WiMAX: Big boys are out of the race

Mar 17, 2007 13:10

All big boy telcos--Maxis, Telekom Malaysia and Telenor-DiGi--have been shut out from the WiMAX playing field in Malaysia!

Most importantly, it's a second blows for DiGi, which is currently 61 percent-owned by Telenor.

DiGi was unsuccessful in the bid for the 3G spectrum last March. This would be a second-time exclusion for DiGi, which had put in the bid for the 2.3GHz spectrum to operate WiMAX wireless broadband services in Malaysia.

The decision against DiGi, however, did not come as a surprise.

By Malaysian law, DiGi has to dilute an additional 12 percent of its direct shareholding, and reduce its controlling stake to 49 percent, before it can be considered for additional spectrum allocation. Making things worse, a Malay dignitary representing an interested party is stalking hard after that 12 percent block of majority shares. This is an open secret in the industry.

Good and bad signals
However, there are both positive and negative signals in the Government's choice of recipients for the 2.3GHz spectrum assignment to operate wireless broadband services using WiMAX（Worldwide Interoperability for Microwave Access）, a global standard compliant to IEEE 802.16.

• Positive 1--Realizing MyICMS886 Strategy: The awarding of the spectrum is aimed to help Malaysia realize its 15 percent broadband penetration target by 2010, as envisaged in MyICMS 886 Strategy.
  
  The Malaysian Information,Communications and Multimedia Services 886 (MyICMS 886) Strategy is a blueprint that identifies eight services, eight infrastructures, and six growth areas targeted to propel Malaysia in the delivery of advanced information, communications and multimedia services toward improving the quality of life of Malaysians and boosting Malaysia's global competitiveness. See the MyICMS 886 targets here.
  
  The broadband market in Malaysia has been sluggish due to a deficiency in the execution of government policy. Despite the on-paper directive to unbundle the local loop, Telekom Malaysia (TM) still sustains its geographical monopoly over the national grid of a nationwide network, while Maxis is allowed to cherry-pick and operate in only the major market centers. Both have not been incentivised or penalized for tactically stalling broadband penetration in the country.



• Positive 2--Leveling the playing field: The tender exercise, at least theoretically, is a showcase of a level playing field marketplace. The tender was open to only players registered with MCMC under the Communications and Multimedia Act 1998, namely existing licensees for network facilities providers (NFP) and network service providers (NSP).
  
  A total of 17 companies, including the three tier-1 incumbents, namely Telekom Malaysia Bhd, Maxis Communications Bhd and DiGi.Com Bhd, had submitted bids for the WiMAX license. Two major incumbents--Maxis, TM and its subsidiaries which had earlier been assigned 2.5GHz spectra--have been excluded from getting additional spectra to make way for tier-2 telecoms companies to enter the market, and to potentially provide competition that is currently sorely missed in the broadband market.
  
  DiGi, incidentally, was not favored as a recipient for the 3G/IMT-200 UMTS spectrum assignment covering the 1965-1980MHz, 2155-2170MHz and 2010-2015MHz frequency bands when tender results were announced in March 2006.
  
  So, all the big boys are out.
  
  Incidentally, Jaring, the GLC which is the pioneer ISP in the country, was rejected in the WiMAX spectrum tender exercise.
  
  Earlier, Minister of Energy, Water and Communications Dr Lim Keng Yaik disclosed that there was a total of 17 applications--15 existing licensees and two latecomers--for the 2.3GHz spectrum to operate WiMAX services. They were, in order of submission: NasionCom Sdn Bhd, MiTV Corp Sdn Bhd, Asiaspace dotCom Sdn Bhd, REDtone-CNX Broadband Sdn Bhd, Celcom Timur (Sabah) Sdn Bhd, DiGi Telecommunications Sdn Bhd, MIB Comm Sdn Bhd (which Green Packet Bhd (which will pay RM6 million for a 55 percent stake if it wins), Maxis Broadband Sdn Bhd, Telekom Malaysia Bhd, Fibrecomm Network (M) Sdn Bhd, SGR Capital Sdn Bhd, Go Litespeed Broadband Sdn Bhd, Bizsurf (M) Sdn Bhd, IP Mobility Sdn Bhd, Jaring Communications Sdn Bhd, Optical Communication Engineering Sdn Bhd and Electcoms Wireless Sdn Bhd.
  
  Notably, Optical Communications Engineering Sdn Bhd (OpComm), a company owned by media mogul Tiong Hiew King of the Ming Pao-SinChew group, has also lost in the bid.



• Positive 3--Nurturing emerging firms to foster competition: There are four companies, instead of just two speculated earlier, which were assigned the 2.3GHz spectrum to operate WiMAX. They are Bizsurf (M) Sdn Bhd, MIB Comm Sdn Bhd, Redtone-CNX Broadband Sdn Bhd and Asiaspace Dotcom Sdn Bhd.
  
  According to an official statement issued by industry regulator Malaysia Communications and Multimedia Commission (MCMC), Bizsurf was awarded the 2330 to 2360 bandwidth, MIB 2360 to 2390, Asiaspace 2300 to 2330, and Redtone-CNX the 2375 to 2400 bandwidth.
  
  Except for Redtone-CNX, whose areas of operation are restricted to Sabah and Sarawak, the others will deploy their services in Peninsular Malaysia.
  
  This is despite the smokescreen that MCMC has sent out before, that WiMAX spectrum will be conferred on only companies that have the capacity to roll out their services nationwide.
  
  Prior to that, a number of NFP/NSP licensees had been assigned the 2.4GHz, 2.5GHz and 3.4GHz spectra to operate a variety of broadband services. However, the exercise did not see significant market penetration results as most operators, largely due to limited funds for capital expenditure, had resorted to cherry-picking the lower branches of the market in urban centers, making the service coverage areas significantly fragmented.



• Positive 4--Industry handholding: The WiMAX spectrum tender process displays a suave tactical play by the Government to induce a more vibrant environment to develop the broadband service provisioning industry, whereby consortia with financial clouts are allowed to subtly buy into nimble startups and finance them into new brands that will propel keener competition; hence, efficiency, in the marketplace which is not held in monopoly and duopoly, depending on whichever way one looks at it.
  
  Of the four successful applicants, MIB is a 55 percent subsidiary of Green Packet Bhd; Bizsurf is a 50 percent associate of YTL e-Solutions Bhd; and REDtone-CNX Broadband is a subsidiary of REDtone International Bhd. All three are listed on Mesdaq. Wjereas, Asiaspace Dotcom is a telecommunications and broadcast infrastructure company that was previously awarded the rights to build 50 cellular base stations in 2003.
  
  Under the tender exercise, the spectrum-winning companies are expected to invest between RM250 and RM300 million each during the first three years of operation. According to market sources, only Green Packet/MIB and YTL e-Solutions/Bizsurf are cash-rich among the four successful recipients.
  
  The for recipients are also expected to swiftly roll out the service to 25 percent of the population in the area given to them by the end of 2007, with a service provision of at least 1MBps at affordable rates, industry regulator MCMC said.
  
  By the end of the third year in operations, the four operators are expected to provide service coverage to at least 40 percent of the population in the areas given to them.

And here are some of the initial industry rumblings heard immediately after yesterday's announcement:

• Negative one: Why YTL e-Solutions?
  
  The open tender for the 2.3Ghx spectrum to operate WiMAX services was open in May 2006 and aborted on the eve of the tender closing date on July 15, 2006. See Screenshots here.
  
  It is noted that on the YTL Corporation Bhd Web site, YTL e-Solutions Bhd had bought into only 50 percent share equity of Bizsurf (M) Sdn Bhd (Bizsurf) on December 22, 2006, on the back of an enlarged authorized capital of RM5 million, to "cooperate in respect of the operations, management and development of the business of providing broadband Internet access and other businesses and activities that Bizsurf decides to engage in".
  
  Prior to this, YTL has not been noted as a national-scale commercial broadband player, though YTL e-Solutions has been credited for creating a Wi-Fi zone for the 300m-long Bintang Walk and non-real-time digital content aboard the Express Rail Link (ERL) that transports travelers who commute between KLIA and KL Sentral.



• Negative two: Why Asiaspace?
  
  One of the four successful recipients, Asiaspace DotCom Sdn Bhd, is a company led by politically well-connected businessman Abdul Ghani Abdullah. The company holds a suit of individual licenses, including NFP and NSP, to operate as a telecommunications and broadcast infrastructure company. It was previously awarded the monopy rights to build 50 cellular base stations in 2003, and mobile telephone operators were then directed to rent space for towers erected by the company. (See the archive story in a government Web site when Leo Moggie was the Minister in charge of the Communications and Multimedia portfolio.)
  
  In September 2006, after the tender for the 2.3GHz WiMAX spectrum was canceled, Asiaspace announced that it had entered into an agreement with Tenaga Nasional Bhd (TNB), a listed utility company, to provide broadband services by using the latter's fiber-optic network.
  
  Media reports said the agreement would enable Asiaspace to utilize TNB's vast fiber-optic network--believed to be around 10,000km--as well as its facilities to offer duct fiber services and lease line services to businesses and eventually home users.
  
  Industry watchers generally understand that it was rehash of a market hype from Asiaspace that dated back to July 2004.
  
  To date, nothing concrete has come about of the Asiaspace-TNB tie-up. In fact, when speculation heightened last month about the forerunners for the WiMAV spectum, Asiaspace was not even in the pundits' list.
  
  Its financial capabilities to roll out WiMAX has yet to be articulated, though it announced immediately after winning the bid yesterday that it would invest RM300 million and RM400 million to effect a timely rollout by this year

Meanwhile, in the aftermath of the second rejection, DiGi released an immediate response by saying that it respects the Government's decision but regrets the loss of opportunity to use its "resources and skills to benefit all consumers; enabling Malaysia to be a reference country for successful mobile broadband development".

However, DiGi reiterated that it would remain committed in supporting the Government's telecommunications objectives. "We stand ready with practical and realistic solutions to quickly enable high-speed connectivity for both urban and rural areas in Malaysia," the statement said.

DiGi also said the Government's decision in the WiMAX spectrum has no impact on its core business.

Maxis, which also lost in the bid, made a similar pledge as DiGi's.

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