Bad news for Malaysia if govt SPV manages 5G roll-out: Fitch Solutions

It may lead to high capital expenditure, lower operator margins and purported corruption, says research house

KUALA LUMPUR : The government’s decision to set up a special purpose vehicle (SPV) to manage the leasing of the 5G spectrum can lead to high capital expenditure, lower operator margins and purported corruption.

In a commentary today, Fitch Solutions Country Risk and Industry Research expressed its concern over the Perikatan Nasional (PN) administration opting to reverse the plan mooted by the previous government to allocate the spectrum to a consortium owned by the country’s operators. 

It added that allowing a government-owned SPV to manage the nationwide 5G network buildout is a stark turnaround to the open-market auction model adopted by many others in Asia in allocating 5G licences and frequencies. 

“A centrally coordinated roll-out of 5G infrastructure would, in our view, be inefficient and likely to incur higher levels of capex to a scenario where operators pursue their own buildouts and network-sharing arrangements.

“Elevated costs associated with a single-entity roll-out would likely be passed on to operators in the form of higher wholesale costs. In turn, operators would find it difficult to extract higher margins from selling these services to their customers.”

Cost overruns, political allies

In a media briefing on Monday, Multimedia and Communications Commission (MCMC) chairman Fadhlullah Suhaimi Abdul had said that the distribution of the 5G spectrum would no longer be done through auction, but via a SPV wholly owned by the Finance Ministry. 

According to Fitch Solutions, lower profits for operators as a result of this decision would mean less funds for them to invest in service development, key to growing their 5G reach and providing more value to customers. 

It said similar cost overruns have been observed in other government-led last-mile infrastructure projects, such as the National Broadband Network (NBN) in Australia, where a single network has been built and maintained by a state-owned entity. 

The research group also expressed concern that purported corruption in the ranks of the current government could affect the country’s 5G roll-out potential. 

It noted that Prime Minister Tan Sri Muhyiddin Yassin has been allocating key positions in the cabinet and government-linked companies to appease coalition partners and secure political support. 

“It is possible that executive roles within this new entity (SPV) will be allocated to political allies,” it said. 

Additionally, it said the lack of private-sector involvement in the SPV also raises concerns that contracts might not follow open-tender processes, opening up room for corruption in the buildout process. 

Meanwhile, Fitch Solutions said the elevated uncertainty of the current government as well as the higher levels of state intervention in the telecommunications sector has led it to revise downward its Industry Risks score for Malaysia.

Now, Fitch Solutions said Malaysia is scored at 74.9 out of 100, down from 85.6 in the previous quarter.

By : Syndicated News – THE VIBES

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