The fear isn’t fierce competition, but an uneven playing field

The Edge, July 10, 2023

Datuk Yeoh Seok Hong, the managing director of YTL Power International Bhd, is surely supportive of the single wholesale network (SWN) model. The reason for this is simple — it will create a level playing field for all telcos, although the giant ones will beg to differ.

The new industry landscape raises hope that the group's telecommunication business, housed under Yes Communication Sdn Bhd (YTL Comm), will be able to win a fair share of the market with the right strategy and eventually churn out a good profit.

Yeoh stresses that the SWN model will encourage fair competition as everyone will be operating on the same network, noting that some parties, however, are happy ''not to rock the boat''.

YTL Comm has no fear of competition, saying that the group is prepared to offer more affordable 5G service to the public.

Being a minor player with just a small share of the pie seems to be an advantage, as YTL Comm has little concern about maintaining its average revenue per user (ARPU) at the current level.

The big players’ ARPUs, however, are likely to drop when price competition intensifies as 5G service is expected to be cheaper than the 4G service.

Under the SWN model, Digital Nasional Bhd (DNB), wholly owned by the Ministry of Finance Inc, will be the sole party that rolls out the 5G network, and it will lease the network to all the telcos for a fee. DNB will finance its heavy capital expenditure and maintenance with the leasing revenue.

No one will have an advantage just because it is granted more spectrum to roll out its own network like in the past.

This is entirely different from the traditional way in which selected telcos, as well as some non-telco companies, were given spectrums by paying a sum and each telco built its own network individually.

The non-telco firms usually rented out their spectrums/fill now, the rationale of granting spectrums to these companies remains unclear.

The SWN model, however, will not have such a situation as the spectrum to build a 56 network has all been given to DNB.

The non-profit-clriven entity is offering 5G coverage at 13 sen/GB to the telcos, enabling all players to price their service at RM1/GB, which is half of the RM2/GB price of 4G services.

Furthermore, advanced telecommunication infrastructure is a crucial element, among others, for the development of the digital economy. The SWN model will help speed up building the infrastructure as profit-driven telcos need to always weigh between shareholder returns and capex.

Just when the YTL group sees hope of punching above its weight after many years of operating in an industry dominated by fewer than five players, in June the government announced its decision to have a dual 5G network to drive innovation and competition.

”They [the telcos] do want to take control of the industry, they do not want an independent wholesale network, they want to go back to the old model.

In early June, Minister of Communications and Digital Fahmi Fadzil announced that once DNB’s 5G network reaches the target of 80% coverage of populated areas (CoPA) by end-2023, an ''Entity B'' will be allowed to roll out the nation's second network, and the latter will not be constrained to the remaining 20%.

The minister did not reveal who could possibly be Entity B. It is also unclear whether the second network is a wholesale or a retail network.

Speculation is rife that Maxis Communications Bhd, which has given the SWN model the cold shoulder, could be keen on building the second 5G network, and that could be for its own usage rather than making it a wholesale network.

Meanwhile, one cannot rule out a scenario in which Maxis partners with CelcomDigi Bhd and U Mobile Sdn Bhd to invest in the second network together. However, this is less likely as CelcomDigi and U Mobile both signed access agreements to use DNB's 56 network in October last year.

Likewise, Telekom Malaysia Bhd and YTL Comm signed the agreements as well. The access agreements are for 10 years starting from Oct 7, 2022.

When asked how the second network would affect YTL Comm, Yeoh replies, ''Let's not confuse things. The government's focus is now on achieving 80% CoPA, DNB will continue to exist and provide the wholesale network.'' He stresses that if there is a second network, it will have to be governed by the same laws as DNB. But he doubts whether anyone has a serious intention to build a second network. He raises the question whether the interest is to eventually take over DNB for a song.

''The argument is that it (dual network model) would be cheaper, better, more secure ... Let's put it to the test ... We want to call their bluff,'' he tells The Edge in an interview.

''The regulations for competition will have to come into place,'' he reiterates.

According to Yeoh, however things pan out, DNB must remain an independent body that is run by an independent board of directors without any vested interest. To him, this is essential in ensuring a fair and level playing field in the industry.

No spectrum neutrality, please

Yeoh points out that the government should not permit spectrum neutrality as this will disadvantage the small players such as YTL Comm. Spectrum neutrality means that telcos are allowed to utilise the existing spectrum in hand to roll out 5G services.

''The licence [for the existing spectrums] given is specific for certain purposes, you disadvantage us, who have no spectrums, we might as well die.

''If spectrum neutrality is allowed for a second network, [they] might as well shut down DNB,'' Yeoh comments.

YTL Comm seems to be on the other side of the curve compared with its peers, who need to maintain rather high ARPU in order to meet shareholders' expectations on earnings growth and dividend payments.

The capital-intensive telco business was once seen as a potential catalyst that would have generated exciting growth for the utility group, whose earnings are relatively predictable due to the nature of the business. Like it or not, it has been a disappointment so far. Having invested RM3 billion, shareholders have yet to see returns.

According to Yeoh, YTL Comm is currently Earnings before interest, taxes, depreciation, and amortisation (Ebitda)-positive, “But it has rather high depreciation.” He acknowledges that fund managers have asked if there are any plans to carve out the non-performing business. And these fund managers explained to him that YTL Power's share price will be sky high without the telco operation.

Yeoh is clear that there is no such plan because he believes YTL Comm will be a platform for the group to expand its digital business moving forward. YTL Power's unit YTL Digital Capital Sdn Bhd is part of the consortium led by Singapore’s Sea Ltd, which owns online shopping portal Shopee, and which has been granted a digital banking licence.

YTL Comm is betting big on the implementation of the SWN model. It is still unknown if this small player will be able to punch above its weight. But one thing is for sure, consumers will not resist the more affordable 5G service.