DNB’s window dressing continues

As government look into postponing or discontinuing mega projects to save public expenditure, the DNB certainly sounds as an absolute good candidate.

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Published in Astro Awani, Malaysiakini, Business Today, The Malaysia Insight, Focus Malaysia (Part 1), MYsinchew, and Asia News Today, image by Business Today.

After already losing three years for credible 5G rollout, Malaysia’s sad 5G rollout through the Single Wholesale Network (SWN) model saga continues with the government officials still ardently trying to convince us that our telecommunication’s industry descent continues “according to the plan”.

However, red flags suggest that the public must ramp up its vigilance over the Digital National Berhad (DNB)-led 5G rollout. Sadly enough, this issue is no longer about protecting our national competitiveness on the pathway to the fourth industrial revolution, which has already been severely hampered. Instead, there is a more mundane task now in front of the public watchdogs—at least save the taxpayers money.

More so, in line with the statement by the Economy Minister Mustapha Mohamed to postpone or discontinue any mega project that has yet to commence to save public expenditure and focus on what is important for the people, the DNB certainly sounds as a good candidate.

To recap on a very unusual and winding pathway to the 5G rollout Malaysia has taken thus far, we try to reconstruct its timeline here (Figure 1).

As you can see, at the very onset of this unusual journey, Malaysia’s biggest telcos were ready for 5G implementation as early as 2019, which at that time, could have been crucial to onboard our industry on 4IR.

The journey is unusual in that Malaysia is using an unpopular in the whole world and problematic model for 5G rollout — Single Wholesale Network (SWN). With none among about 70 other countries already rolling out 5G adopting the SWN model, Malaysia indeed cuts a lonely figure in its approach.

Notably, the Malaysian government has decided to stick with this very unusual path to 5G even after continuous persuasion by the industry experts, local and international, backed by data, science, economics, and plain logic pointing towards the damaging impact of the SWN approach on telecommunication industry, especially for 5G, while also not solving the digital divide problem in any manner under the currently proposed DNB structure (see “DNB’s window dressing” for more details). 

The veteran of Malaysia’s telecommunication industry, Dr Muhammad Awang Lah, wrote countless articles published in the media on DNB-led rollout from various angles and levels of technicality, appealing to the wisdom of policymakers. According to the expert, there is a need to restructure DNB to focus solely on owning, expanding and sharing the fibre backhaul among all the industry players, thus reducing the backhaul cost for the benefit of end-users while maintaining competition in the last mile, which is crucial to improve quality of service. Lack of fibre backhaul is also at the heart of Malaysia’s digital divide problem.

The years of experience in the industry also prompt Dr MAL to underscore the importance of separation between wholesalers (lessors) and retailers (lessees). The violation of this fundamental principle is ALWAYS detrimental to the industry and the end-users. However, DNB-led or telco consortium-led or even recently proposed jointly owned SWN grossly violates this principle.

Furthermore, Universal Service Provides (USP) fund is more than apt to serve the purpose of fibre backhaul expansion. It is a big question, though: why has it not been done until now if the earnest desire to bridge the digital divide keeps our policymakers awake at night (their other “jihad”)? Why has the fund been sitting there merely accumulating interest while having no impact on the rural areas for a decade? 

Nevertheless, in complete disregard of this wise and powerful solution to the benefit of many, Malaysia’s policymakers insist on introducing DNB as one of the most expensive project management or middleman type of a company that subcontracts everything to third parties. Note that even Telekom Malaysia does not provide “fibre leasing”—a misleading term used by DNB—to DNB. Instead, it will provide bandwidth leasing based on Gbps (not km of fibre) for existing fibre. Now the question is, who would lay the fibre and backhaul to go to the rural areas and how it will be reflected in the costs and prices of DNB and the telcos? This is not clear and never was answered by DNB! As well as, it is not clear how they are going to solve the digital divide without this clarity.

On 30 June 2022, the Communications and Multimedia Minister reportedly announced that six telcos, including Celcom, Digi, Maxis and U Mobile (CDMU), have agreed to take up stakes in DNB while also assuring that everything is going according to the plan and this is just a matter of another week for the equity uptake deal by the major telcos to be finalised and signed.

However, according to the industry sources, what telcos have signed is just the Access Request Application Form (ARAF) which is non-binding and merely the permission to continue technical testing

Furthermore, this non-binding agreement is only the first small step in the standard overall transaction process which is more rigorous and, importantly, includes the due diligence procedure that must be completed before public listed companies such as Celcom, Digi, Maxis can sign a shareholders agreement for a stake in DNB. 

On top of that, the outcomes of such a due diligence exercise shall become part of public knowledge since the public’s money is involved, which is good as the public is long time anxious to open DNB’s books for proper due diligence.

This 30 June statement implying that CDMU telcos have agreed to take up stakes in DNB is even more interesting when we remember that on 9 May 2022, these same telcos reportedly sent the letter to the Ministry of Finance. 

In this letter, CDMU used powerful words, basically seriously questioning the fundamentals and viability of the current DNB-proposed business model and making it clear that only the controlling 51 per cent joint stake for their group is the “most viable to reach an agreement” to be able “exercise influence and control to safeguard [their] investments”.

They also clearly expressed concern over the proposed Reference Access Offer being “not commercially viable” and likely to lead to higher customer costs and slower adoption rates

Has DNB addressed these points of contention to claim that CDMU agreed or will agree to the DNB terms? Or is this only a desperate “narrative management” attempt to convince the public and the banks that everything is going as planned and there is cash flow in sight for DNB?

To be reminded, to finance its “cost-recovery” model, DNB is planning to issue Sukuk. The Sukuk will be raised as it would be given a high rating not because of its business model but because of the guarantee by the government. After all, Malaysia still has oil and gas (people’s resources). Therefore, should the DNB’s cash flows falter, covering the DNB’s debt will quickly become taxpayers’ responsibility.

However, how does all of this go with the fresh statement by the Minister of Finance Malaysia made on July 19 2022 that Malaysia can’t take on anymore debt?

Meanwhile, the telecommunication industry in Malaysia appears to have caught a high fever as the government’s seriousness in proceeding with the problematic SWN model becomes clear (Figure 2).

Previously blue-chip stocks of Axiata, Digi and Maxis are now in permanent decline, and, as brought to attention by The Edge Malaysia analysts, all three are paying their earnings in full as dividends lately. The corporates know that companies would do this only under circumstances where they see no prospects for industry growth and investment opportunities.

All of this is not because of, as some quarters claim, “uncertainty” associated with the 5G rollout but rather due to the certainty of the 5G rollout using unpopular in the whole world and problematic model for 5G rollout — Single Wholesale Network (SWN).

This model already has rolled us back to few years in terms of our 4IR industry development, continues destroying our telecommunications industry which is at the core of digital economy, compromises our credibility in the eyes of global investors and places taxpayers’ money at risk.

Dr Rais Hussin is President and CEO at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

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