Fitch negative on Malaysia’s state-led 5G rollout, cites corruption

25-Feb-2021 Intellasia | Malaysiakini | 7:03 AM Print This Post

Putrajaya’s decision to allocate 5G spectrums through a special purpose vehicle (SPV) instead of directly tendering them to private operators is being viewed as a risk to the market.

Fitch Solutions, the research arm of credit rating agency Fitch Group, said the potential lack of transparency with the SPV will affect the speed of the rollout, on top of concerns about higher costs.

“Purported corruption in the ranks of the Perikatan Nasional (PN) government could also affect the 5G rollout potential.

“Prime minister Muhyiddin Yassin hasin order to appease his coalition partnersallocated key positions in the cabinet and government-linked companies (GLCs) to secure political support, and it is possible that executive roles within this new entity will be allocated to political allies.

“The lack of private sector involvement in the SPV also raises concerns that contracts might not follow open tender processes and that financial reporting obligations of the new entity might eschew transparency,” it said in a statement.

“This could open up opportunities for graft and corruption in the buildout process, although the telecoms regulator, the Malaysian Communications and Multimedia Commission (MCMC) has pledged to keep the operations of the SPV transparent,” it added.

The rollout under the PN government will see 5G spectrums wholly-owned and maintained by a finance ministry-owned SPV.

It will then lease out capacity to operators to offer services.

Fitch Solutions noted that this was a reversal of the previous Pakatan Harapan government’s plan to allocate spectrums to a consortium comprising telecommunications operators.

The research outfit said it was a stark turnaround to the open-market auction model adopted by many Asian markets in allocating 5G licences and frequencies.

“A centrally coordinated rollout of 5G infrastructure in Malaysia wouldin our viewbe inefficient and likely to incur higher levels of capital expenditure compared to a scenario where operators pursue their own buildouts and network sharing arrangements.

“Prior to the new government plans, operators had independently reached agreements with each other, as well as with telecoms vendors to jointly deploy networks and share infrastructure,” it said.

Poor pandemic management

Fitch Solutions added that while improving connectivity was a priority for the PN government, it was facing fiscal constraints.

“Malaysia’s public health response to the pandemic has been poor, with the government forced to put the country into a second national movement control order (MCO) in January following a surge in infections in the aftermath of the Sabah state elections, leading to discontent among the populace.

“A new fiscal stimulus package amounting to RM15 billion for subsidies and tax exemptions will also unlikely be the last for 2021, and further fiscal outlays will widen Malaysia’s budget deficit even further,” it said.

Considering the circumstances, it said it was better for the government to focus on the rollout of fibre infrastructure.

Following the direction undertaken by the PN government, Fitch Solutions said it was revising downwards Malaysia’s Telecoms Industry Risk score from 85.6 of 100 to 74.9. A lower score means higher risk.

“The current PN government will face a political test when snap elections are held after Malaysia’s state of emergency is lifted.

“A change in government would likely entail a change in leadership in the MCMC, which is in charge of supervising the operations of the new SPV.

“Such a scenario could likely herald a rollback of the current policy and a potential reversion to a spectrum auction, which we view as the most efficient way to allocate limited 5G spectrum resources among industry players.”


Category: Malaysia

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