A Central Rollout Of 5G Infrastructure In Malaysia Would Be Inefficient, Says Fitch Solutions Industry Research Unit

According to Fitch Solutions Country Risk & Industry Research, awarding 5G spectrum and infrastructure buildout rights to a government-owned entity will likely drive wholesale costs higher, hurt operator margins and hamper the development of 5G services in Malaysia. 

Putrajaya has employed a special purpose vehicle (SPV) to hold 5G spectrum and manage the nationwide 5G network buildout. The network will be wholly owned and maintained by the Ministry of Finance-owned SPV which will lease out capacity to operators to offer services.

“A centrally-coordinated rollout of 5G infrastructure in Malaysia would – in our view – be inefficient and likely to incur higher levels of capex compared to a scenario where operators pursue their own buildouts and network sharing arrangements,” the Research report stated.

The research has also highlighted that elevated costs associated with a single-entity rollout would likely be passed on to operators in the form of higher wholesale costs; in turn, operators would find it difficult to extract higher margins from selling these services to their customers.

Lower profits according to analysis would also mean less funds for operators to invest into service development, weakening the ability of the operators to differentiate themselves from their rivals.

“We maintain that value-added services will be key for operators to grow their 5G influence and provide mode value to their customers beyond just faster speeds,” the report said.

The report has also highlighted that the lack of private sector involvement in the SPV also raises concerns that contracts might not follow open tender processes and that financial reporting obligations of the new entity might eschew transparency.

In return, this could open opportunities for graft and corruption in the buildout process, the research unit stated.

The report has also highlighted that improving national and regional connectivity will remain a challenge for Putrajaya considering the limited fiscal headroom that the government has left to execute its fiscal stimulus as internal and external pressures relating to the Covid-19 pandemic continue to mount.

“In our view, the priority of government stimulus would be best focused on further subsidising the fibre infrastructure rollout of state-owned wireline incumbent Telekom Malaysia (TM), rather than on 5G equipment such as cell sites and street furniture,” the report stated. 

“Nonetheless, we hold a positive view of government efforts to invest into deepening fibre and cloud services uptake in the country. The PN government continues to make steady progress with its national fibrerisation programme through the Jendela initiative, and reported that as many as 456,757 premises in Malaysia had been passed with fibre broadband by the end of 2020, ahead of its target of 352,101 premises,” it added.

The Malaysian Communications and Multimedia Commission (MCMC) in response to the analysis said the Commission is focused on encouraging investments in the right areas.

“In such an effort, a dedicated GOMSPV regulated by MCMC will provide focus in rolling out the 5G network. This is key so that existing service providers can continue to roll out fiber as well as improve 4G coverage and quality,” the Commission said in a statement.

“The burden of 5G will not be on the service providers whilst still ensuring that the digital divide risk is being kept at a minimum
throughout the implementation of 5G network via the roll out of fiber and 4G network,” MCMC added.

The Commission has also highlighted that the non-auction model adopted is part of the effort to not burden cost on a new network, in addition to ensuring that readily available network elements will be used and not laid new.

*This article has been updated to add comments from MCMC in response to the analysis by Fitch Solutions Country Risk and Industry Research

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