Malaysian Government plans to end 5G Monopoly

Transition from Single to Dual Wholesale Network

However, on 3^rd May 2023, the Malaysian Communications and Digital Minister (“Minister”) announced that Malaysia will transition from the SWN model to a Dual Wholesale Network (“DWN”) model for deploying the 5G infrastructure in the country.

Following the announcement on the DWN model, 3 out of 4 telecommunication companies (which had proposed to subscribe up to 65% shares in DNB) terminated their respective share subscription agreements with DNB.※2

Key Features of DWN Model

According to the Minister, some key highlights of the DWN model are as follows:

• (a) There are 2 phases under the 5G rollout. Under Phase 1, DNB will achieve the targeted 80% 5G network coverage in populated areas by end of 2023 (of which approximately 60% has already been achieved).
• (b) Under Phase 2, a separate entity (which will be selected via an open tender process) (“DWN Entity”) will develop the 5G spectrum network when the coverage has attained 80%.
• (c) The DWN model takes into account the sustainability of the telecommunications industry ecosystem in Malaysia and therefore, ends elements of monopoly associated with DNB.
• (d) Reasonable pricing is an important element to be considered and the wholesale price prepared by DNB (e.g. wholesale price per gigabyte) will be a basis for the DWN Entity under Phase 2.

More key details regarding the implementation of the DWN model may be shared by the Malaysian authorities at a later stage.

Foreign Investment in 5G DWN Model in Malaysia

Subject to the release of the requirements for the implementation of the DWN model, foreign investors may consider applying for the DWN Entity role and it is likely that the DWN Entity may also be required to obtain a Network Facilities Provider (Individual) Licence and a Network Service Provider (Individual) Licence (please see the 2^nd paragraph above regarding licences obtained by DNB).

There are some standard conditions which are imposed on the licensee for the 2 licences under the Malaysian Communications and Multimedia Act 1998. These standard conditions include amongst others, the licensee must be a company incorporated in Malaysia; and the shareholding of the company must comply with relevant Malaysian foreign investment restrictions.

Based on the official portal of the Malaysian Ministry of Investment, Trade and Industry, the Network Facilities Provider and Network Service Provider licensee is generally subject to a maximum foreign equity of 70%. Further, the MCMC Licensing Guidebook requires the licensee to have at least 30% Bumiputera shareholding.※3 Notwithstanding the above, interested applicants for the licences should check with MCMC on the prevailing equity restrictions (e.g. Foreign and/or Bumiputera equity).

Further, on 9^th May 2023, it was reported that the Malaysian Government may consider disposing of its stake in DNB after the achievement of 80% 5G coverage by end of 2023. As a result of the foregoing, in addition to open tender process to appoint the DWN Entity to implement Phase 2 of DWN model, other telecommunication providers may consider taking up a role in Malaysia’s 5G market through share ownership in DNB.

Conclusion

The Malaysian Government’s decision to implement a DWN model for the deployment and development of the 5G infrastructure in Malaysia is welcomed as it may attract foreign investment into the 5G network landscape in Malaysia and it also dissuades concerns of a nationalized monopoly over the country’s 5G rollout.

As at the date of this newsletter, there have not been any publicly available rules and guidelines issued by the Malaysian Government on the open tender process and detailed selection criteria in respect of the Phase 2 of the DWN model, but the introduction of the DWN model appears to signal that Malaysia welcomes telecommunication companies with 5G network expertise to develop the 5G infrastructure in Malaysia. Nonetheless, foreign investors should be mindful of the prevailing foreign and/or Bumiputera equity restrictions under the relevant Network Facilities Provider and Network Services Provider licences and other special conditions that may be imposed on such licences by MCMC.