with digital connectivity and robust infrastructure as 5G potentially delivers higher multi-Gbps peak data speeds, ultra-low latency, increase reliability,massive network capacity, and a uniform user experience to all subscribers.

Shutting down older networks

The Jendela programme involves two phases to ultimately reach its purpose of transitioning the nation into the 5G era.

Phase 2 of Jendela involves addressing the remainder of the digital divide, primarily utilising FWA and other fit-for-purpose technologies, as well as priming the nation’s transition to 5G; which will take place once action plans to build a robust 4G and fibre platform under Phase 1 are achieved.

Phase 1, which starts now until 2022, will involve optimising existing resources and infrastructure for both mobile and fixed connectivity by expanding 4G mobile broadband coverage from 91.8 per cent to 96.9 per cent in populated areas.

To achieve this, the government aims to turn off 3G networks in stages to refarm the spectrum used for 3G to optimise the 4G networks which will serve as a strong foundation for 5G.

Earlier this year, the Malaysian Communications and Multimedia Commission (MCMC) announced that it will no longer certify 3G equipment and non-VoLTE capable devices importation by January 2021 as the country is targeting to shut down the sunset network by the end of 2021.

As for mobile network operators (MNOs) here, so far, Celcom Axiata Bhd has announced that it is on track to shut down its 3G network by end of this year.

Celcom said as at end-2020, it has around 800,000 customer that are still on the 3G network.

Other MNOs such as Digi Telecommunications Sdn Bhd (Digi), Maxis Bhd (Maxis) and U Mobile Sdn Bhd (U Mobile) are also expected to turn off their 3G networks by December 2021.

There are currently no plans to shut down 2G network as MNOs have said that this would still be required to support voice services.

Meanwhile, according to a report by Opensignal, the national 4G Availability currently stands at 86 per cent, which means that on average our 4G users in Malaysia are able to access a 4G network 86 per cent of the time.

It also noted that there is a digital divide between Peninsular and East Malaysia as users in Peninsular Malaysia saw relatively higher 4G Availability than their counterparts in East Malaysia.

At the top of the list for 4G Availability is the federal territory and the capital city of Kuala Lumpur (91.8 per cent), followed by Pulau Pinang (89.7 per cent) and Putrajaya (89.5 per cent).

In contrast, users in Sabah, Sarawak and Kelantan experienced significantly lower 4G Availability, reporting 80 per cent or less.

 

MyDIGITAL fast-tracking the 5G movement

The MyDIGITAL plan also emphasizes on fast-tracking the digital transformation in Malaysia.

In his speech for the launch of MyDIGITAL, Prime Minister Tan Sri Muhyiddin Yassin said four important types of digital infrastructure under MyDIGITAL must be built first.

A total of RM21 billion will be invested over the next five years through the Jendela project to strengthen the existing connectivity. This fixed line optical fibre network will cover almost 100 per cent populated areas in stages – from 7.5 million premises by the end of 2022 to 9 million premises by the end of 2025. Based on this wider fibre optic network coverage, this country will be better prepared to switch to the 5G network in the near future.

A total of RM1.65 billion will be invested by several telecommunication companies to strengthen connectivity to the international submarine cable network until the year 2023.

A total of RM15 billion will be invested over a period of ten years for the implementation of 5G nationwide. This is also expected to create approximately a total of 105,000 job opportunities.

Aside from that, between RM12 billion and RM15 billion will be invested by Cloud Service Provider (CSP) companies over the next five years.

“The construction of this digital infrastructure forms the backbone for a sustainable digital ecosystem. This ecosystem serves as the key engine of growth towards sustainable economy,” he said.

 

Ensuring progress in the 5G deployment across the nation

With 5G as the key to technological advancement and economic development, the government has established Digital Nasional Bhd (DNB) as its special purpose vehicle (SPV) to expedite 5G roll-out to the end of 2021, faster than Jendela’s earlier target of late-2022 to 2023.

Promising all telcos equal access to the necessary infrastructure, the government views 5G infrastructure, specifically the spectrum, as a natural monopoly asset, and hence believes that it is best managed by the government.

In turn, this prevents the duplication of infrastructure among telcos, as well as reduce telcos’ high-cost of investments, which would have caused telcos to delay 5G deployment until it is commercially viable.

Analysts viewed this move positively as it reduces near-term pressure on telcos.

“As the telcos do not have to bear the cost of the spectrum, this could allow them to offer more competitive rates to customers, facilitating faster 5G roll-out.

“Unlike the traditional model of telco owned-spectrum, this reduces the opportunities for telcos to differentiate themselves from one another in their 5G offerings while possibly enabling new entrants to tap into the network, laying the grounds for a continued price competition in the mobile space,” the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted in a recent report.

Maybank Investment Bank Bhd’s research team (Maybank IB Research) also pointed out that by operating via a wholesale model, telcos would be allowed to access the network, with rates and terms being regulated.

“In total, RM15 billion (to be spent on both new equipment and leasing of prevailing infrastructure) would be invested over 10 years, with capex being front-loaded,” it said.

It noted that DNB’s monopoly applies only to 5G infrastructure and as such, telcos’ prevailing holdings would remain intact, and they cannot repurpose their existing spectrum for 5G.

“Overall, telcos are now absolved from 5G capex (the monetisation case was not great to begin with), which would alleviate near-term pressure on returns.

“In addition, 5G deployment would likely boost demand for fibre, thus fixed-line players should benefit,” it said.

One of the main risk now, revolves around the SPV’s ability to execute its plans, the research team viewed.

 

The telco sector’s role

5G deployment would likely boost demand for fibre, and thus fixed-line players such as Telekom Malaysia Bhd (TM) should benefit.

Furthermore, with the government aspiring to have 80 per cent of public data stored on the Cloud by 2022 and to employ other Cloud services to strengthen government services, TM, as the only home-based CSP, stands to benefit from the public sector’s recurring and growing revenue base.

“Moreover, the availability of 5G would also speed up adaptation of cloud applications in the private sector, providing potential further catalysts to TM’s data segment,” Kenanga Research pointed out.

Aside from that, it noted that TM’s enterprise and public segment (TM ONE) also yields the highest EBIT margin (YTD 28 per cent) within the group (YTD 15 per cent).

“As one of the few telcos with submarine fibre cable infrastructure, TM will likely contribute to the cable network expansion, in our view.

“Though any additional capex is not yet known, we believe that their cost-optimisation efforts should help cushion any additional costs from expedited fibre expansion.

“Moreover, with TM’s extensive fibre footprint, it is likely to have to lease out its fibre footprint to serve the new network, therefore TM will still play an important role in 5G development,” Kenanga Research viewed.

Meanwhile, Maybank IB Research noted while TM appears an obvious beneficiary (also the likely cloud service provider for the government), TM is already a major ICT vendor for the government and there are capex obligations to fulfill as outlined in the blueprint (data centre and possibly submarine cable) which could affect returns.

 

Execution, collaboration keys to Malaysia’s digital plans

Overall, Malaysia’s digital plans have been viewed positively by analysts and experts here and internationally.

“The MyDIGITAL blueprint represents a mixed bag of re-looking initiatives that have been mooted in the past, with new initiatives that are meant to drive Malaysia’s Digital Economy.

“What remains to be seen is whether the various stakeholders and partners on the ground are able to keep up with the pace of the suggested timeline, and if this blueprint is nimble enough to transition or bend given the rapid pace of technological change” IDC Asean managing director Sudev Bangah said.

IDC noted that the Malaysian government’s decision to invest RM15 billion to build 5G infrastructure nationwide over 10 years period through a government-owned Special Purpose Vehicle (SPV) is a similar approach to High-Speed Broadband (HSBB) project in 2008. 5G implementation is a highly CAPEX oriented investment and telecommunication infrastructure sharing will reduce the cost of mobile services, and it will also enable the mobile operators to shift their focus to provide enhanced products & services at an affordable rate.

“Shared infrastructure reduces deployment cost by avoiding duplication of network or redundant investment for the same technology within the coverage area.

“The government shall ensure the SPV provides fair treatment to every mobile operator and all the processes are transparent to avoid partiality towards certain operators due to any existing business relationship.

“Furthermore, having a shared infrastructure has its own high risk – single point of failure that need to be addressed and mitigated by having high network availability at all time” IDC Malaysia senior research manager Zaim Halil opined.

Meanwhile, SME Association of Malaysia (SME Association) and National Tech Association of Malaysia (PIKOM) are calling for local players to be included in the building and management of hyperscale data centres as well as for the provision of hybrid cloud services, under the MyDIGITAL initiative.

“This is in line with the government’s aim of migrating 80 per cent of public data into the hybrid cloud system by end-2022 under the ‘cloud first’ strategy.

“However, this initiative should also be broadened to include local data centre providers so as to further develop local talent, skills and intellectual properties for Malaysia,” SME Association vice president Chin Chee Seong said in a statement.

Chin urged the government to broaden the selection beyond the four companies to also include other local leading data centre players.

Meanwhile, PIKOM chairman Danny Lee said that adopting a level playing field – and one that is inclusive of local data centre providers – would ensure that the industry would continue to thrive.

“Currently, TM is the only local company earmarked for this initiative. We should not forget other local players which have successfully built up this market for Malaysia, so much so that our country is also known as an ideal location for business continuity and disaster recovery,” said Lee.

He said that thanks to efforts from local data centre providers, Malaysia was also increasingly becoming a regional hub for various industries such as manufacturing, logistics and big data analytics.

“As more organisations embark on investing in cloud systems, the need for more local data centres is set to rise – and we expect the market in years ahead to be exponential.

“Hence, we urge the government to include local players – which have built the data centre industry to be what it is today – to continue to be part of this growth moving forward,” Lee added.

Pertama Digital Bhd (Pertama Digital) lauded the government’s initiative and clear roadmap for the digital transformation of Malaysia to become a regional leader in the digital economy and called for more partnerships for more innovative and immediate solutions.

Its executive director Sabri Ab Rahman said: “While it is important that the government acknowledges the importance of driving economic growth and the nation’s competitiveness in the era of the Fourth Industrial Revolution, the next crucial step is for immediate solutions to be brought forward via innovative people-private-public partnerships.”

Meanwhile, Pikom chairman Danny Lee said Pikom sees the MyDIGITAL initiative as a comprehensive plan to rejuvenate the public sector, empower the private sector, equip society, build first-class infrastructure and develop human capital. However, he pointed out that execution is key to its success.

“As in any plan, execution will be key. If there is one area that we should take a deeper look at, it’s infrastructure.

“Malaysia currently does not fare well compared to its neighbours and other fast-developing countries, so this may require additional emphasis to ensure that we are quickly up to speed and globally competitive,” Bernama quoted him as saying.

Aside from that, Lee added that reaching 100 per cent connectivity for all Malaysians was ideal, but there needs to be more emphasis on the infrastructure for this to be achievable is crucial.

Lee said connectivity improvements and 5G technology would be imperative as Malaysia takes into account population growth and increased mobile penetration, as well as the continued consumption of data and content.