Heavy investments in NFCP will be a stumbling block

By Doreenn Leong

The government is on an ambitious path to provide nationwide digital connectivity that is robust, pervasive, high-quality and affordable for all Malaysians in a span of five years from 2019.

This is where Malaysian telecommunications regulator Malaysian Communications and Multimedia Commission (MCMC) is tasked to execute the National Fiberisation and Connectivity Plan (NFCP) plan to improve the fibre and overall broadband coverage of the nation.

The idea is to improve the socio-economic standing of the people. According to a study done by World Bank, a 10 percentage point increase in broadband penetration can result in a 1.38% increase in gross domestic product (GDP) for developing countries.

On paper, improving broadband penetration augurs well for the country but many believe the stumbling block will be the heavy investments involved.

Communications and Multimedia Minister Gobind Singh Deo has said the cost of the NFCP will be at RM21.6 bil, which will be funded by MCMC’s Universal Service Provider (USP) fund that currently has reached some RM8 bil and commercially by the service provider.

The methods of financing via the USP fund that would be considered are in the form of full, matching, or partial fund to eligible parties.

When the RM21.6 bil cost was announced by the minister, there were questions on why the cost has ballooned in less than a year. In Budget 2019 tabled in November last year, the government said it will implement the NFCP in 2019, starting with an allocation of RM1 bil. MCMC then clarified that the RM21.6 bil is the estimated total cost for a span of five years and RM1 bil was just an initial allocation.

At RM21.6 bil, this translates to roughly RM4.32 bil a year. For the sake of transparency, the government should be clearer on where the money is going to.

NFCP will involve many parties with the likes of the telcos as well as non-telcos such as Tenaga Nasional Bhd.

No real returns

As big as these corporations are, they may not see the rationale to fork out large sums of money without being able to calculate the real returns.

Essentially, NFCP’s thrust towards connecting the rural population could mean that revenue accretion from these investments will be minimal. As such, NFCP will likely be stuck at the execution stage.

For Telekom Malaysia Bhd (TM), as the national broadband provider, it will be saddled by huge capex requirements being the principal operator for the NFCP rollout. It is expected to shoulder up to half of the NFCP cost, which translates to RM2.2 bil over the next five years.

According to analysts, besides TM’s own capex requirements, the NFCP rollout alone translates to 19% of FY20 revenue. This has already surpassed TM’s capex target of 18% in FY19.

Is this a good deal for the shareholders of TM? Surely, any investments made by a company have to generate fairly good returns.

TM along with Maxis and Celcom are already providing connectivity to the masses but they are now pressured to offer better services at a cheaper rate for consumers.

Also, it appears that some targets in the NFCP seem a bit modest given the budgets allocated. For example, one of the key targets is to achieve a fibre network pass-through to 70% of schools, hospitals, state libraries, police stations and post offices by 2022. Why only 70%?

Rural communities clearly can’t be fiberised efficiently. So, lower levels of connectivity should be accepted initially, to commensurate with budgets allocated.

At the end of the day, a higher target can be achieved with a smaller budget, if the correct approaches or technologies are applied. A penny save is a penny earned.

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