Change is in the air
By B.K. SIDHU
bksidhu@thestar.com.my
The battle to control frequencies needs to be refined but the final outcome could be life-changing for consumers
THE jockeying for spectrum – deemed the “most prized resource of the Information Age – among mobile telecommunication operators is usually pretty intense. The reason is simple – without the precious resource, mobile telcos will not be able to keep up with the demands of the digital era to stay ahead of the game.
In fact, the lobbying for spectrum could get out of whack in the perceived absence of clearly-defined guidelines and transparency on spectrum allocation. This is exactly what took place recently in Malaysia following the 2.6GHz spectrum award.
It began on Oct 21 when wireless players caught wind of the news that they each have a 20 Mhz block of the 2.5/2.6GHz spectrum. (On the very day, StarBiz broke the story that nine parties were allocated blocks of the same spectrum).
A video call displays the caller and respondent on the mobile screen.
The victors – eight existing wireless players and one newcomer. The new kid on the spectrum block is Puncak Semangat Sdn Bhd, a company linked to a prominent tycoon who has been making news lately in the business sphere – Tan Sri Syed Mokhtar Albukhary.
The others include Celcom (M) Bhd, DiGi.Com Bhd, Maxis Bhd and U Mobile and four WiMAX players – Asiaspace Sdn Bhd, Packet One Networks Sdn Bhd, REDTone International Bhd and YTL Communications Bhd.
The awards on the frequency, to be made available from Jan 1, 2013, were issued by industry regulator Malaysian Communications and Multimedia Commission (MCMC).
Some industry observers view it as an early “New Year gift”, while others lament the lack of “consultative approach” in the process of spectrum allocation. A more engaging approach by the regulator, they say, would ensure that only serious players get in on the game. The issue of the highly discreet and secretive manner of dishing out valuable future spectrum also hogged the blogosphere, with most of them crying out for more transparency.
“We would have preferred the 2.6GHz spectrum allocation be contest-based, with clear criteria on elements such as service roll-out, past performance, management track record, commitment to consumers, and financial ability,’’ said a spokesperson from Celcom’s parent company Axiata Group.
“Market-based approach can be a good way to ensure that the spectrum can be acquired by serious bidders. The approach taken by the Government in terms of allocating the spectrum needs to be transparent where industry is properly consulted so that the competitive impact and its benefits to the rakyat can be achieved,’’ said a U Mobile spokesperson.
Change of heart
Globally, governments have raked in millions of dollars through the award of the LTE (long term evolution) spectrum, also commonly known as the fourth generation (4G) of wireless technology.
LTE is the next big thing in the wireless world and while the Malaysian government could have generated millions of ringgit from spectrum sales for its coffers, it had chosen not to.
Spectrum award in the past has been mixed. For 2G, it was given out to encourage players into the cellular business while the 3G was done via a beauty-style bidding process. A WiMAX 2.3GHz tender bid was recalled at the 11th hour and later four new players were named winners.
The reversal in policy this time is not known. MCMC declined comment for this article, but it had earlier said the decision to award to nine parties was made after a lengthy and consultative and deliberation process with various technical groups that began two years ago.
Even if there was an auction, the ceiling price would have been determined at a level which allows all to pay; the notion that a bidding process would result in higher cost of services is viewed by some as a mere excuse by industry players to avoid paying for this prized commodity. Lending credence to this thinking is that industry players abroad, in most countries, have to fork out huge sums of money to acquire the spectrum.
“An auction process would have separated the wheat from the chaff,’’ says an observer.
Of course, those who bagged the spectrum have little to complain.
REDtone International Bhd CEO Zainal Amanshah says the company got it based on merit as it was earlier not awarded the 2.3G spectrum for Peninsular Malaysia.
“We have been doing national service for the past two years that have cost us millions of ringgit. Hence for us, (we feel) the Government has levelled the playing field (by giving us the 2.6GHz),’’ he says.
The issue may be less of who secured the spectrum (although there are niggling points here too, for instance, why was Jaring left out?), but more of – why give it to so many?
“It is mind-boggling to give the 2.3Ghz players the 2.6Ghz spectrum, as such a move would actually increase inventory as well as support cost. The operators need to keep two spare parts and so forth,’’ says the expert.
The LTE way
Without a doubt, LTE is by far, the most superior technology available which allows mobile operators to meet the bursting-from-its-seams demand for mobile data access.
It is designed for data, unlike 2G, which was voice, and 3G, a mix of voice and little data. LTE is more data, less voice and it is built for speed. But it needs an IP (Internet protocol) platform. Combined with 700Mhz, it has picture perfect quality.
That is what convergence is – data, voice and video. That explains why Alcatel-Lucent boss Ben Verwaayen says that video will be the future battle ground for telco players.
The forecast data is eye-popping. According to Juniper Research, subscribers for LTE next-generation wireless broadband services is estimated to reach 300 million by 2015 from 500,000 this year. Western Europe will represent the largest LTE market share, with North America and Far East/China having roughly equal shares of the market. The concentration of users in developed countries will result in LTE penetration of one in 20 subscribers by 2015.
“We will change the way people communicate and with LTE we will go further,’’ says YTL Comms executive director Datuk Yeoh Seok Hong.
Currently, Maxis and Celcom are carrying out trials while U Mobile is awaiting its trial licence. Asiaspace has tied up with Qualcomm for the trials.
Even so, the frequency will only be available on Jan 1, 2013. The question is ... why wait and not release any sooner? Some say that’s because time is needed for the technology to mature, allowing for more devices to make their way into the market place which can bring cost lower for both players and end-users.
“Yes, but I think it could still save players millions of ringgit from investing in existing networks if the flood gates are open sooner,’’ says a player.
Asiaspace chairman Datuk Abdul Ghani Abdullah argues that with technology evolving so fast, will the business plan be valid after sometime? “Often players are penalised for not sticking to the plan, but technology is evolving fast and players should be allowed to change the plan accordingly too.”
Companies that have secured the award will need to submit a detailed business plan by Jan 14, 2011 or the allocation would be withdrawn. The plan should outline a five-year business plan to achieve 50% coverage. Once approved, the assignment takes place but only after the companies have raised an irrevocable bank guarantee of RM10mil to guarantee compliance to the business plan.
Is 20Mhz too little too late?
Earlier this year, the regulator undertook a re-farming exercise. Re-farming involves the clearing of frequencies from low-value (by economic and/or social criteria) and reassignment to high-value applications by the spectrum manager.
The outcome of that exercise is not clear, but some players say 2.6GHz is just the first step.
They need more spectrum such as the 700 and 800Mhz, which is critical.
“There are several other bands but the 700 and 800Mhz bands need to be considered holistically with the higher band frequencies such as 2.6G,” says the spokesperson from U Mobile.
So, would 20MHz suffice for reasonably good service coverage and quality?
“I don’t think so ... 30MHz should actually be allocated to a player to allow reasonable frequency re-use. Furthermore coverage radius is so small and there is a need for many base stations. Without proper design, it will result in a lot of interferences,’’ says an industry expert.
The Axiata spokesperson says that 20Mhz is “quite inadequate’’ as “in accordance to world best practices, typical allocations to date have been in the 40Mhz (2x20Mhz) range.’’
Another player pokes holes in the process of spectrum allocation. “Dividing 180 MHz with 20MHz to get nine players is a very arithmetic way of doing things. To make it worst, after that their business proposals are solicited. Why not get the business proposal first?’’
“Spectrum re-farming is needed because of development of technology. But its effectiveness depends on the thoroughness of the planning process in the first place. Re-farming of spectrum in-use is a very expensive affair. On the other hand, I heard some operators are sitting on certain spectrum without being penalised,’’ says a player.
Instead of calling it spectrum, the regulator calls it apparatus assignment (AA). Those in the know claim that the difference is purely academic as it essentially means the same thing.
“Once you get a spectrum, you still need to get an AA, which is essentially access to a particular block of airwaves between two points,’’ says an observer.
Perhaps the move to issue AAs is to enable the regulator to pull the plug on the operator in the event of underperformance – if the player is sitting on valuable spectrum instead of using it to provide services.
Players are also likely to pay yearly payments for sites deployed as done in the past and a review of this is what players want.
“The basis of determining fee should perhaps move to a more efficient regime based on bandwidth allocated as opposed to sites deployed. This is essential as spectrum is a national resource and fees must be structured so as to encourage usage and deployment, rather than remain unutilized,’’ Axiata spokesperson says.
The RM27bil question
Still, as far as consumers are concerned, WiMAX or LTE, it matters little to them. What really matters is what they can get as a result. LTE promises a whole new experience for the user, provided the nine companies awarded the spectrum are willing to invest to build, innovate and create.
“I wonder how many of these nine companies will actually invest to roll out LTE. For some, it’s essentially a migration from 2G to 3G and LTE, but for others, they have to fork out billions to invest in a completely new network. There are profits to be made as the celcos in this country have the highest margins in the region, but the business also requires huge investments with a long gestation period,” says an analyst.
When Time dotCom Bhd received its 3G spectrum a few years ago, it discovered that it could not plough in RM3bil to build the network and so, had sold it at a hefty price.
“It is important to make sure that collectively, industry resources are pooled to develop high-speed information highways and reach under-served areas to realise the Malaysian dream,’’ says a Maxis spokesperson.
For 3G, the industry players are spending between RM700mil and RM1bil each year to roll out their services in the country. How many of these nine players will be able to sustain an estimated RM3bil for a nationwide rollout, which collectively brings the investment total to a whopping RM27bil?
“With such huge investments, can the players get a 20% return on capex for every ringgit spent, which is RM5.4bil in EBITDA? I believe the only one that will gain from the RM27bil exercise is the equipment vendors,’’ he adds.
Ghani of Asiaspace points out that with the AA, it would be difficult for some companies to get funding as opposed to a spectrum award.
With that, another question has popped up ... will the recent award of spectrum to nine companies create nine players or will that be an impetus for consolidation?
Consolidation
The answer to that really depends on how the companies plan to strategise, moving forward. Will they all scramble for the same urban market segment and cherry-pick where they want to offer their services? Or will the Government push them to cover underserved rural areas as well to close the wide digital gap?
Already, many industry players are expecting some form of consolidation in the industry.
“Consolidation should be market driven. Giving too little spectrum would force operators to work with others. Also, the difficulty in getting funding for the rollout could force some others to sell the spectrum and make huge gains in return,” says an analyst.
But is this how it ought to be?
http://biz.thestar.com.my/news/story.asp?file=/2010/10/23/business/7278402&sec=business
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