AUG 14 — On August 8, the country’s largest telco Telekom Malaysia (TM) launched its first 4G (Fourth Generation) wireless broadband offering, known as TMgo, in the northern state of Kedah.

As reported by Digital News Asia (DNA), TMgo is TM’s effort to provide what in industry parlance is known as fixed-mobile broadband – or nomadic broadband – through the use of Long Term Evolution (LTE) technology and specialised mobile dongles and modems.

TMgo is currently available in Kedah and some parts of Melaka. More information on the packages can be found here and here.

To the man on the street, this seems to be yet-another mobile broadband service by yet-another operator, albeit in suburban and rural locations, which is unusual.

But upon a closer look at the service offerings, as well as TM’s launch strategy, there are several interesting inferences that can be drawn.

The first thing to note is that TM has been itching to get back into the wireless game after exiting the business some eight years ago, when it spun off its wireless entity into what is known today as Axiata Group Bhd, formerly known as TM International (TMI).

The move then essentially left TM as strictly a fixed-line player, although it also had other forms of business surrounding a typical telco, such as its international gateway and submarine data division.

While these businesses are generally profitable, and while TM’s jewel in the crown – its UniFi fibre-to-the-home business – is booming, industry watchers familiar with the matter have argued that TM has been left out of perhaps the most lucrative business there is in the telco space today: The wireless sector.

But as of Aug 8, this is no longer true. According to an industry executive, the launch last week represented a significant step towards TM playing “catch up” with the other wireless players.

“The launch and service availability in Kedah and Melaka – although not in the usual urban areas where such advanced data services are launched – are not so much about capturing market share or ramping up subscriber numbers,” said the executive on condition of anonymity.

“To me, it’s about ‘bragging rights’ – that is to say: ‘We, Telekom Malaysia, are back in the wireless game, and all our competitors better take note of this’.”

The next interesting point is how TM got back into the wireless game.

Historically speaking, TM has had a licence to use a block of the 2x5MHz spectrum, courtesy of its takeover of the now defunct operator Mobikom back in 1998. That spectrum – used initially by Mobikom as an analogue cellular service – was converted to support a digital standard known as CDMA (code division multiple access) by TM.

According to the industry executive, TM used this CDMA technology to offer fixed-wireless voice service to its customers, primarily in suburban to rural areas where it was not economical for the telco giant to roll out fixed-line services.

The challenge was that this CDMA service was very niche and not considered to be a money earner for TM because of the lack of economies of scale.

Thus, the move to repurpose the use of this spectrum into a commercial product in TMgo through the use of LTE is a good move by TM, as highlighted by a recent Hong Leong Investment Bank advisory to investors.

 But even so, why launch the service in suburban to rural Kedah and Melaka?

“Launching [TMgo] in these two areas may have something to do with the fact that the original 850MHz spectrum used by TM for its CDMA service was supposed to be for the benefit of suburban to rural folks. In doing so, TM is keeping to its original modus operandi – that of bridging the digital divide.

“Now if TM were to have launched TMgo in urban Klang Valley, this would run contrary to this modus operandi and it would have been difficult for TM to be able to justify why the spectrum is used in urban areas,” said this executive.

By the backdoor?

The launch of TMgo in suburban to rural areas also underlies the fact that TM currently has merely a 2x5MHz block of frequency for its use, which means that it has limited frequencies to provide high-quality and -capacity broadband for use in urban areas.

Industry standards suggest that an operator needs to have a minimum of 10MHz of frequency if it were to capitalise on the true benefit of LTE’s speed and capacity. This implies that TMgo is operating at sub-par capabilities.

But unbeknownst to many, there is still an unused 2x5MHz block of 850MHz of frequency not yet assigned to any operator. Speculation is rife that TM is not only eying this block of unused spectrum but close to getting a nod from the Malaysian Government to use this spectrum, ostensibly due to the ‘influence’ the company has with the corridors of power.

Currently, it is not clear yet how aggressive TM plans to proceed with its TMgo launch as the strategy it is pursuing, with its proposed takeover of a 57 per cent stake in Packet One Networks (P1), has been delayed.

“But if it does get that second block of spectrum for its use, TM can be a very potent force in the wireless space,” argued the industry executive.

“Given that TM is an integrated telco player with huge revenue, and has everything from consumer broadband (UniFi), backhaul fibre connections and international gateway to a fixed network, it can also quickly become a powerhouse in the wireless scene when it does roll out in urban areas,” he added.

This is something that other wireless players aren’t happy about as TM’s entry into the 4G market has been ‘opportunistic’ rather than via the presentation of a viable business case, which the other eight operators had to go through.

Superior coverage

Having declared itself back in the game, TM is seemingly happy to take its time ramping up to becoming a full-blown wireless operator, as illustrated by it rolling out TMgo in what was essentially a small-scale launch.

A cursory look at the TMgo packages also suggests that they aren’t the most competitive in the market. Even if I were living in Kedah or Melaka, I would be able find a package at least 50 per cent to 100 per cent cheaper than what TM is offering, assuming the same specifications in data volume and hardware.

And don’t even bring in the issue of coverage, or rather the lack thereof.

No doubt over time, TM will roll out TMgo into the more developed parts of the country, such as Penang, the Klang Valley and perhaps Johor Baru. When that happens, the likelihood is that TM would make its services available at cheaper prices in a bid to compete.

TM does have one thing going for it though. Running its 4G service on an 850MHz spectrum gives it significant coverage advantage over the other LTE players, which are only able to offer their service at either 1,800MHz or 2,600MHz.

In general, an operator using the latter two frequencies may have to build three to four times as many cell towers to cover the equivalent geographical area that would otherwise be accomplished with one 850MHz cell site.

Put simply, TM would need to invest less because it would not need to build that many cell towers compared with what its competitors might have to do, given the same coverage area.

Neil Shah, research director at Counterpoint Research, noted that the 850MHz LTE (Band 5) is being used by SK Telecom and LG U+ in South Korea, and US Cellular in the United States.

Speaking to DNA via email, Shah said other operators are beginning to re-farm their existing 2G/ 3G networks operating in Band 5 in North and Latin America, India and other parts of Asia for LTE networks.

“The core strategy for employing 850MHz is to enable wider LTE coverage and this will be critical for LTE coverage beyond urban and suburban areas,” he said.

“More than 94 per cent of the LTE devices by 2015 will support Band 5 LTE, so there shouldn’t be any issues from the device support point of view either,” he added.

Ramping up fully

So when can one expect TM to go all-out?

“I’d expect the trigger to happen a short while after the TM-P1 deal goes through,” said the industry executive. “When that happens, the 850MHz LTE portion could easily be used to provide coverage [due to its superior propagation properties] whilst P1’s 2,600MHz could be used to provide capacity at hotspots in urban centres.”

This strategy has been confirmed by another industry observer familiar with the matter.

Noting that TM has already commissioned a certain Chinese vendor and its subcontractors to roll out 200 850MHz LTE sites in the whole of Malaysia [including the ones in Kedah and Melaka] by year-end, the executive said TM is likely planning on using its existing CDMA cell sites to host these new 850MHz LTE sites.

“When the deal with P1 is completed and with the 850MHz LTE cell sites in place for coverage, TM can then roll out its 2,600MHz [courtesy of the takeover of P1] LTE sites where P1 has their existing WiMax [2,300MHz] cell sites for capacity purposes.

“Additionally, the cost of retaining existing P1 customers and converting them over to TM customers is cheaper than having to acquire subscribers from scratch,” the second executive explained. “With other advantages, such as the easily available fibre backhaul for P1 at a favourable lease price, TM is expected to come out a winner.”

That said, it’s my belief that TM still has its work cut out for it, as rolling out a wireless network isn’t as easy as it sounds. But with its financial muscle and its resolve to once again be a wireless giant, it would do well for the competition to be concerned.

Counterpoint Research’s Shah (pic) however said he believes the other wireless players such as Celcom, Maxis and DiGi won’t be too worried about TM-P1 as they are quite ahead on the LTE front.

“From a spectrum point of view, TM might be on slightly more advantageous [ground] in terms of edging out on rural coverage, but Celcom, Maxis and  DiGi should be able to promise higher throughput and capacity on the network at the same time,” he said.

Shah also believes that better LTE data throughput should be one of the key differentiators for the leading operators, and that they should introduce different LTE device types in their portfolios and cleverly bundle them with varied LTE plans as an important strategic play.

Asked if he believed further industry consolidation would happen, Shah said the industry could well see more mergers [of LTE players] coming in Malaysia.

“It will be interesting to see how the long tail of mobile virtual network operators (MVNOs) and smaller operators compete with incumbents in LTE era.

“Ideally, operators would not like to indulge in a price war before they recoup a significant amount of their huge investments, though you never know as it takes just one player to disrupt the market and start a price war,” he added. — Digital News Asia

* This article was first published here.