Tough balancing act between company revenue and lowering cost for consumers

IT is a case of missed opportunity. The universal service provision (USP) fund – money collected from telco players that goes towards improving infrastructure and connectivity nationwide – could have been close to RM15bil since it was set up. It has been used in a number of ways to help with connectivity, but the one crucial missing link is that the money has not been used to improve the fibre-optic network in Malaysia.

As it stands, Malaysia’s record on fixed-line broadband penetration is poor. The USP fund has been used for a number of reasons such as giving out notebooks to creating small Internet booths.

The other missed opportunity as seen by industry experts is in the use of predominantly wireless technology over fixed-line broadband to wire up the 10,000 schools in the country. Had fibre optics been used, access would have been opened to all players and competition would have driven broadband prices down and improved the quality of broadband services and speed.

These were the costly mistakes made and it explains why small towns and rural Malaysia still rely on wireless options for broadband access when fibre is really the king of connections in this digital age.

Despite this, 80% of Malaysians have access to the Internet, the level of developed countries, but that is due to mobile services. However, only 9% of the 7.6 million houses in the country are connected with fast broadband.

New order: Gobind has ordered prices to be lowered by 25 by year-end. — Bernama

The luckiest lot are the urbanites, who have access to fast fixed broadband, speed and choice of operators even though price and affordability remain an issue.

Fixed broadband is indeed pricey, even though operators keep saying it is the best rate and have been reducing prices.

“Some living in sub-urban centres and small towns have been pining for a fixed fast speed connection, but are just not getting it even though a node may be near the next block. Besides affordable packages, there is no business case to do so as operators do not see a viable return on investment to dig and lay the fibre.

“It is a story of profit triumphing over the national agenda. You could say it is for selfish reasons, but that is what corporations do. They exist because of profits and their shareholders expect that too,” says the CEO of a company who requested anonymity.

However, the right to Internet/broadband access is now a basic human right and it has become more intense with digitalisation. Fast fixed broadband is the way to go.

In its June 2018 report, the World Bank Malaysia’s Economic Monitor said that access to fixed broadband services is a pre-requisite for the widespread adoption of innovative technologies, especially more advanced applications such as data analytics, the Internet of Things and artificial intelligence, not just by businesses, but also to support improved public service delivery and growing demand of households.

A serious lack of competition has been cited as the reason why prices are high and speed low for broadband. Telekom Malaysia Bhd (TM) controls 92.2% of the market share – a lot higher than other leading firms globally.

The World Bank report says that in terms of price per Mbps, Malaysia ranks 74 out of 167 countries for fixed broadband services and 64 out of 118 for fibre broadband services. This places Malaysia behind regional competitors such as Vietnam and countries with similar levels of economic development such as Mexico and Turkey.

How can prices be brought down? There is also a need to build more fast broadband infrastructure, but who wants to volunteer when the cost of laying the fibre is high and returns are about to dwindle?

The two major barriers to digital adoption cited by businesses in the country are quality and affordability – slow Internet connection and lack of affordable broadband plans, according to the World Bank report.

The case is the same for households.

In the first three months of the year, the broadband penetration rate dipped to 115% from 117% a quarter earlier. But mobile penetration rates are a notch higher to 132.9% from 131.2% per 100 population for the same period.

There were about 2.6 million fixed broadband subscriptions as at March 31, and 35.3 million mobile broadband subscribers, according to data compiled by industry regulator, the Malaysian Communications and Multimedia Commission (MCMC).

If two years ago, operators refused to push down prices, now they are being forced to do so by the new Communications and Multimedia Minister Gobind Singh Deo, who has ordered prices to be lowered by 25% by year-end.

At current levels, the cheapest pricing for fixed broadband is RM119 per month for 10Mbps, which is out of the reach of the B40 group. Maxis offers 10Mbps at RM119 per month and TM RM129, but TIME Dotcom Bhd ’s lowest package is for 100Mbps at RM149 a month in download speed.

The case for affordability

A recent online survey conducted by the Federation of Malaysian Consumers Associations (Fomca) showed that people want a cap on the minimum package at RM60/10Mbps.

But some industry players are looking at RM80 a month for 10Mbps as an affordable package.

The downward price revision is possible, as the wholesale access cost has been mandated since June 8. This could not be done earlier even though the new access pricing was out in January because the regulator could not push it through the players.

Now, players have no choice but to implement it, although it really depends on TM and how fast it can agree on the terms with the access seekers for fast broadband. In this case, it is predominately Maxis Bhd .

The new mandatory standard on access pricing (MSAP) allows for a 30% to 60% drop in prices, and that should translate to better packages for users. However, the consumers will have to wait and see if prices will drop that much.

CIMB Research believes that it “remains a key risk factor” for TM to drop prices for wholesale access. “If retail service providers (that buy wholesale from TM) lower their fibre broadband prices, TM may need to eventually extend its price cuts to the non-B40 segment as well in order to defend its subscriber base,” it says.

At 25%, the markdown is just a slap on the wrist, but if prices drop by 50%, operators’ earnings will be affected. However, this is a volume game and the effects may be mitigated.

“The fixed broadband segment under TM’s unifi, Maxis Home Fibre and Time dotCom faces daunting prospects of declining Arpus (average revenue per user) amid the government’s plan to develop a data-intensive social economy,” says AmInvestment Bank Research.

Maxis, in response to queries from StarBizWeek, says that with the wholesale price reduction, it enables it to offer more affordable fibre broadband packages and even better services. It is committed to providing its customers with great value, and will announce “exciting updates to our Maxis Home Fibre broadband range very soon”.

Celcom Axiata Bhd adds that “lower broadband packages and prices for consumers are aligned with our ongoing commitment and focus on delivering an awesome customer experience”.

“Operating in a highly competitive market, we have continuously innovated affordable products and services for all segments of society to easily access the Internet, with data passes as affordable as RM1 on prepaid, and RM38-per-month plans for postpaid. We remain steadfast to enable greater inclusion and participation of Malaysians in the digital economy,” says Digi.com Bhd .

But even before any player can sign the wholesale access agreement, TM has gone ahead and launched a 30Mpbs package at RM100 per month to lure the B40 population. It also wants to increase the speed of other packages instead of dropping prices.

Its move is not seen too kindly by some players, who feel that it is “unfair” and “it is trying to corner the market ahead of signing the wholesale agreements”.

Some users have expressed disappointment that TM wants to offer more speed instead of dropping prices for its packages, as to them it “goes against the grain of dropping prices”. However, TM’s move can be understood to a certain extent as it wants to maintain its Arpus.

No competition: TM controls 92.2 of the market share – a lot higher than other leading firms globally. — Bernama

Fixed infrastructure

MSAP may be vital but for Malaysia to reap all the potential benefits offered by the emergence of the digital economy, it needs an extensive fixed broadband infrastructure.

Laying more fibre optics means more investment, and not many companies are willing to invest, as the gestation period is between five and seven years for laying fibre in the ground. Maxis wanted to go big in the fibre business decades ago but decided to pull back because of the huge investments involved. It now rides on TM’s high-speed broadband (HSBB) for its home broadband business even though it has also wired up parts of the country.

Even for HSBB, the government had to fork out money together with TM to build the fast network. The sub-urban connections that are being done is also supported by the government.

The World Bank report says that only about 8% of Malaysian households (of the 7.6 million) use fibre broadband services, at a slow growth rate. In comparison, the rate of adoption of these services in Singapore, South Korea and Japan stands at 99%, 85% and 60%, respectively. Most Malaysians are connected to the Internet via their mobile networks, with Malaysia’s mobile broadband penetration rate being one of the highest in the region, ahead of many OECD countries.

Rural folk makes up 62% of the country’s total population.

“The very rural areas cannot be wired up with fibre, which is essentially about 20% of the populated areas in the country. But fast fixed broadband is missing even in secondary towns and parts of the urban centres, which is an addressable market.

“Just in these areas, there are about three million homes where 1.2 million potential subscribers are sitting and wanting faster connections. Some of them are stuck with 2Mbps to 8Mbps speed now,” says a source.

Fibre infrastructure

TM says there are 1.4 million unused unifi ports nationwide and hopefully with lower prices, these can be used. Opening the nodes to competition can also help, but the onus should be on the respective players to do the last-mile connectivity. Apart from players like Time dotCom and Maxis, even Celcom, Digi and U Mobile should get into the fixed broadband game to help in the laying of more fibre optics for last-mile connectivity.

It is a fact that for too long, the players have been cherry picking the areas where they can get fat returns. However, the suggestion is to zone up the sub-urban, small town and rural areas and make it mandatory for all players to help wire up the nation with fibre.

“But they should be given access to the USP funds, if there is any left,” says an industry source.

Staying connected: Most Malaysians are connected to the Internet via their mobile networks, with Malaysia’s mobile broadband penetration rate being one of the highest in the region.

Recently, Gobind called for a probe on the MCMC and USP funds, which are in excess of RM9bil.

But the cost of laying the fibre can be too costly, especially in rural (where appropriate) and sub-rural areas.

One CEO of a telco suggests that fibre optics be used to connect the schools in the country. Once the schools are wired up there can be expansion of fibre into surrounding areas.

The cheaper option is to use the aerial fibre concept by running fibre on poles, be it existing light poles or installing new poles specially for this purpose, than underground.

However, this has to be done by using the USP funds, where all players will have to do their part, and access be open to all.

As it is, TM has poles running all over the country, using them to connect landed properties and the likes. If this pole access is open to other players to run fibre cables, it can potentially help “fiberise” the country, and hopefully faster, says an industry source.

“The question is, will they allow for sharing,” asks a source.

Apart from TM, Tenaga Nasional Bhd also has an extensive network of poles in the country to carry its power cables that can be tapped into. However, there are some technical issues that need to be sorted out if that is an option, the source says.

In terms of cost, laying fibre into the ground in city centres could be as high as RM200,000 per kilometer, and for rural areas below RM100,000, he adds.

However, for the aerial option, the cost is a quarter of that, as it is well below RM15,000 per kilometer although it would depend on the location and other factors.

He adds that there must be seriousness on the part of all the players in wanting to wire up the country and not just trade licences, with access being given to all.

Only with competition can prices come down. Otherwise, it will take a very long time to digitalise the country.