KUALA LUMPUR – Political and commercial wrangling over control of a second 5G network is threatening to derail the government-led first network that is already nearing 80 per cent coverage of populated areas in Malaysia.

Not only are major telcos jostling over who gets a potentially lucrative deal to spearhead a second wholesale network for the next-generation mobile service, but Prime Minister Anwar Ibrahim has also openly backed Chinese giant Huawei to be the equipment provider for it.

Official and industry sources told The Straits Times that plans by the top mobile network operators (MNOs) to eventually abandon the state-led Digital Nasional Berhad (DNB) in favour of building the second network would impact the financial viability of the first 5G network.

This would further delay plans to have near-blanket – or more than 90 per cent – national access to faster mobile data, as well as the implementation of cutting-edge enterprise solutions.

The battle to control what stakeholders call Entity B comes after the Anwar administration decided in May to depart from a single wholesale network (SWN) model and allow a second provider to enter the fray after DNB reaches 80 per cent coverage of populated areas, which is on track for end-2023.

Ostensibly, a second provider is supposed to complement DNB and provide competition.

But all signs are pointing to MNOs wanting Entity B to pivot to densely populated areas, thus reducing their average costs while controlling crucial spectrum bands over which mobile data services are transmitted.

The focus on Entity B has stalled negotiations on an agreed equity participation in DNB by the five top players – CelcomDigi, Maxis, U Mobile, Yes and Telekom Malaysia – denying the government vehicle an injection of new funds.

The uncertainty around DNB’s future has also impacted access to funding for the RM16.5 billion (S$4.75 billion) roll-out of the super-fast network, executives from the hitherto state-owned firm told ST.

Communications and Digital Minister Fahmi Fadzil has repeatedly asserted that a share sale agreement for DNB will be finalised soon, before a decision is made on who will build the second network and on what terms.

But five months since the dual wholesale network (DWN) structure was announced, there is still no decision.

The latest target of mid-October has been missed, with just over two months left before DNB reaches its goal of 80 per cent coverage and the door for Entity B opens.

Adding to the uncertainty are divided views – most crucially within government – on Huawei’s involvement, with Western powers having warned that the Chinese telco equipment giant’s participation would spook investors from their neck of the woods and spark data security concerns.

The Prime Minister said in September that a DWN would allow “more effective participation by Huawei”, despite acknowledging the “conventional view and concerns” about security.

Former deputy trade and industry minister Ong Kian Ming, who hails from the Premier’s Pakatan Harapan (PH) coalition, noted that “one of the first things” Datuk Seri Anwar did after taking office in November 2022 was to probe Ericsson’s contract with DNB for alleged irregularities, which turned out to be unfounded.

“If there was a need for a second 5G network, according to the principles of openness and transparency espoused by Anwar… this contract should be done via open tender and not by directly negotiating with any single entity, Huawei included,” Mr Ong said on Oct 9.

But Mr Anwar was quoted in a Time magazine interview published two days later as saying that “we chose Huawei” for a DWN, instead of an SWN with just Ericsson, to “utilise the best of both worlds”.

When asked about this, Mr Fahmi told ST that “Entity B was not created yet”, and pointed to his earlier comments that the vendor would be picked based on “commercial aspects”.

If the Premier has indeed already “picked a winner”, it would call into question whether geopolitics is the motivation for moving to a DWN, and if former mobile market leader Maxis has a leg up given its longstanding relationship with Huawei.

If another MNO is to build Entity B but is forced to take on Huawei as its equipment vendor instead of an open competitive bid, this could also impact the commercial viability of the second provider, not least due to some clients wanting to avoid data security risks.

Sources say the MNOs prefer not to take a stake in DNB, and instead prefer to own Entity B so that they can utilise their existing assets, do a demand-driven roll-out – consumer 5G adoption is currently under 5 per cent – for better cash flow, and obtain spectrum bands for 5G, which is a crucial element of their balance sheets.

MNOs are currently committed to using DNB’s 5G capacity for a minimum RM2.88 billion over a decade, money which would be used to pay off debt the firm used to build its network. However, these deals can be voided once a second provider comes online.

ST has learnt that the administration’s stance is that either CelcomDigi, now controlling nearly half the industry after a merger, or Maxis and U Mobile – which have largely been strategically aligned during the 30-month-long battle with the government for control of 5G services – must continue owning and using DNB to ensure there is enough revenue for it to remain a going concern.

“Practically all players except YTL’s Yes want to build their own network. It’s becoming an informal bidding war or beauty contest, with suggestions that whoever builds Entity B will have to make a ‘balancing payment’ to those who have to carry on operating DNB,” said an official on condition of anonymity due to the sensitivity of the discussions with several public listed firms.

Mr Ong, without naming any telco, has also aired speculation that the two “big boys” harbour intentions of “killing off” DNB so that its assets can be bought on the cheap and they no longer have to pay the same access fees to DNB.

“The consequence of this is that the Ministry of Finance will be left holding the debt of DNB…. This would lead to the experience of socialisation of losses and privatisation of profits,” the former lawmaker added.

The proposed share sale agreement would see the five MNOs take a 14 per cent share each, with the Ministry of Finance holding the rest, before DNB is fully privatised when Entity B is up and running.

But the MNOs are also squabbling over related issues, such as whether the government will have a “golden share” in DNB to veto crucial decisions. Smaller players would prefer more government intervention as a neutral arbiter to level the playing field, but established giants want more say in industry participation.

Future regulatory policy such as retail pricing to end-consumers – Maxis has come under fire for asking customers to top-up for 5G – as well as lock-in periods and minimum capacity commitments to DNB are also bones of contention.

“In some ways, the major telcos want to have their cake and eat it,” said a source. “They want things cheaper and more flexible, but at the same time don’t want to make it easy for new players to jump in.”

These issues plaguing the roll-out of both networks would inevitably cause difficulties in achieving the government’s demand that DNB’s promised 13 sen per gigabyte wholesale pricing remains the ceiling.

Any cost increase would be passed on to the consumers once both providers are privatised.

Malaysians could also be staring at a return to the 4G framework under which the largest telcos called the shots and smaller players were at their mercy, having to lease capacity from the majors instead of being able to access infrastructure at the same cost.

CelcomDigi was still targeting an expansion of its 4G coverage and “initiatives… to provide elevated network experience” on the nation’s “fastest, widest and most modern 4G network” when releasing its financials for the first half of 2023 in August.

Efforts to launch 5G have been ongoing since PH first came to power in 2018, but it was only in 2021 under the Muhyiddin Yassin administration that DNB was set up in a bid to catch up with regional peers.

However, a pushback due to claims of lack of transparency and unfair pricing from telcos and politicians like Mr Anwar and Mr Fahmi while they were in opposition forced a government review.

This resulted in the opening of equity in DNB in March 2022 to private operators to protect their interests.

But the constant delays have left DNB rudderless, as seats on the board are being reserved for new shareholders, who will have to appoint a new chief executive after Mr Augustus Ralph Marshall’s term ended in March without a replacement named.