DNB: A financially viable 5G catalyst that benefits consumers and businesses | Daily News Byte

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DNB’s unique construction multiplies the positive impact of 5G in Malaysia

It is a well-established fact in telecom economics that the adoption of next-generation infrastructure drives economic growth (as measured by GDP growth) by ~1 to 2 percent. However, the degree of impact depends on the quality of the network, the speed of its deployment and the accessibility of services. In all these dimensions, Digital Nasional Bhd (DNB) enables Malaysia to lead the way.

Globally, operators are struggling with the economics of infrastructure upgrades. Falling revenues and rising costs have put operators in a position where they are struggling to reach the levels they are used to. Malaysia’s approach of concentrating 5G investment into one shared network, using all available spectrum, improves industry economics by eliminating the waste of duplicate networks and increasing economies of scale. This has already led to:

  1. Faster construction increasing availability and enabling faster adoption of the benefits of 5G; DNB’s 5G build reaches 80% population coverage after just over two years, while other countries would typically be at ~50% coverage in that time frame.
  2. Lower production costs increasing the accessibility of new services, ensuring greater benefit from innovation; the production cost of one 5G gigabyte in Malaysia is 13 to 15 sen versus ~21 to 24 sen assuming multiple 5G networks are deployed.

The construction of DNB 5G affects all components

Lower production costs and faster network building at scale translate into concrete benefits for consumers and businesses, accelerating economic activity as a result.

Benefits for consumers

Malaysian consumers and businesses are already enjoying lower industrial costs and better performance. The price/GB for 5G in today’s market is ~RM1 (compared to an average 4G price of ~RM2 in 2021). Available download speeds on DNB’s network are faster by a factor of 16 compared to legacy networks and ~50% higher than the global average for 5G (285Mbps vs 185Mbps). In addition, this will have wider societal benefits, for example enabling improved access to education and health care.

Given the current inflationary pressures, a direct implication is the possibility of reducing household costs. With DNB’s 5G Unified Wholesale Network (SVN), consumer mobile telecom spending has been halved from current 4G levels, a material contrast to inflationary forces in most other categories. This is especially true for the B40. A 50% reduction in mobile spending (RM1/GB vs. RM2/GB) means household savings of between RM60 to RM70 per month (or RM720 to RM840 per year), >25% of the average B40 household net income (or savings).

The reality is that if mobile network operators (MNOs) were to deploy 5G themselves, they would:

  1. At a higher price (given that two to three 5G networks are likely to be launched)
  2. Slower (given the natural incentive to completely sweat their 4G assets) and
  3. At current levels of consumer spending (given that MNOs would need similar levels of revenue to maintain their profitability given the high capital expenditure for 5G rollout).

Benefits for businesses and economic activities

5G has the potential to drive significant improvements in economic productivity, enabling an additional 4% to 5% GDP growth cumulatively over the next 10 years. This comes from enterprise adoption of 5G use cases enabling increased automation, workforce enablement and real-world applications of artificial intelligence (AI). This has an impact on most sectors and governments, and the most important results are an increase in:

  • Labor productivityfor example, enabling maintenance crews with CSR glasses that allow remote experts to support them
  • Productivity of resources, for example, using 5G connected drones in agriculture. These drones with 4K cameras enable precise fertilizer application and spraying, increasing crop yields and reducing the use of fertilizers and pesticides.
  • Asset productivity, for example, better predictive maintenance. 5G enables the capture of massive amounts of real-time data that can be used to build AI models that predict failures of, for example, rotating equipment in the oil and gas sector

Apart from the direct impact on GDP, this will also lead to wider structural benefits by moving ‘up the value chain’, for example, the creation of more paid jobs, reduced reliance on foreign labor and increased attractiveness as a target for foreign investment.

Given the current inflationary pressures, a direct implication is the possibility of reducing household costs. With DNB’s 5G Unified Wholesale Network (SVN), consumer mobile telecom spending has been halved from current 4G levels, a material contrast to inflationary forces in most other categories. This is especially true for the B40.

The economics don’t work if multiple 5G networks are deployed

There was a discussion about spectrum reformation by the MNO. This presents real trade-offs for the nation (and the regulator) to consider. On the one hand, there is merit in allowing maximum use of scarce spectrum. As 4G traffic declines, 200MHZ to 400MHZ worth of spectrum could eventually be repurposed for 5G use.
Counterintuitively, however, spectrum refarming will result in higher 5G prices for consumers. Spectrum refarming would require MNOs to build a 5G network, with anywhere between one (if shared) and three (if independently deployed) additional 5G networks deployed in Malaysia. Each of these scenarios results in higher costs for 5G, given that demand will be split between two and four 5G networks (including the DNB network). Our estimates suggest that the MNO’s costs of providing 5G would be between 30% and 60% higher than the DNB’s costs under the SVN construction. This has the additional negative effect of increasing DNB’s own 5G costs — assuming another 5G network is launched and DNB’s network receives only half of the available 5G traffic, consumer prices would have to rise by 50% to 60% to provide the same profile return and to avoid the need for subsidization.

SVN is financially ‘bankable’ and does not require additional state subsidies

The current estimated cost is RM16.5 billion to cover up to 80%. Given the expected demand for SVN, we would expect to ‘fill’ the network by the 2027/28 timeframe, which would then trigger additional investment over the next four to five years. DNB is expected to become cash positive in 2025, cumulative cash positive by 2031 and provide an internal rate of return of 8% by 2032/33. By the end of the license period in May 2031, the government would have built assets worth ~RM15 billion to RM20 billion based on the value of using 5G SVN as an ongoing business until the end of the 5G era. In addition, there is the benefit of expanding to provide private networks, edge computing infrastructure and 5G “core as a service”.

This creates value for the MNO as well. Apart from the dividends they will enjoy as DNB shareholders, the single national common network saves the industry about RM15 billion in network investment over the next 10 years – funds that operators can either use to fuel further investment in services and technology, or be shared with consumers and shareholders.

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