KUALA LUMPUR (May 5): Analysts believe that any possible costs increase of establishing a 5G network under a dual network model would be manageable for MNOs; however, the issue of whether the retail costs will be more competitive than those of the current single network (SWN) under Digital Nasional Berhad (DNB) is still uncertain.

This follows the announcement on May 3 by Communications & Digital Minister Fahmi Fadzil that SWN will transition to a dual network model in early 2024 in a bid to dismantle monopolies and promote competition, while it sticks to the SWN approach until the population coverage of 80% is attained by end-2023 from 55% now.

What this means is that privately driven 5G networks will see spectrum reallocated to mobile network operators (MNOs). Under phase 2, the government intends for a new entity to roll out the second 5G network under Entity B, with Entity A taking over the 5G network rollout from DNB. 

The latter scenario suggests that the company will be disbanded after it reaches its coverage milestone with MNOs taking over thereafter – likely via the sale of DNB by the Finance Ministry, which results in the 5G rollout and control/ownership going back to the MNOs.

RHB Investment Bank in a note on Friday (May 5) said it estimates the overall 5G spectrum outlay at more than RM6 billion as it expects the 5G spectrum – 700MHz, 3500MHz, and mmWave bands – being re-allocated to the four big MNOs. This translates into some RM1.6 billion per operator, with the upfront fee projected at RM695 million and the annual fee at RM59 million.

The research house noted that this approach is similar to the government’s previous reallocations of the 900MHz/1800MHz/2600MHz spectrum in 2016 and 2021.

Public Investment Bank in a separate note on Friday said although the proposal to introduce a second 5G network provider would promote competition in the industry at a later stage, it remains unclear what the retail pricing will be, as well as spectrum cost to be paid by the second operator. 

“We believe that this second 5G network operator is likely to be a consortium of MNOs. CelcomDigi, being the largest telco operator in the country, is likely to be involved. Note that the group has announced its withdrawal from subscribing for DNB’s equity stake, suggesting that it is eyeing the role of a second 5G operator. 

The research house said given that DNB has been given the lead time in rolling out 5G infrastructure while the take-up rate remains slow, return on investment is expected to be low in the initial years. 

Meanwhile, it added that Maxis has been delaying the formalising of a wholesale agreement with DNB.

"We reckon that Maxis would also be keen to be an owner and operator of the 5G network. 

“At this juncture, no changes are made to our (Maxis’) earnings forecasts as we have already factored in wholesale fees of RM288million in FY23,” it said

Meanwhile, RHB said by incorporating spectrum amortisations and higher financing costs (from additional debt taken to fund the spectrum payment), it estimate CelcomDigi Bhd’s FY24-25 core earning possibly declining by 5-6% and and Maxis Bhd’s by 4-5%.

Correspondingly, their DCF TPs will be lowered by 3-5% to MYR4.18 and MYR3.83 from MYR4.32 and MYR4.03. 

“Aside from spectrum costs, we see 5G capex for the telcos as manageable, given that they involve software upgrades and incremental spending on 4G sites (mostly 5G ready), with 5G core network investments already in place as part of the SWN model,” said RHB, which maintained its neutral stance on the sector and prefers fixed-telco players.

In 2022, DNB announced that the SWN model would cost telco operators RM30,000 per Gbps a month (or 13 sen per GB) on 5G leasing charges. 

Kenanga Research in a separate note Friday said assuming a take-up rate of 1,000Gbps, this would ultimately cost the telcos a whopping RM360 million per year to provide 5G to consumers, and they also have to pay a fixed upfront fees regardless of how far the 5G population coverage progresses − a concern to the market as dividend payments might be significantly reduced given the additional costs.

As such, Kenanga believes a second 5G network will be positive for the telco operators due to improved profitability and consumers as competition is expected to result in better services, broader bandwidth, improved speed and affordability.

In a separate statement (Dec 2022), Plum said 5G networks offer a more cost-effective way of meeting this growth in demand than 4G networks. Based on the prices in DNB’s reference access offer and MCMC’s estimates of the cost of expanding 4G capacity, it estimate that moving from 4G to 5G using the SWN model lowers wholesale costs per GB of mobile data by around 85%.

The UK-based telecommunications consultant also said the rolling out of multiple network for each mobile operator would require six times as many 5G base stations.

It said although the unit cost per base station may be marginally lower under the six-network option, it estimated that the overall ten-year cost of the 5G network ownership under this option will be four to five times greater than under an SWN model.

“This means that the end-user prices under the SWN are expected to be around 60% lower than with a deployment of six 5G networks,” it added.

The firm also said under an SWN model, each mobile operator will continue to innovate in their core networks in terms of the services offered, whilst buying 5G access at prices well below the cost of 4G access. 

“Granted there will be no innovation in the supply of 5G RAN infrastructure because there is no infrastructure competition in this component of the network. But this innovation is determined largely by the relevant standards bodies and then implemented by the global network vendors.”

It also rebutted criticisms over SWN’s monopolistic nature, adding that a market controlled by two consortiums is unlikely to create healthy competition to benefit consumers.

“Operators would divide into two groups, ideally with approximately equal market shares. Each group would form a consortium and set up an entity, similar to DNB, to plan and deliver their shared network.

“Operators would need to provide long-term commitment to their consortium. They would not be able to move from one consortium to another. Each consortium would be a monopoly provider to its constituent operators who cannot leave to join a different consortium. There is therefore little competitive pressure on the consortia,” it said.