Need for Speed: Penang’s Broadband Dilemma

It was not too long ago when the modem sang a dial-up tune every time I wanted to connect to the internet. Mum’s occasional phone call meant that I had to get off Friendster. Internet connection outside the home? Unthinkable.

It all seems like a lifetime ago. The internet today is almost as ubiquitous as the air we breathe – so much so that we ironically only realise its presence in its absence.

Of the many requirements needed to realise a digital transformation in Penang, internet connection is arguably the only one that is necessary but not sufficient – that is, internet connection alone does not a digital transformation make, but its absence on the other hand guarantees failure to realise such an agenda. The digital era is not be possible without fast and reliable internet connection; the requirements are only going to intensify exponentially over time.

Many of the basic and mid-range internet applications that we use today require a 4Mbps to 10Mbps internet connection for optimum functionality. These range from simple ones such as streaming YouTube videos (in Standard Definition), text communications, emails and web browsing, to mid-range uses such as e-commerce, multi-point video conferencing and remote access through virtual private networks (VPNs).

New digital technologies that are deemed to be game-changing in the digital era, however, require much higher speeds. Techies recommend a minimum of 50Mbps for activities such as server backup, distance learning and Internet of Things (IoT) connections. Meanwhile, a retinal 360º virtual reality video experience would require at least a 600Mbps internet connection.

Given how essential an internet connection is, it is troubling to know that Malaysians pay more for less internet speed compared to consumers in other countries.1 Within the Asean region, Singapore and Thailand have much faster download speeds while Malaysia’s is comparable to Vietnam, a country which has significantly lower per capita income.

The Malaysian government is aiming to “double the speed, half the price”, as announced by Communication and Multimedia Minister Gobind Singh Deo. Enforced under the Mandatory Standard on Access Pricing (MSAP) since July 8, 2018, broadband packages have seen a reduction of at least 25% in price, and for the first time, Malaysians have access to fibre broadband below RM100.2

While this is indeed a big win in making the internet more accessible to Malaysians, it does not address the other critical requirements of an internet for the digital era: availability.

To many internet users, especially those outside urban centres, the only option available today is Telecom Malaysia (TM)’s internet service. These are commonly limited to Streamyx internet packages below 4Mpbs and priced higher than their faster Unifi services. The other aspect of availability is in terms of internet speed, or in more accurate terms, bandwidth. A comparison of internet packages offered by major telco providers in Malaysia reveals an implicit normal of speeds below 100Mbps, with speeds above that being considered outliers. Costs aside, the lack of availability means that even if Malaysians are willing to pay, they will still not get an internet connection to meet their needs.

Ayappan Pappu Pillay.

This lack of availability is a reflection of a more severe and deeply rooted problem in Malaysia’s telecommunications ecosystem. The World Bank identifies two of these: market structure and regulations on telco infrastructure.1 In their report, the World Bank points out that Malaysia’s telecommunications market lacks competition and is dominated by TM, particularly in the backhaul of telco infrastructure. For example, TM has ownership stakes in 12 of 20 submarine cable networks that land in Malaysia, and has the most extensive broadband network in the country. This in turn allows it to deploy additional fibre networks at lower costs than their competitors. Lacking viable alternatives, telco operators resort to leasing backhaul facilities from TM despite knowing that they are charged higher prices than they would in a competitive market.

TM’s dominance is not self-made. Rather, it has benefited from preferential treatment given by the previous government over the years – for example, national high-speed broadband initiatives were exclusively awarded to TM for deployment. Despite there being formidable telco competitors that have flourished as businesses in their own right, none have been credibly successful in breaking up TM’s monopoly in backhaul telco infrastructure. It does seem that the only recourse left is an active reversal done through interventions by the Ministry of Communication and Multimedia.

The World Bank also notes how state governments and local councils in Malaysia have contributed to delays in the deployment of wide-reaching broadband infrastructure. Being the authority to issue permits and rights-of-way in their respective jurisdictions, state governments have considerable sway in the economic considerations that telco providers have with regards to infrastructure.

Malaysians pay more for less internet speed compared to consumers in other countries. Within the Asean region, Singapore and Thailand have much faster download speeds while Malaysia’s is comparable to Vietnam, a country which has significantly lower per capita income.

This influence is in turn exercised through direct policy intervention such as state procedures and permits, or through business intervention by establishing a One-Stop Agency (OSA) with business capacity. Successful policy intervention and OSAs at the state level have been known to improve savings and efficiency for both local governments and telco operators. On the flipside, they can also be used for rent-seeking and profiteering. Sadly, the latter is commonly the case in many states.

Banking on its positive potential, Penang also has the familiar policy implementation makeup. Policy on telco infrastructure is decided by the state’s Local Government Department, while its implementation is done by a One-Stop Agency with business capacity, known as PDC Telecommunication Services (PDC Telco).

As a state-backed telco infrastructure company, PDC Telco intervenes in the market with a strategic purpose. One such instance is when telco providers are reluctant to construct telco towers despite it being an impediment to their cell users. This can be due to a range of considerations, from lack of user critical mass (in sparsely populated areas) to failure in obtaining required permits from the state government. “Since we are a state-backed company, we help build towers where others find it difficult to build, and then we lease these to them,” says Ayappan Pappu Pillay, PDC Telco’s CEO.

Since 2011, PDC Telco has taken over as the sole implementer for the common trenching system. In this role, PDC Telco “owns and operates common trenching infrastructure in the state,” says Ayappan.

In line with international best practices, OSAs help to speed up fibre deployment through the sharing of common infrastructure, thus lowering marginal costs for telco providers to expand their fibre network. Ayappan explains how this works in practice: “If a telecommunications provider wants to lay a fibre cable, they will send in an application to us. We will then conduct a survey to identify the possible sharing of fibre ducts to avoid duplicate trenching.”

But the dream of having a widespread 500Mbps internet connection in Penang is still a distant one. While 50% of Penang is already equipped with fibre network – approximately 3,217km of fibre in length – this has however not translated into high-speed internet connections for 50% of Penangites.

While market dynamics within the telco industry as previously explained have significantly contributed to this, PDC Telco believes that the disconnect between policy and implementation also plays a part. As an OSA, PDC Telco has in some sense become the default government contact point for the public, and with that, it functions as a platform for the airing of public grievances.

In one instance, complaints were made about the unavailability of fibre network in a particular area. Acting on this, PDC Telco stepped in to negotiate a solution with other telco providers. This went so far as being a possible pilot towards a credible solution for high-speed internet deployment. To their dismay, the failure was at the backend, where policies and procedures needed to be updated and changed. “No one wanted to process and follow up. Since we do not have regulatory jurisdiction, we rely heavily on policy links to realise plans. If they don’t move, nothing moves,” laments Ayappan.

If such is the case, there is indeed an urgent need to rethink the strategic value of OSAs. In the case of PDC Telco, the policy-implementation link appears to be a one-way communication – that is, an OSA is merely an implementer of policies that have already been decided. Moving forward, there should be a credible feedback loop to utilise an OSA for making policy decisions as well. This is only sensible, given an OSA’s knowledge bank developed over time through operating “on the ground”.

Additionally, OSAs by design possess deep technical expertise of infrastructure technologies that would serve well in informing policy decisions, without which policies risk stifling the deployment of technologies instead of supporting and spurring it. Given the rapid development of new telco infrastructure technologies and the coming wave of 5G networks, the stakes have never been higher.

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