THE decision to award the lion's share of the coveted 2.6GHz spectrum for 4G-LTE (Long Term Evolution) to Puncak Semangat Sdn Bhd, a relative unknown in the telecommunications industry, has raised more than a few questions.
The Malaysian Communications and Multimedia Commission (MCMC) allocated spectrum to eight telcos, with Tan Sri Syed Mokhtar Albukhary's Puncak Semangat getting 40MHz and the others — Celcom Axiata Bhd, DiGi Telecommunications Bhd, Maxis Broadband Sdn Bhd, Packet One Networks (M) Sdn Bhd, REDtone Marketing Sdn Bhd, U Mobile Sdn Bhd and YTL Communications Sdn Bhd — 20MHz each.
It was claimed that MCMC's decision was partly because it wanted to inject more competition into the market and that it was impressed with Puncak Semangat's business proposal and financial capabilities.
Analysts are less sanguine, however, as they do not view 4G-LTE as a game changer for telecoms operators in Malaysia in the interim, given its limited coverage and the scarcity of 4G-LTE-enabled devices in the market.
More importantly, analysts and industry observers alike are in the dark as to Puncak Semangat's capabilities and plans for the future.
"We are neutral about it as we don't know Puncak Semangat's plans. But we would have thought that most of the existing telcos would be given larger bits of the spectrum because they already have a network," an analyst from MIDF Research tells The Edge.
He says that while the big players — Maxis, Celcom, DiGi — had started upgrading their network infrastructures as early as 2011, there was no indication that Puncak Semangat had put up any towers or infrastructure, as was the case when YTL was allocated a portion of the 3G spectrum.
The analyst says that while Puncak Semangat is rumoured to be collaborating with either Celcom or DiGi, it could instead become just a spectrum firm should the plans fail to materialise.
"Theoretically, that is what could happen but that wouldn't be in line with what MCMC wants. MCMC wouldn't want rent-seekers," he explains.
However, another bank-backed research analyst feels that the allocation is not unfair, adding that it is in the best interest of the industry as it builds up competition.
The analyst concurs that Puncak Semangat would not have been given 40MHz if it did not have the expertise and capabilities required.
"I'm sure they have something up their sleeves. You don't just get 40MHz for nothing," the analyst observes.
So now, the question that begs to be answered is how will operators attract consumers to this new technology in an environment where price and speed are no longer the main variables in sustaining average revenue per user (ARPU)?
"The battle will really be fought in value-added services (VAS) and innovation. That's where competition is going to take place as telcos can no longer compete on price and speed alone," says Leon Perrera, chief executive officer and co-founder of Spire Research and Consulting.
Spire, which specialises in strategic research in emerging markets, recently released a white paper titled "The Next Stage for Asia's Mobile Internet", which attempts to predict what new applications and services will take off as mobile data pipes become bigger and smarter, especially with the expected region-wide deployment of 4G-LTE.
Thus far, 4G-LTE has been launched in South Korea, Japan and Singapore.
The key challenge for operators across the world, Perrera says, is in promoting rapid adoption. "You will always get a chicken-and-egg situation where you will need to get a lot of users on board in order to bring prices down and certain applications off the ground. How do you overcome this initial barrier?"
He believes that operators will approach a tiered-pricing and volume-based mechanism initially, in order to get users on board with these new offerings.
This is where innovation and VAS become key drivers in attracting customers on top of ensuring mobility, availability and coverage quality.
Increasingly, operators will be forced to collaborate with other service providers in industries such as transportation, healthcare and financial services, says Yap Far Loon, Spire's telecoms industry specialist.
For example, in Singapore, led by digital security company Gemalto, a consortium comprising Citibank, DBS Bank, EZ-Link, M1, SingTel and StarHub, is set to launch near field communications (NFC) services.
Three types of payment modes — credit, prepaid and stored-value — will be introduced through NFC-enabled mobile phones and can be used at 30,000 retail points.
Yap says these types of services will be essential in the promotion and awareness of 4G-LTE as they not only create "brand stickiness" for an operator but will also be able to close the gap on the unbanked segment in more rural areas which are largely under-served. "This is a new way of including them in the system so they can pay bills and transfer money."
Closer to home, Maxis Bhd, together with Pantai Hospital Kuala Lumpur and Heartronics Sdn Bhd, is launching EPI Life, the world's first electrocardiogram (ECG) monitoring device that incorporates ECG capabilities on a mobile phone.
Celcom also has plans with Transnasional to deploy Internet on the latter's buses.
These applications and services could not be possible without a bigger bandwidth as well as a stable and secure connection like 4G-LTE.
Essentially, the government still has to push for greater collaboration among players and across industries to fully benefit from 4G-LTE, Yap says.
International Data Corp, or better known as IDC Research, believes that operators could also follow in the footsteps of Singapore's SingTel.
It recently acquired a host of service providers, such as Ajitsu, Pixable, Hungreygowhere, Eatability, G-Mobi and TMG, to further strengthen its brand stickiness with consumers.
"I can't say all of them will be going down that mergers and acquisitions route but I can say that some of them are looking at it. It's not a strategy for everybody. You'd have to look at someone who either has a very strong consumer base or sees significant opportunity in the enterprise scene," Charles Reed Anderson, head of telecom practice and mobility lead for IDC Asia Pacific, tells The Edge.
"It's definitely going to be the bigger players because it's capital-intensive; the smaller ones just won't be able to afford it. For them,a better strategy is to partner. If you look at smaller players who focus on the prepaid segment, they will have to find ways to drive users towards solutions and services and try to switch them to a postpaid account," he adds.
Anderson explains that the prepaid segment does not create stickiness to a brand. "They're doing it because it's the low-cost offering and they need to figure out what the value-added services are that will create that stickiness. In order to switch users to postpaid, operators will need to create an ecosystem of solutions they can use," he says.
In Malaysia, players like DiGi have already begun to offer Internet data packages bundled with VAS like Opera Mini, Wikipedia Zero (with no data charges) and WhatsApp.
In addition, DiGi is also upgrading and extending its reach by spending some RM30 million to roll out 180 DiGi Specialised Express and DiGi Stores nationwide next year.
However, chief marketing officer Albern Murty says DiGi's growth for 2013 would largely be driven by 3G services. At this juncture, analysts say it is still not easy to tell which operator would be the clear winner in this new telecoms war.
"For a long time, Maxis has been the most competitive as it has been able to capture the 3G postpaid market on top of having a strong content development team. But the smaller players have also been fairly innovative although I don't expect them to make it on their own as they are too small and too niche," says Jeffrey Tan of OSK Research, adding that smaller players will have to work with other players to share resources.
He adds that DiGi, which is focused on prepaid users, will try to move its users to the postpaid category. Moreover, it will be able to benefit from its parent company, Telenor Group.
For example, DiGi could leverage off D-Tech, a Thai telco owned by Telenor.
This story first appeared in The Edge weekly edition of Dec 10-16, 2012.