• Malaysia’s telecom sector is once again in turmoil over the country’s 5G networks plan
• The government recently selected U Mobile to build the country’s second national 5G network
• The decision has come in for widespread criticism, not least because of U Mobile’s shareholder structure
• The mobile operator has tried to appease the critics, but to little avail

Malaysia and 5G are, it seems, not the most settled of bedfellows, as the fallout from the recent award of a contract to build and run the country’s second 5G network has shown. 

The country already has one 5G network, the Digital Nasional Berhad (DNB) shared network, in which most of the country’s main mobile operators – namely CelcomDigi, Maxis, U Mobile and YTL Communications – eventually acquired stakes earlier this year, with Telekom Malaysia (TM) the only telco that didn’t complete a transaction. 

The agreements to take a stake in the DNB came just as the operators were lining up to bid to be the government’s preferred partner for the construction of a second, competitive 5G network – see Malaysia’s telcos jostle over second 5G network.

The expectation was that, in a country with about 50 million mobile connections, either market leader CelcomDigi (with more than 20 million mobile customers) or Maxis (with almost 13 million mobile customers) would prevail, ahead of U Mobile (with just over 9 million mobile customers). 

Then in early November, U Mobile was awarded the deal by Malaysia’s government to build out the second 5G network, an award that comes with spectrum licences but no government funding.

The decision is controversial: It came as a surprise to many industry watchers and attracted criticism from multiple quarters, not least because U Mobile is not one of the market leaders and is a privately held company whose main shareholder (with a 48% stake) is Straits Mobile Investment Pte, a wholly owned unit of Singapore-based infrastructure investor ST Telemedia. 

At the time of the contract award, U Mobile noted that, “in alignment with our commitment to the national agenda,” it planned to “reduce its foreign majority shareholding to 20%, ensuring greater Malaysian control and inviting participation from local investors.” 

Clearly, that pledge wasn’t enough and, on 10 November, U Mobile issued a follow-up statement to note that Straits Mobile Investment had agreed to reduce its stake to 20%. “While foreign ownership is common in the telco sector, U Mobile’s strategy prioritises Malaysian industry development and strengthening of local ownership. This increased local partnership supports U Mobile’s dedication to national interests,” it stated. 

It also felt compelled to stress its worthiness. “U Mobile has invested over 5bn Malaysian ringgit  [US$1.12bn] in its network infrastructure, expanding its national population coverage from 67.5% in 2018 to 95% by early 2024, and has installed over 10,000 sites to date. This places it on par and competitively with its peers. U Mobile prides itself for constantly investing in its network to make it AI-powered and more autonomous. U Mobile, with its shareholders and vendor partners, have successfully completed its national 3G and 4G network rollouts and are committed to invest in the 5G deployment, using private sector funding only,” it added. 

The country’s telecom regulator, the Malaysian Communications and Multimedia Commission (MCMC), was clearly also feeling the heat, as it issued a statement to stress that a “rigorous selection process” was followed in awarding the contract to U Mobile. 

And the controversy doesn’t appear to be subsiding. 

The government continues to face criticism for the decision, with suggestions that U Mobile landed the deal thanks to its links to Malaysia’s king, Sultan Ibrahim Iskandar, who holds about 22%, and the business power of U Mobile’s founder and chairman, pan-industry tycoon Vincent Tan: That kind of suggestion is embarrassing for Malaysia’s Prime Minister, Anwar Ibrahim, who pledged to stamp out cronyism when he came to power in 2022, according to Bloomberg in this report.  

“The award process goes against Anwar’s commitment to good governance,” Asrul Hadi Abdullah Sani, a partner at consultancy firm ADA Southeast Asia, told Bloomberg. “This could impact investor confidence,” he added. 

The contract award may have been announced and the government appears to be holding firm, saying that its decision is binding, but the turmoil in Malaysia’s telecom sector seems far from over.  

- Ray Le Maistre, Editorial Director, TelecomTV