Securing robust investment commitments will be key to second 5G network’s viability in Malaysia, BMI Country Risk and Industry Research said Wednesday.

The Fitch group research unit said in a note that finalization of plans for the second 5G network will provide Malaysia’s telecoms sector with clarity regarding the medium term outlook and growth prospects, enabling them to fine-tune their investment strategies.

It is noted that Malaysian government has selected telecommunication firm U Mobile as the principal developer of the country’s second open-access 5G mobile broadband network.

While key details regarding the proposed structure of the new business, its financing, its rollout time scales and coverage obligations have not been disclosed, BMI opined that the news does at least allow the wider telecoms industry to develop medium- to long-term business plans that fully take the new entity into account.

It noted Malaysia’s telcos will now be able to decide which investment vehicle they should focus on, though few have the resources to support both networks (a counterintuitive prospect in any event); the risk is that both projects could run short of financial support and fail to deliver on the government’s digital transformation objectives.

In the short term, however, BMI said the authorities will need to provide greater clarity on the merits of U Mobile’s proposals as well as delineate clear investment guidelines for telcos to consider ahead of striking investment relationships with the new entrant.

U Mobile has said it is keen to work with CelcomDigi and Telekom Malaysia (TM) in developing the business, but CelcomDigi – which submitted its own proposal and
wants the Malaysian Communications and Multimedia Commission (MCMC) to fully explain the rationale for its rejection – reportedly claims not to have begun
discussions. Rival Maxis is in a similar situation.

According to BMi, it does seem that U Mobile will be required to disengage from the special investment vehicle – Digital Nasional Berhad (DNB) – which is building the first wholesale 5G network.

If this is the case, it noted the other telcos investing in DNB (CelcomDigi, Maxis and YTL Power) would likely need to adjust their financial commitments while also considering whether to withdraw and invest in the new 5G player or remain with DNB and increase their commitments to that project.

The risk is that all players’ 5G investment contributions will need to increase, possibly beyond their existing or planned means and, if spread across two 5G projects, could
be applied too thinly to meet stringent coverage and deployment goals, it added.

To an extent, BMI opined that the short-term outlook rests on Telekom Malaysia’s response; although it signed contracts to invest in DNB, shareholder approval was delayed and it ultimately was dropped from DNB.

It said it may now consider joining the U Mobile-led operator, but if its hesitancy over joining DNB was due to concerns over the extent of its investment obligations, it may well baulk at joining the newcomer if it is part of a smaller group of backers.

According to BMI, the choice of U Mobile was surprising, given that the privately-owned operator is by far the smallest player in Malaysia’s competitive mobile market, accounting for less than 10 percent of subscribers as of mid-2024.

It has also never reported operational or financial data, making it difficult for observers to assess its viability for the DNB project, much less the second 5G player.

That said, in its estimation, the Malaysian Communications & Multimedia Commission (MCMC) is one of the more reliable regulatory agencies serving the South East Asian (SEA) telecoms market and it believes the commission will have completed a thorough due diligence process in order to reach its decision.

Consequently, it assumed that U Mobile has the financial and technical resources needed to sustainably support the new 5G network, provided that additional investors can be brought on board.

According to BMI, the regulatory authority’s notes stated that U Mobile will be required to reduce its exposure to foreign ownership in order to be eligible to become the lead investor in the new 5G player.

At present, its largest shareholder is Straits Mobile Investments (48 percent), itself owned by ST Telemedia, which is in turn a unit of Singapore government investment vehicle Temasek Holdings.

A long-planned initial public offering (IPO) of U Mobile stock is likely to be held by early 2025, which should raise considerable funds to both pay down ST Media’s existing investment and provide capital for the 5G project, said BMI.

“However, it will still need support from local investors and, having lost out to what they consider to be an inferior bid, CelcomDigi and Maxis may choose not to participate,” it said.

It is noted that DNB’s 5G network passed 80 percent population coverage early in 2024, enabling the government to proceed with plans to create a second player.

Though it now supports several million 5G connections, generating significant volumes of monetizable voice and data traffic, it is likely that the project will take several years to deliver meaningful returns on investment, said BMI.

“To a large extent, the DNB 5G service depends on low-value mass-market consumer applications and is as yet unlikely to be providing significant support to the government’s extensive digital inclusivity project, JENDELA,” BMI noted.

It believes there is an opportunity for this second network to be a more niche connectivity provider, supporting Industrial Internet of Things (IIoT) applications as well as bandwidth dependent digital content and infrastructure providers such as broadcasters and data center operators.

BMI opined that such a focus would be more sustainable if lower levels of investment are forthcoming from backers and also provide sufficient differentiation that it could still appeal to DNB shareholders such as CelcomDigi and Maxis.

“This scenario does seem unlikely, however, and we expect the ultimate outcome will be the creation of two separate 5G networks that may struggle to co-exist in a sustainable manner,” it said.

BMI : Malaysia agritech adoption to accelerate as 5G connectivity spreads