5G in ASEAN: Imperative for Regulators to Support and Act to Capture Value

Given the ecosystem challenges and the large value at stake, regulators will play a central role in enabling the value capture of 5G and sustaining the industry’s underlying economics that will be impacted by the high cost of capex deployment.

Our interactions with the region’s operators, regulators, and government representatives reveal that five policy areas will be essential for regulators:

• Provide a clear road map for spectrum usage. Ensure near-term spectrum availability in core bands that will be in use globally, keep spectrum prices reasonable, allow technology neutrality, and re-farm all bands, enabling liquidity in the spectrum market (through trading and sharing), fostering wholesaling also to non-telecom players for specific enterprise plays, and allowing the use of alternate technologies.
• Foster infrastructure sharing. Promote active and passive network sharing between operators. This could include considering the creation of a mobile NBN setup that could build out common infrastructure and wholesale that to operators.
• Ensure access to sites and backhaul. Enable right-of-way access across regions and municipalities, ensuring open and cost-effective access to key site locations, especially for small cells and backhaul.
• Clarify an open access policy. Establish open access principles for those willing to pay for network slices and quality differentiation.
• Establish a national cybersecurity action framework. Nurture the development of national cybersecurity capabilities in coordination with the ASEAN region.

1. Provide a clear road map for spectrum usage

5G will be deployed across multiple bands, with three bands likely to be important globally in the near-term: low band (700 MHz), mid-band (3.5 to 4.2 GHz), and high-band on mmWave spectrum (24 to 28 GHz). In ASEAN, many of these bands are already being used to provide other services. Low band is being used for FTA TV, and mid-band is being used for satellite services (see figure below). Although mmWave bands are available, deployment will need to be combined with low band spectrum to enable an economically viable coverage of suburban and rural areas as well as in-building access.

In Singapore, the Info-communications Media Development Authority is considering all three bands for 5G. The low bands are already allocated to telecom operators on technology-neutral terms and can be repurposed for 5G, and co-existence trials are ongoing in the 3.5 and 28 GHz bands. The Malaysian Communications and Multimedia Commission has established a national 5G Taskforce to recommend a comprehensive strategy and policy by September. In Thailand, the National Broadcasting and Telecommunications Commission is expected to release the 700 MHz spectrum on technology-neutral terms and allow license winners to roll out 5G services in December 2020. The Commission is also considering auctioning the 2.6 GHz band for 5G by 2020. In Indonesia, 5G is still distant, as the initial indications by Badan Regulasi Telekomunikasi Indonesia point to 5G spectrum licensing by 2022. In contrast, the Philippines expects 5G rollout by 2020 in a variety of bands. As such, the prospects for widespread and ample spectrum availability in ASEAN are not very promising, and regulators will need to take decisive actions to avoid delays in 5G deployments.

So far, spectrum prices for 5G have been comparable to 4G in many parts of the world, depending on the allocation by auction or other mechanisms. 5G spectrum prices (measured as $/MHz/Pop) in South Korea are 0.19 for 3.5 GHz compared with 0.17 for 2.6 GHz for 4G. Similarly, in the United Kingdom, spectrum prices for 3.4 GHz (5G) and 2.3 GHz (4G) turned out to be 0.17 and 0.11 respectively. In Germany though, 5G prices show a noticeable gap versus 4G prices. Given the still recent 4G capex cycle in ASEAN, regulators will need to carefully think through the allocation methodology and pricing to balance national objectives with the economic sustainability of operators and an accelerated rollout. More adoption of technology-neutral spectrum allocation and mechanisms for trading and sharing of spectrum will be essential.

Some countries, including Germany, South Korea, and Japan, also plan to allot spectrum to non-telecom operators to support the deployment of private networks and applications in specific enterprise settings.  

This might require allocating spectrum in small geographic sizes, or what Japan calls “local spectrum”, and regulators need to consider different assignment methods, for example, fees instead of auctions. Mid-band or high-band spectrum, given its propagation characteristics, appears to be better suited for these use cases than low-band spectrum, which can cover wide areas for consumer connectivity.

Given that several ASEAN countries primarily have consumer-oriented mobile operators, regulators should consider this to ensure that leading enterprise players can independently or through partnerships, use 5G to deploy enterprise use cases.

2. Foster infrastructure sharing

Huge investments during the 4G capex cycle combined with degrading ARPU have put significant pressure on operators’ return on investment. The high cell site density required for 5G in higher frequency bands and the unclear 5G economics are expected to add to operators’ woes. In such a scenario, infrastructure sharing can be crucial to improving the industry’s economics. Already, we have witnessed passive infrastructure sharing where operators’ sharing of towers, ducts, and trenches has led to 5 to 10 percent savings in capex.

In ASEAN, however, such sharing has often been less strategic and more focused on tactical and reciprocal opportunities. Operators have focused on building individual networks, which led to not only high capital investments but also significant costs to society in terms of duplication of infrastructure and unsightly towers, poles and antennas. Going forward, structural active infrastructure sharing can deliver significant economic and societal advantages. Active sharing includes elements of the network, such as base stations and other active equipment in various layers of the network. An industry-wide structural effort would require the coordination and cooperation of all key stakeholders, including operators, tower companies, authorities, and vendors, to create either multi-operator radio access networks (MORAN) or multi-operator core network (MOCN) arrangements, co-building of a fiber network, or even a mobile NBN. Structured active sharing could lead to 30 to 40 percent capex and opex savings compared with passive sharing.

The benefits of sharing active network components vary depending on the scope of the sharing. Regulators can choose to enable various models based on the maturity of the country’s telecom sector, the financial health of the sector and its players, and the importance of 5G in driving the country’s digital ambitions. For instance, the South Korean government is coordinating an effort to have mobile telecom companies share their end-to-end network, including antennas, to develop a single 5G network. Mexico’s government launched a wholesale open access network (WOAN) for 4G, developed through a public–private partnership. As networks densify and evolve, countries could start considering a mobile NBN-type structure. However, NBN networks in fixed-line connections have seen that achieving good returns on investments and pervasive adoption are not easy outcomes to achieve. Regulators will need to cautiously evaluate the merits of such an approach.

3. Ensure access to sites and backhaul

5G requires densification of networks through the widespread deployment of small cells. In countries where commercial 5G deployment is under way, operators have been clamoring for street furniture such as lampposts, utility poles, and other tall structures. In fact, industry observers in the United Kingdom anticipate a two-year delay as a result of litigations related to the control of lampposts. A new digital code by the UK regulator, the Office of Communications, sought to streamline access to street furniture but was found to be ambiguous and has led to a spike in litigations. The EU broadband cost reduction directive from 2014 also lays out some useful principles with regard to the access to public infrastructure, providing clear timelines to give permits and setting out requirements for transparency on available infrastructure and dispute resolution procedures.

Two key issues have arisen: exclusive access to and rent for street furniture and the associated right of way for backhaul. Giving operators exclusive deals could limit competition and create unfair advantages. As they vie for a limited number of structures, operators will also need to coordinate sharing. Regulators will need to ensure that monopolies are avoided. Local government bodies and other landlords have been known to charge prohibitive rent for access to such infrastructure. Federal governments and regulatory authorities should work with local authorities and property owners to determine appropriate limits and terms of access to streamline 5G deployment by avoiding expensive and lengthy legal battles.

Similarly, proportionate backhaul networks will be required. Dense fiber networks can be developed through regulatory means by ensuring access to ducts and poles, promoting dark fiber rental, and using fiber that has already been deployed for fixed broadband services.

4. Clarify wholesale and open access policy

Network slicing is a key feature of 5G, allowing the establishment of multiple virtual networks or slices on top of a common shared infrastructure. Depending on the use case and related technical requirements, each slice can be configured accordingly. This will enable a wide variety of enterprise business services and commercial models on a common platform. Telecom operators now have an opportunity to wholesale slices and enterprises are indicating a willingness to pay for such differentiated connectivity offerings.  Similarly, network slices for select consumer use cases such as cloud gaming and streaming of AR/VR content will enable the monetization of the B2B2C opportunities highlighted earlier. Regulators will need to clarify the principles and regulations on wholesale and paid differentiation. Regulators should also decide if network slices can support a dual-sided offer, such as having OTT players purchase a slice and then provide services to others on these slices.

A policy shift toward an open-access and wholesale network is needed, with a provision to enable telecom operators to offer quality differentiation at a fee for select enterprises. Although open access principles have not been a point of contention in ASEAN, regulators will need to establish clear policies regarding the ability to create and charge for slices for differentiation.

5. Establish a national cybersecurity action framework

5G will become crucial national infrastructure and core infrastructure for Industry 4.0 and enterprise digitization, and, as result, cybersecurity will be under heavier scrutiny from governments.

5G and massive machine-type communications (mMTC) will drive an exponential increase in the use of IoT devices. The capabilities of these devices vary according to their purpose and usage, many have low processing power with no built-in security features. This large population of unsophisticated devices spread out across locations offers attackers low-hanging fruit. In fact, IoT attacks are already prevalent. According to NTT Security’s 2017 Global Threat Intelligence Report, 60 percent of all IoT attacks in 2016 originated in Asia.

Beyond device security, the new virtualized networks’ supply chain that uses commodity hardware and open source software introduce new cyber-risks due to its complexity and the limited visibility depth that operators get. This is in addition to geo-strategic risk from 5G suppliers that is becoming higher in government security agendas. Operators may need to work closely with governments on this. Further, they may need to look at supply chain risk management programs that cover the entire ecosystem including the equipment providers and free open source software.

Regulators need to establish a consistent cybersecurity approach across ASEAN as a sustainable strategy to mitigate the escalating cybersecurity risks against the services run over 5G and IoT networks and align with other government departments and agencies dealing with national cybersecurity. We recommend establishing national apex cybersecurity agencies to drive a multi-tier, comprehensive framework that considers all connected devices, networks used, platforms, and applications across industry sectors, particularly critical national infrastructure.[1] A coherent national strategy that takes into account sector-level challenges posed by IoT deployment will be essential to identify various forms of IoT threats. It might require enacting or updating cybersecurity legislation. Global standards and recognition of international certifications will be vital to coordinate efforts across the region and the globe. Finally, regulatory agencies must work closely with vendors as they play a crucial role in developing the local ecosystem to ensure that country-level objectives are understood and enforced.

Conclusion

In 2020, telecom operators will begin deploying 5G across ASEAN, unlocking an unprecedented wealth of potential use cases and incremental revenues. As with earlier generations, operators will start with a focus on consumers and strive to monetize the excitement that 5G is creating and the FWA opportunity that it provides. In addition, 5G is opening up a unique platform for Industry 4.0 and enterprise digitalization, presenting operators with a sizable new opportunity.

The overall potential in ASEAN is substantial, possibly adding 6 to 9 percent to consumer revenues and 18 to 22 percent to enterprise revenues. However, there are significant challenges to capturing this potential, and the answers lie in addressing six questions:

1. Can operators charge consumers more for 5G or by bundling in OTT services? Given consumers’ excitement, we believe this will be possible for most operators in the region.
2. Is FWA a value-adding opportunity given the underlying spectrum and economic challenges? The jury is still out, and the opportunities will depend on the amount and type of spectrum being made available (mid-band or mmWave) and the location-specific economics of the required small cell deployment, especially for mmWave.
3. Are there compelling 5G-based use cases that allow operators to charge for enhanced connectivity? Although 5G is clearly the most capable network of the future, many near- to mid-term use cases will not depend on 5G and can be delivered by other technologies.
4. Will operators need to and be able to bundle services and solutions with 5G connectivity to drive enterprise uptake? Enterprise customers will require guidance and support in their digitalization journeys. Therefore, bundling enhanced connectivity with solutions will be essential to capturing the enterprise potential. Few operators in the region will be able to readily and effectively deliver this required step-up in enterprise capability.
5. Can operators realize value from OTT providers by providing superior quality on 5G? With their enhanced network slicing capabilities, operators will be able to charge OTT providers for differentiated services. We also believe that regulators in the region will support such commercial models.
6. Can operators create enhanced models through programmable networks such as managed mall or campus networks? Again, the jury is still out. We expect most operators to be reluctant to enable potential new competitors to their enterprise businesses. Moreover, networks slicing is still in early phases of its technical development.

Given the very diverse market and operator contexts, we believe each ASEAN country will take a different path. In Singapore, for instance, we expect 5G to live up to its potential and be a win–win for consumers and for enterprises. Meanwhile, in Indonesia and Malaysia, only a few telecom operators are likely to be able to capture the enterprise opportunity. In other markets, consumer-centric operators will be less well-equipped to capture the enterprise potential, and the opportunity could be ripe for non-telecom players to set up and operate private networks for enterprises on 5G or alternate technologies. As a result, we expect operators across the region to capture only about 50 to 60 percent of the total value at stake. Finally, decisive regulatory support will be essential to mitigate spectrum uncertainty, foster sustainable economics, and address rising cybersecurity concerns.

With 5G’s enormous potential, ASEAN telecom operators have a real opportunity to reverse their declining consumer and enterprise revenues. However, unlocking that potential will not be easy and does not depend only on providing enhanced connectivity. It will require thoughtful actions and tangible new capabilities from all stakeholders.

[1] For more, see Cybersecurity in ASEAN: An Urgent Call to Action at www.atkearney.com.