Broadband Issues (3)
G. Sharmila
KiniBiz
September 10, 2014

In today’s instalment, Malaysian Communications and Multimedia Commission (MCMC) chairman Mohamed Sharil Mohamed Tarmizi and Fadhlullah Suhaimi Abdul Malek, director at the Performance Management and Delivery Unit (Pemandu), reply to criticisms that broadband is expensive and slow in Malaysia.

So why aren’t Malaysians getting cheaper, faster Internet on par with our Asean neighbours? Industry regulator MCMC says the capability is actually there but lack of demand and the need for equitable access are factors accounting for this.

KiniBiz asked MCMC chairman Mohamed Sharil why the target is only 50Mbps by 2018 when Singapore is already able to offer 1Gps to home users. Industry experts say that Telekom Malaysia, the dominant broadband player is believed to be able to offer that capacity to users already and therefore this should be possible.

“While we’re looking at this, we want to be equitable and egalitarian. Even today there are some parts of KL that can be serviced with 100Mbps already. But when we announce 50Mbps it is for every household – any household that wants broadband by that time (2018) will have access to that minimum of 50 (mbps),” says Mohamed Sharil.

“We want access to be equitable. The national target for household access is 50Mbps. By the end of this year we’re looking at 10,000 homes in downtown KL with 100Mbps already . So it’s not that we’re not doing that, we are; but the bigger message is no Malaysian gets left behind,” he adds.

He explains that in areas such as Mont Kiara and KLCC today, service providers are able to provide 100Mbps speeds, but people are not subscribing. “Not everyone feels the need for 100Mbps. How fast does your connection need to be if all you’re doing is emailing and web browsing? …let’s do a sanity check and think about how much speed do we need. What is being offered today at 5, 10, 20Mbps on Streamyx or Unifi is quite adequate for most needs.”

Is there no demand for higher speeds then?

Mohamed Sharil says: “People always want things faster, but for what purpose? Don’t get me wrong, today if you ask TM how many people actually subscribe to the 20Mbps package? A small percentage (of their customers). If people are clamouring for better speeds, then subscribe. It’s available, why don’t they subscribe?”

But people don’t want to subscribe to higher speeds as prices are still high and they blame this on Telekom Malaysia (TM)’s monopoly in the broadband space. Mohamed Sharil however, denies that there is a monopoly and says there are other players like Maxis who provide broadband services under the HSBB (High-Speed Broadband) project.

However industry experts argue that TM’s wholesale charges to other service providers under the HSBB project are exorbitantly high, which has led to a trickle effect that causes high broadband prices to the end user.

“It’s easy to blame others for my own shortcomings,” quips Fadhlullah of Pemandu, who explains that the HSBB network was designed to accommodate other players. He adds that wholesale prices are monitored by the regulator.

“At the wholesale level, many of the points raised by so-called industry players need to be challenged. It’s easy to say “it’s so expensive, TM is a monopoly” but from a licensing standpoint, other players have the same license to invest. So why didn’t they invest (in the network)?” he questions.

In the days before MCMC came about, there was a difference, says Mohamed Sharil. TM was the only fixed line (player), with Celcom, Maxis and Digi offering only mobile services. Now, these players have what is called a converged license, hence they can offer mobile, fixed broadband or wireless broadband services, he says.

“There’s nothing stopping them. Look at the EBITDA (earnings before interest, tax, depreciation and amortisation) margins of Maxis, Celcom and Digi, they’re very high. Why aren’t they investing?”

Dr. Fadhlullah explains that MCMC has a roundtable with CEOs every quarter, which means, for all these grouses, they have a platform to raise them.

“But they tend not to because when they are all around each other the attitude is ‘Why are you complaining? You have the same license that I have.’ It’s just that for business reasons, they’ve opted not to invest in a particular technology,” he says.

At the end of the day however, the fact remains that broadband prices are still high for the end consumer.

According to Pemandu’s Fadhlullah, the answer lies in content. “Because we as consumers tend to consume a lot of foreign content, somebody needs to pay. The service providers need to invest to support our consumption behaviour, so that translates to costs. In Korea for example, they access Korean content. So the costs from connecting from Korea to US or anywhere else is near zero. But for us, 90% of content accessed is still outside Malaysia,” he explains.

He added that the regulator is taking measures to try and bring companies to host content here, such as Google and YouTube. “If you recall your experience with YouTube in 2007, even with a 1Mbps Streamyx connection, you had to wait for a video to buffer. Today on the same speed, the buffer line is ahead of the play line. It’s because a lot of YouTube content is hosted in Cyberjaya,” he says.

He added that efforts are underway to bring in more of these companies and data centres to host content locally, and if that works, it will bring the costs of bandwidth down.

But how long is this process expected to take?

“You need to ask yourselves, as Malaysians, are you prepared to go for local content? It will take awhile. We want to see more Zaloras versus Amazons, as a lot more traffic is kept locally, if that works then it becomes a positive multiplier. The price of broadband will also come down because traffic is kept over here and less needs to be invested in submarine cables. You ask me when, I don’t have an answer to be honest,” says Fadhlullah.

Below are further excerpts from the interview:

KiniBiz: How satisfied are you with the broadband penetration rates in the country right now?

Mohamed Sharil: Well, we can always do better. On one hand, we’ve come a long way over the past three years, before all this started we were below 30%, now we’ve actually gone past 65%. So that’s not a small achievement, that is a significant achievement over a three-year period. Having said that, 65% is just another target, what’s more important now is what are we using the broadband for? That is the key question, how we are using it to improve our lives, how we’re using it to improve business, how we’re using it to be more efficient in our service delivery, whether it’s the private sector or public sector.

A World Bank study has shown that countries that exceed 30% of household broadband penetration, the focus is no longer on putting the pipes on the ground (that will continue to happen, as normal). One of the key things that we are looking at with Pemandu is generating economic activities which have a multiplier effect on the economy. We have one or two examples of people in the rural areas using broadband. Every year we will find these icons, which we consider thought leaders or change agents. There was a case of a lady in Sabah earning RM400 a month selling seaweed; we helped get her daughter online and she got in touch with people outside of the area. The lady now earns in excess of RM30,000 a month.

So this is the kind of economic transformation we want to try and generate. At the end of the day this is the whole focus of the economic transformation programme by the government.

KiniBiz: What is the split of the current broadband penetration level, between urban and rural areas?

Mohamed Sharil: About 70:30, there’s still a lot more to be done in terms of bringing the services to rural areas and also we have our outreach programme. We have our Universal Service programme, the next goal is for 1,000 towers to be built within the next three years.

KiniBiz: How is the rollout of that initiative going to be carried out?

Mohamed Sharil: Through the Universal Service Provision (USP) process, eligible licensees can come in and bid according to the specifications we have set. Now, they will then be able to put in their proposal for Universal Service deployment in a given area and we will evaluate these people based on their submissions and then we will award them accordingly. Each tower is neutral, so therefore it has to be shared with all the service providers.

This (the USP fund) is something we’ve been quite successful doing, we’ve become a benchmark for the Asean region and some other places as well.

KiniBiz: What kind of budget has been allocated for this rollout?

Mohamed Sharil: The total broadband requirements (this is a combination of industry plus USP funds) to uplift the broadband supply is almost RM6 billion. From the USP fund it is about RM3 billion and from the industry itself about RM3 billion.

KiniBiz: I think a lot of people are interested in the timeline for broadband initiatives. We’re supposed to get 45Mbps to 50Mbps (broadband speeds) by 2018.

Mohamed Sharil: That is the desired target of provisioning broadband.

KiniBiz: Is this through the 1,000 towers?

Mohamed Sharil: No, the towers are more for rural areas. The 2018 goal is upgrading the broadband network through fixed broadband.

That’s why for the 1,000 towers, the first batch was 400 towers we broke it up into 32 clusters each cluster has 12-14 towers. So we carried out open bidding for the 400 towers, so again the idea is to open as much as possible. The USP fund amount for the 400 towers is about RM600 million. We’ve done the tender, we’re just finalising the details before the award. Then after this there will be another batch of 300 towers.

Dr. Fadhlullah: A lot of the technology adoption will be likely on fixed broadband. That was what the Minister was talking about–increasing the capacity in urban areas up to 100Mbps.

Mohamed Sharil: It’s got to start at the core and be improved along the way. I mentioned about the upgrading, we haven’t spent that kind of money it was only a full upgrade — one of our estimates a long time ago we were looking at this in 2008, to fully upgrade the country — to fibre up, to wire up, we’re talking about in excess of RM50 billion.

KiniBiz: Did that include wireless technology as well?

Mohamed Sharil: Everything, including wireless. And that’s about what Australia said it would also cost them via their NBN program. But we couldn’t justify that kind of expense, so we’ve been doing this progressively. We started with the fixed first then wireless, so we built in the city and then rural, then we’ve tried to connect the dots in between. The government’s policy is that no one should be left out, to provide equitable access (to broadband). Some countries don’t have that policy, some of our Asean neighbours for example. Because they are also relatively large, they have remote places like us as well but they are just focusing on the major cities.

But it (equitable access) takes time and is expensive. But can we say to people in our rural areas: “sorry you have to wait ten years before we get to you”? We can’t, that’s why the towers and everything needs to be rolled out.

KiniBiz: I know that the Ministry has an initiative called Konsortium Rangkaian Serantau and I heard that it has not gone too well and the submarine cable project has been postponed.

Dr. Fadhlullah: No, it is not postponed. Let me take a step back, in 2010, we did the industry lab and we said that by 2020 we will need capacity to the tune of 7 terabits. The 7 terabits does not come only from this consortium, it also comes from the licensees out there in the market. So what we did with the consortium was to catalyse a sense of competition in the market. The consortium has smaller players who may not have wanted to invest on their own and the big boys who have deeper pockets, decided to invest in the consortium. And while the consortium may not have invested anything in the cable, from 2010 to now, the international capacity has grown fivefold to 30 Tbps.

So, in a sense, the capacity is already there. So the submarine cable is not postponed, it is strictly left to the consortium to come up with it and the consortium, for their own business reasons, have decided not to make the investment. At the end of the day, the telco market is pretty much market-driven.

Mohamed Sharil: I would argue that there is not yet enough private sector investment in the infrastructure build-up area. There are some who are doing it, including TM. By the way, TM is a smaller company now – both Axiata and Maxis are bigger than TM. Digi is twice as big as TM.

My question is, if you have that kind of market capitalisation, why isn’t Maxis, Celcom, Digi investing in that same order of magnitude, in that kind of infrastructure for the future? Again, I’m not defending TM but what’s the market cap of Telekom? If I’m not mistaken it’s less than RM20 billion. So, TM is the big bad boy?

KiniBiz: A point of contention that some industry players have is when HSBB first came about, why weren’t there several players brought in to build and operate infrastructure, which would have created competition and driven broadband prices down?

Mohamed Sharil: The players already had the licenses to do that, so why wait for the government? Everybody is looking for a handout. When the HSBB plan happened, basically the government rode on TM’s plans. TM said I can’t do this (the entire supply-driven rollout) otherwise I’ll be out of money, and the government said “okay, we’ll top up.”

Everybody thinks about the RM2.4 billion the government invested, but nobody thought of the RM8.9 billion of its own money that TM spent. Because to carry out the HSBB, they needed to spend the RM8.9 billion first; over the last five years, has Maxis, Celcom, Digi collectively spent RM8 billion?

Dr. Fadhlullah: On-ground costs for HSBB (phase one) was RM4.8 billion, of which RM2.4 billion was reimbursed by the government. It was never free money. So the government requested for it to be equally spread in terms of infrastructure. Government imposed that TM must sell to other licensees. Where is the (perception) that TM was the preferred choice of the government? No, TM had actually gone out on its own.

KiniBiz: Are there any updates on HSBB phase two?

Mohamed Sharil: For the first phase of HSBB, rightly or wrongly, the decision for HSBB was to go for, meaning the areas that were decided first for rollout, the major towns and industrial parks, and public universities. These were seen as the important areas that needed to be addressed first. There were 98 exchanges then and there were many other exchanges that were not able to be upgraded. What happened then was that places like Malacca town wasn’t on the map. Ayer Keroh had HSBB but not Malacca town as the former had MITC (Melaka International Trade Centre) – the industrial area.

Looking back at some of these things, we can argue: where was the wisdom, going here instead of there, but everyone can be wiser after the fact. But the thinking was (and remains) that we wanted to promote the industrial parks, universities, and the Southern Corridor, even government offices were not part of it.

Phase two, we want to expand to other towns and rollout as fast as we can. (Note: The government has allocated RM3.4 billion under Budget 2014 for HSBB phase two, where RM1.8 billion will be spent on expanding coverage in urban areas and RM1.6 billion will be for expanding coverage to suburban areas).

Some of the rollout is already underway now, it is also part of TM’s business anyway.

Dr. Fadhlullah: The regulatory framework, in all fairness allows the market to be competitive. We wanted the industry to be competitive and have multiple players, because we believe that with competition prices would go down and they have.

Can anyone take a monopolistic position? You can’t, because the CMA (Communications and Multimedia Act) has a provision for anti-monopolistic behaviour, whereby the regulator will come down hard on you.

Why not predetermine access prices so everyone can get cheap broadband?

The answer is, investors will run away from Malaysia. Because on one hand we say we embrace the free economy, but on the other hand you are putting restrictions on how much a player can charge. You see the global image we are projecting?

Mohamed Sharil: On one hand, people want market liberalisation, on the other hand people still want the good old days where the government monopoly provides everything. If you want liberalisation, then accept the good, the bad and the ugly of liberalisation.