Rich telco, poor telco Pt. 2

Local telcos and ISPs, be they wireless or fixed, know they have to move up the value chain and be more than just a dumb pipe. But the threat of over-the-top (OTT) players; and even a protectionism mentality; throw a spanner in the works of an already uphill task. Cat Yong reports her findings in this continuation from Part 1.

The Fixed play
Is the fixed telco space innovating as radically as the wireless telco space?

With a new business model like MVNA (mobile virtual network aggregator) entering the local market via Enabling Asia, new forays into digital/Internet services and even deals to share infrastructure, our fixed ISPs seem like laggards in comparison.

That is hardly the case.

In 2012, PEMANDU or the Performance Management Delivery Unit under the Prime Minister’s Office, together with MCMC had initiated a project to lay a submarine cable all the way to the US. The Konsortium Rangkaian Serantau or KRS is owned by a collaboration of 24 telcos or NFP and NSP licensees, that all have equal share in it.

One of the shareholders is managed Internet service provider, MyKRIS, and its CEO Chew Choo Soon shared, “It is meant to be a neutral submarine cable that will provide International connectivity service to industry players, so that I get to enjoy maybe a lower rate of IP transit cost.”

David Wong

Outsourcing Malaysia’s (OM’s) Chairman, David Wong said that currently only one or two players have made significant investments in the long haul (international) and backhaul (inter-city) network infrastructure. “This results in uncompetitive long haul and backhaul connectivity cost.”

A combination of long haul cost and backhaul cost equals IP transit cost, and several players in the industry have voiced out against shorter backhaul costs that currently match long haul costs: why are we paying the backhaul cost of thousands of miles for backhaul which is only 500 miles?

Wong added, “The price arbitrage is key as the cost of the bandwidth impacts the cost of doing business which also affects the pricing of services.”

The industry belief has been that lower IP transit costs would translate to cheaper Internet service, a feature that consumers as well as businesses, local and abroad, are demanding for.  Needless to say, the outsourcing industry also requires good quality connectivity, as well as lower bandwidth prices to be able to compete and thrive.

The KRS initiative addresses high IP transit cost, in part, which is the international long haul part. But the process is painfully slow with all the challenges that come with 24 equal shareholders and requirement for 2/3 approval before any decision is made.  Chew added, “However, MCMC and PEMANDU are closely monitoring and supporting it.”

Common infrastructure
The same snail pace of KRS applies to the telco and service provider industry at large as well.

Ultimately, Chew opined that a common infrastructure is the objective to achieve. Neighbouring countries like Singapore, Australia and New Zealand have adopted some type of similar model, whereby the fibre backhaul wholesale business is structurally separate from the business of retail broadband.

“In other countries, the fibre should be a common infrastructure, and every player in the retail space have fair and equal footing to compete on service and pricing and more,” said Chew. In other words, they should not have to also compete with the fibre wholesale business as well, which in Malaysia’s case is the incumbent and retail broadband player, Telekom Malaysia.

“We are making progress towards a more common infrastructure. There are more benefits for Malaysia to move towards that direction,” said Chew who added that when reviewing the situation five years ago, things are getting better.

It may never get to the point like with the wireless space where OM’s Wong observed 9 players are driving down intra-city bandwidth costs. But, the KRS project by PEMANDU is good practice for service providers to learn to share and compromise, if they want things to move forward.

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