Wakil Gegar Malaysia memegang plakad sebagai tanda menggesa kerajaan membahaskan isu Digital Nasional Berhad (DNB) dalam persidang Dewan Rakyat di hadapan Bangunan Parlimen, Kuala Lumpur. Foto HAZROL ZAINAL, 14 DISEMBER 2021.

Malaysian 5G rollout – FDI promissory trap

EMIR Research has been calling for a comprehensive reevaluation of Malaysia’s 5G rollout in numerous and continuous publications because getting the model and implementation correct for the benefit of all is paramount.

Malaysia must consider all options to ensure its long-term interests and gains, far outweigh shorter-term benefits (if at all), even if it means reevaluating contracts and reversing policies that may upset certain vested interest groups.

Blindly defending policy, even if it is detrimental to the nation, puts into question not only the intellectual but also the moral precepts of the people involved.

The Wrong Model

The decision to pursue a Single Wholesale Network (SWN) model, specifically the Multi-Operator Core Network (MOCN) where mobile network operators (MNOs or telcos) share all the infrastructure except their core networks, is not a winning formula globally (see “Malaysian 5G Rollout — Topsy Turvy Innovation” dated March 24, 2023).

The SWN model has been shown as a failed model globally, save for one or two extreme or exceptional cases, such as New Zealand and Brunei, that cannot be extrapolated to Malaysia or anywhere else in the world due to the special focus (rural area with extensive fiber backhaul) and small size of the country and population.

It is good to think that one can defy the odds and be a unique example in the world, but there is such a thing as delusion, and there is a fine line between bravery and obtuseness. Unfortunately, evidence points to the latter.

In particular, the SWN/MOCN removes competition at the infrastructure level, which is crucial in driving innovation, impacting network service quality and affordability. We explained below why comparing this with commodity-type monopoly is a flawed argument.

Decisions made without being subject to public and expert scrutiny are pointless. As far as DNB is concerned, the only explanation and attempts to inform the public was post-decision-making which seemed to come from advertorials in local news dailies (sometimes self-owned) and op-eds from hired foreign consultants to speak on behalf of those under the uneasy spotlight.

If it were such a clear-cut case, DNB and their rollout model would not have garnered significant criticisms locally and even from world-renowned telecom industry experts such as the Global System for Mobile Communications Association (GSMA). See “Malaysian 5G rollout: Bending the truth like no other” dated May 2, 2023, where EMIR Research highlighted GSMA’s Public Policy Position from May 2021 where it is clear that DNB and its deployment model fits none of the GSMA’s best principles.

There have been various unanswered questions (see “Malaysian 5G Rollout “Unanswerable” Questions” dated February 21, 2022), such as actual demand estimates, needs analysis in rural areas, and other parameters which are crucial to measure the credibility of the so-called “supply-driven” model and how these would supposedly generate demands and spillover economic gains it envisions.

We are not even clear on DNB’s definition of coverage of populated area (CoPA), been said as one of the key performance indicators. But whatever the definition is, GSMA’s Asia Pacific head Julian Gorman reportedly and correctly pointed out that the priority should be adoption, innovation, including the infrastructure, and transformative use cases (which require infrastructure competition) for the industry as the true success yardstick of 5G — not CoPA.

The Wrong Entity

DNB’s role as a sort of spectrum monopoly middleman and the SWN approach deployed by DNB is not the same as regulated monopolies in water and electricity utilities, although painting DNB’s business model as such i.e., as a neutral arbiter of the people providing essential services to all, has a nice people-centric feeling to it.

If only that were the reality. Unfortunately, water and electricity are not comparable to 5G in terms of the pace of innovation and rapid evolution of technology. Water and electricity face little to no end-user innovation, and unlike water and energy, the spectrum cannot simply be regenerated. It is finite.

Also, unlike 5G, water and electricity have daily demands from people and businesses in urban and rural areas. Therefore, there is no question of the need for a nationwide deployment.

Furthermore, unlike genuine utility providers, DNB does not have sufficient internal capabilities to develop the network. It merely contracts this out to other parties, which locks Malaysia out of access to the pool of rapid global innovation in the telecommunications industry for a decade or more, at the minimum.

More recently we saw DNB trying to fix this through equity participation of telcos in DNB. This is also complicated and unnecessary. Wholesalers and retailers under one roof would be tricky if not conflicting. It might promote anti-competitive behavior, which is against The Communications and Multimedia Act 1998 (CMA) such as price fixing, market sharing and other activities.

As mentioned by MCMC’s Guideline of Communications Dominance, one of the factors the Commission would assess to determine whether functional levels of the supply chain are separable or subject to constraint, is “whether demand from one relevant level of the supply chain affects the demand at another level. For example, if competition at the retail level constrains the prices that a wholesaler could profitably charge, this may suggest that the retail level and wholesale level should form part of the same market.”

Needless to say, business interests may clash with the supposed objectives of a government-owned DNB.

Joint DNB ownership appears to be a conflict even among DNB’s proponents when even staunch DNB proponent, Tong Kooi Ong (owner of The Edge) doesn’t want DNB to be handed to telcos in his recent article (see “My Say: Do not ‘gift’ DNB to the telcos, please” dated May 2, 2023).

One interesting note is when Tong claims that private banks are financing DNB without a government guarantee and admits it is fully government-owned. What happens when financial institutions are no longer funding DNB? For all we know, DNB may be facing financial challenges as we speak. As such, they must look elsewhere for capital such as raising sukuk/bonds against projected (assumed) future cash flows, which, will have to be backed by government guarantees for it to be bought by investors. Remember 1MDB !

Note that this is excessive monetization through the exclusive use of spectrum by DNB, which was never needed in the first place, once again, as it exposes the government (the people) against potential future losses which could easily be in the billions and goes totally against the best global practices of efficient spectrum use to benefit end customers and industries.

Spectrum could have just been auctioned by existing regulators such as MCMC without the need for DNB. Telcos can do their businesses, but here we are trying to save DNB from its demise because it had prematurely signed a bad deal and is now parroting the financial and legal threats laid to it.

The Wrong Focus

The current DNB model focuses only on the last mile service delivery, which WILL NOT resolve internet problems in rural areas.

And this is where the accusation of telcos by DNB’s proponents as being unable to deliver quality affordable internet services in rural areas is pointless as this is due to Malaysia’s longstanding problem of lack of national fibre backhaul, which the previous administration, obviously, were unwilling to solve by defending, AGAIN, the existing monopolies (refer to “Malaysian 5G Rollout: Digital Divide Whitewash” dated February 27, 2023, for details)! This is where we should be speaking about the need for a government-owned monopoly for dark fibre as a neutral entity — an entity not involved in the retail business for the fibre. This is where we can appropriately equate it to a necessary regulated utility monopoly. After all, the internet is like water which will only sprinkle wherever you lay the dark fibre! Speed to spend by DNB with no outcome and impact to the nation.

As reported by GSMA, Malaysia’s 5G adoption rate is behind its neighbors at only 1%, as of December 31 2022, despite more than 50% 5G CoPA, ending January 2023. Not a great outlook for the “supply-driven” model!

This early problematic symptom is a sign of a timely and wise decision to halt the “speed to spend” and an excellent opportunity to recalibrate the model towards delivering genuine outcomes and impacts for the people and the nation!

Fair enough, recently, GSMA has reiterated calls for Malaysia to enable 5G infrastructure competition by allowing multiple 5G networks by telcos as the sure pathway to efficient and effective 5G rollout supported by the data, science, and economics, as manifested in the bulk of global experience thus far!

The Wrong Excuse

Proponents have resorted to blaming telcos for what they claim as poor 4G implementation in terms of timeline, quality and costs to customers using data points without verifiable sources. Tong’s most recent article repeated this accusation, again, without verifiable sources.

Here, proponents conveniently ignore publicly available and verifiable data and facts which EMIR Research had recently used to refute their claims in “Malaysian 5G rollout: Bending the truth like no other” dated May 2, 2023.

Additionally, it was reported in the Financial Times article “EU and US warn Malaysia of ‘national security’ risk in Huawei’s bid for 5G role” dated May 2, 2023, that US and EU representatives warned Malaysia over risks of foreign investment if the country’s telecommunications infrastructure is opened up to other players (such as Huawei) —a natural global competitor to Ericsson who is the appointed 5G Network Equipment Provider for the Malaysian SWN model.

It is hypocritical of the US and EU to speak of contractual obligations and the adherence to agreements, trustworthiness, fairness, utmost justice and transparency and “stability” of policies as if they are speaking from a place of complete stability, purity and of moral high ground. We can write a history book on how these nations are not walking the talk and violating legally written documents and / or treaties for decades.

EMIR Research would like to highlight that in their land, EU enacts regulations strongly against what they preach in Malaysia! The Body of European Regulators for Electronic Communications (BEREC), as an organization representing the consumers’ interests, maintains a unanimously negative view of MOCN (DNB’s exact model) due to its potency to substantially reduce the differentiation capacity of the sharing parties in terms of service quality (refer to “BEREC Common Position on Mobile Infrastructure Sharing” — common position and framework for national regulatory authorities). Among the active forms of sharing, BEREC urges national regulatory authorities to very carefully assess spectrum pooling (MOCN) and national roaming on a case-by-case basis restricting its application to areas with very low population density where infrastructure-based competition is infeasible (which DNB is not doing).

Typical double standards

The changing geopolitical landscape and tectonic shifts in power blocs also demand that Malaysia remain neutral in its technology preferences. Though, the “threats” of FDIs and other investments by Malaysia’s partners are noted, Malaysia, as a sovereign nation, must do what is best for Malaysia in the long run — not saying no to Ericsson but opening it up to others to promote infrastructure competition, remove unnecessary spectrum monopoly, recalibrate a proven failed model and remove the middleman for spectrum allocation, as we already have MCMC for regulatory purposes.

Furthermore, if existing players in the 5G rollout, such as Ericsson, have committed to investments and developmental projects in Malaysia only if the existing model (monopoly model), which they vehemently oppose in their own land, is maintained, then this sounds as a PURE NEO-COLONIALISM.

They want us to 1) remain only users of their technology and 2) through their typically low value add FDIs, use our nation as cheap labor on either one end of the supply chain (raw materials) or another (simple assembly of the finished goods)!

They must be reminded that Malaysia attained its sovereign nation status in August 31, 1957, 66 years ago!

The current administration, taking over the wheels of a country that has struggled to get out of the middle-income trap and reach a high-income, innovative nation, must think strategically and critically so that Malaysia does not repeat the same mistake that has plagued our nation over many decades.

Who is to say that deals with other 5G providers won’t be sweetened by similar or even better FDI initiatives for Malaysia? If anything, competition would drive providers to add more icing on the cake. A holy place is never empty!

The Wrong Excuse, Again

In addition to financial and legal issues, the Financial Times article also reported that Brian McFeeters, the US ambassador to Malaysia, warned of “national security risks” unless Malaysia stuck with its original plan for 5G deployment.

However, does not simple common sense suggest being at the “mercy” of one technology supplier be a far greater security risk?

Remember the false flag operation in Iraq where the US had a national security threat via the non-existent weapons of mass destruction (WMDA)?

The US banned Huawei from its 5G networks back in 2019, which is no surprise as they have tried to lobby (pressure) other nations to do the same. But it’s interesting to note that the EU representative to Malaysia focused its criticism (in the FT article) on the contracts instead of national security issues.

This is likely because Huawei is also a 4G and 5G vendor in many EU nations (Figure 1). How hypocritical they are to “urge” Malaysia to do otherwise.


In addition, even if we study other countries closer to Malaysia, Huawei have also been deployed — Singapore, Thailand and The Philippines. Even in the Samsung home turf, South Korea, LG U+ uses Huawei. All these countries including the EU countries surely must have considered their national security risks.

As mentioned in “Independent Oversight on DNB and 5G is Necessary” dated March 24, 2022, the International Consortium of Investigative Journalists (ICIJ) highlighted how both Ericsson and Huawei have questionable dealings.

The security issue goes both ways, and Malaysia’s best bet is to not put all its eggs into one basket, be technology neutral and diversify its ecosystem. It makes sense economically and in terms of national security and infrastructure resiliency and redundancy.

There is no reason to be beholden to one private entity, one core network, one government spectrum middleman and the pressures of one geopolitical or economic bloc. This will only stall innovation, beget complacency and increase the risk of corruption, over-dependence and overreliance, with diminished flexibility for change.

As such, EMIR Research welcomes the decision to pursue a dual wholesale network (DWN) as announced by Communications and Digital Minister Fahmi Fadzil on May 3, 2023. This is generally a step in the right direction, but the devil is in the details (or the lack thereof) and EMIR Research will provide a commentary on the announcement in a separate article. WRITER – Dr Rais Hussin is the president and chief executive officer of EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research. – ANN / 03 MAY 2023

Malaysian 5G Rollout: Spectrum Economics & Deadweight Loss

AS the policymakers continue to review the contentious DNB’s 5G rollout model, it is crucial to unpack DNB’s big promises and premises critically, truthfully, and structurally.

EMIR Research, in its’ own review, already questioned very seriously DNB’s ability to provide lower costs (refer to “Malaysian 5G Rollout: Camouflaged Costing Acrobatics”) and dispelled its ability (and even the intention in the first place) to solve digital divide (refer to “Malaysian 5G Rollout: Digital Divide Whitewash”). Among other things, EMIR Research highlighted big red flags in DNB’s governance structure (refer to “Malaysia’s 5G Rollout: Corporate Governance with Audacity of Impunity!”).

In this article, EMIR Research would like to focus on DNB’s “supply-driven” innovation (or we should say “negative innovation” of a kind) coupled with aggressive spectrum monetization that has simply too far-reaching devastating implications for our nation beyond just losing scarce financial resources and therefore must be addressed decisively and quickly.

We already have seen how DNB has been recently changing their tune with its “solving digital divide” agenda transitioning from one of the key objectives to another initiative that “can be pursued independently” (refer to DNB’s joint report “An analysis of EMIR’s “Reviewing contentious DNB’s 5G”, pp. 2 – 3).

Now, after two years of shouting out loud that Malaysia needs 5G nationwide and fast, DNB proponents finally admit what they used to deny (probably to make a case for their “supply-driven” model)—“5G is an enterprise application with no known killer apps for retail use (at least till today)” (refer to “The context of how and why the 5G Single Wholesale Network model was chosen in Malaysia – Why government-owned DNB is best option to drive 5G SWN” by Tong Kooi Ong in TheEDGE). EMIR Research has emphasized this since day one in its call for a more efficient and gradual or common-sense 5G rollout in pace with the demand and actual use cases.

But now portraying the Malaysian Mobile Network Operators (MNOs) as “bad guys” comes to the forefront again in DNB’s narratives to advance the idea that they would not be willing to put up 5G infrastructure due to intrinsic desire “to sweat out the assets where they have already put a lot of investments into, the 4G infrastructure”.

The same five-page TheEDGE advertorial reads: “The existing MNOs had indicated that they did not plan to roll out 5G at least until 2024”, which, at the very least, is an overstretched misrepresentation.

Reportedly, most Malaysian MNOs have started carving out significant investments in making their base stations 5G-ready in early 2019, in pace with the globe. In the telecom industry, where, like in any IT industry, progress and innovation and, therefore, the cost de-escalation is so fast, only a fool will make an investment in technology planned for use not earlier than five years down the road—yet, another reason why it is unwise to be locked in 10 years agreement with one vendor like under current DNB’s arrangement.

However, what did not happen at pace with the globe was the 5G-spectrum auction by the Malaysian government. Instead, even the technology neutrality for the spectrum (the right to use their existing spectrum to provide 5G service) was unexpectedly revoked, which is one gross violation of the key principle of using the scarce spectrum efficiently to generate maximum benefits for society! After all, using legacy spectrum, MNOs could bring 5G to at least 5G-commercially viable areas (those industrial areas) long ago, even without spending astronomic amounts on new spectrum bands.

So it is starting to look unclear who really had a sinister intention to “sweat out” the spectrum price! All those loud concerns (by the DNB advocates) about the costs to MNOs, which would implicate rollout speed and prices to the end-users, begin to look like yet another whitewash re-affirmed when we unpack properly misleading graphs in the same five-page TheEDGE advertorial.

“Malaysian mobile consumers are paying one of the highest rates in the Asean region”— one of the graphs reads while stating the source as “DNB analysis” (Diagram 3). Another graph (Diagram 4) tries to portray our MNOs as holding out on investments into network upgrades resulting in poor quality, among other things, according to the advertorial narrative. However, the graph compares apples and oranges using 5-year averages while ignoring that the regional MNOs are already 2 to 3 years into their 5G rollout upon purchasing new spectrum bands, unlike their Malaysian counterparts and, therefore, have very different cost structures.

Nevertheless, publicly available global data points indicate that DNB’s paintings are over-sin-sensationalized at the very least.

For example, when we unpack Diagram 3, replacing GDP per capita with median income (a less misleading, even though still a rough proxy of disposable income), we will see a clear manifestation of the fact that what MNOs can charge in their local markets is very much determined by what people can spend (Figure 1).

Figure 1 data is intentionally for 2019 as a 5G-sunrise year to ensure comparability among the countries. The trend line in Figure 1 illustrates which markets have balanced ARPU and median income. As we can see, ARPU for Malaysian MNOs is at par with the regional peers.

Figure 2 is a visualization based on another credible global index, the Mobile Connectivity Index by GSM Association. We see an expected solid positive relationship between network performance and mobile tariff affordability worldwide. And, again, as of 2019 (just before the DNB’s saga), Malaysia was not only ahead of its most regional peers (Figure 2B) but the majority of other middle-income nations (Figure 2A).

Of course, it is a reasonable question—could we have done better like those countries in the extreme top right-hand corner of Figure 2A?

We probably could if there were common-sense policies by the previous administration, particularly in handling spectrum efficiently.

Yes, the spectrum can generate state revenues. However, accumulated empirical evidence conclusively shows that excessive spectrum monetization by the government costs times more to the broader economy (specifically the digital economy) than it raises in additional state revenues. Moreover, it costs even more to the social welfare of countries with large differentials in consumers’ spending power—the category Malaysia certainly belongs to.

For example, “Effective Spectrum Pricing: Supporting better quality and more affordable mobile services”, using data from NERA’s database of spectrum awards, finds statistical evidence linking higher spectrum prices to low investment in 4G and higher consumer prices for data which is consistent with other empirical evidence reviewed in the paper.

Numerous visualizations of NERA’s data in the same paper also reveal Malaysia among those with unduly high spectrum pricing. For instance, Malaysia’s spectrum reserve prices for coverage bands appear prohibitively too high (Figure 3), which contradicts our policymakers’ long-standing “jihad” to close the digital divide.

Spectrum prices are usually considered “sunk costs”—incurred once and not affecting pricing decisions. However, more recent research in behavioural economics finds that increased sunk costs tend to inflate prices.

What more could we expect when, under DNB’s very “innovative” model, spectrum fees will now directly impact MNOs’ marginal costs??? This will have a pure deadweight loss tax effect on our digital economy, leading to its significant shrinkage.

Furthermore, according to analysis using “order of magnitude” estimates, spectrum costs create a more significant deadweight loss to the social welfare than even general taxation (refer to research work “What really matters in spectrum allocation design”).

In the context of the above, is outright disgusting how DNB’s proponents are trying to justify their existence with their bravado projected cash flows which are also just a miserable fraction of what MNOs can deliver in Universal Service Provision fund, taxes, and dividends to Government-Linked Investment Companies.

From Figure 3, we also notice spectrum prices have plateaued since 2013, which could be partly explained by the reduced spectrum scarcity due to legacy-spectrum re-farming possibility. Or, perhaps, this is due to accumulated global wisdom from the previous spectrum revenue extraction fiascos. After all, given the above empirical evidence, we should expect that the “countries that try to resist this trend, either by restricting spectrum availability or overpricing newly released spectrum, are likely to find themselves falling even further behind in availability and take-up of next generation data and associated connectivity services”.

This is why for the 5G rollout, many regulators worldwide strongly prioritize benefits to the broader digital economy over short-term windfall for their treasuries.

For example, in countries like China, Germany, Japan, New Zealand, Qatar, Sweden and many others, 5G-applicable spectrum is even given either at no costs but via a competitive tender or with no up-front costs and postponed by a few years and gradually increasing thereof annual fees or in some other variation to significantly relief MNOs’ cashflow difficulties and risks. European Commission in their Connectivity Toolbox, a set of best practices for timely rolling out 5G, specifically emphasize the importance of finding ways to lower the recurring costs of spectrum for MNOs especially “where the prospect of a substantial densification of the network is foreseen in the longer term”.

Malaysia has been far too often in the anti-trend and negative-innovation zone for the last two decades. This is high time to reverse it, at least, for our digital economy.

DNB has already created a lot of mess and social welfare losses, many of which, sadly, will go unestimated. Still, policymakers should no longer allow it to thwart our digital future. We can immediately turn this miserable situation around by restoring our spectrum efficiency. WRITER – Dr Rais Hussin is the president and chief executive officer of EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research. – ANN/ 15 MARCH 2023