Keep an eye on Malaysia

There’s some interesting things happening in Malaysia at the moment:

  • 5G special purpose vehicle (and no, it’s not an autonomous vehicle); and
  • Axiata’s rapidly expanding role in financial services.

5G GOMSPV (Government of Malaysia Special Purpose Vehicle)

The Malaysian government recently announced plans to own the fifth generation (5G) spectrum and build the country’s only 5G network instead of leaving it to the telecommunications operators.

Think of it as a Mobile NBN, National Broadband Network. Other countries have raised this idea on 5G as well, but the Malaysian government seems to have ‘bitten the bullet’.

5G spectrum in the 3.5 GHz, 2.8 GHz and 700 MHz will be given to GOMSPV to build the network and offer wholesale capacity to service providers which, in turn, will offer retail services.

The likely $4 billion (USD) cost of the 5G infrastructure development will be borne by the private sector. Details are still being worked out. It could end up like a mobile version some countries’ fixed NBN.

The benefits are:

  • Keeps mobile operators focused on rolling out 4G and meeting coverage targets. Outside the main cities in Malaysia, mobile broadband is the only broadband, and 4G is good enough.
  • No crazy large spectrum bids that add debt to telcos’ balance sheets for a decade+. Also no windfall to the government, rather a steady income from the mNBN / 5G GOMSPV operations.
  • Less waste from multiple networks being built.
  • Less infrastructure-based competition, potentially enhancing service-based competition. However, Telcos are operating companies, they take someone’s technology, and within the terms of their oligopoly license operate it at national scale. We’ll discuss the service innovation point a little more when we examine Axiata’s financial services push.
  • Lower foreign outflow of cash, especially for new equipment if multiple players were to build out a network.

The downside is, as always with such government initiatives, politics and favors to cronies….

Axiata’s Financial Services

Axiata has launched over the past 3 years a number of financial services that meet the needs of the bulk of the Malaysian market. The 2 main services are:

Credit card penetration in Malaysia is about one tenth of the US, so Boost-like services have revolutionized payments in countries like China with WeChat Pay and in Africa with MTN MoMo. Boost has signed up thousands of merchants in compliance with local regulations. The last point is key, see WhatsApp’s payment service withdrawal in Brazil as an example of what happens when you’re not in compliance.

The penetration of insurance and lending in Malaysia is also low across the general population compared to some countries. Asparasi is an answer with micro-financing and insurance, in compliance with local regulations. And coupled with the e-wallet (Boost), direct carrier billing, identity authentication, insights and analytics creates a strong local position. For example the wallet provides insights on financing needs and ability to service a micro-debt.

It appears to be a solid example of telco innovation, an aim of the 5G GOMSPV. But it’s more complex than that. I’ve talked about the cultural issue impacting telco innovation many times before, here’s a response to a paper published on “Accelerating Innovation in the Telecommunications Arena”.

It’s an issue I see almost daily.

  • Telco – operating company. Takes someone’s technology, e.g. mobile network technology, and given a state-granted oligopoly, operates the asset relatively efficiently to distribute SIM / phones to customers for a well understood service everyone needs.
  • Innovative Service – technology company. Building out their platform technology, in control of the roadmap and customer experience. Able to continuously hone the customer experience and craft the platform to chase new business and find local recipes that work.

To those on the Application side of the business, the above as a statement of the bleeding obvious. While those on the network side see it as an overstatement of the difference.

MTN is considering spinning out MoMo. MTN justifies this by the market not valuing the MoMo asset, which is partially correct. And more importantly, MoMo is a very different business culturally to the rest of MTN. Being part of MTN is a great platform to get the business going, favorable initial conditions. However, to grow into the dominant e-wallet in Africa requires MoMo’s independence from MTN.

WeChat like WhatsApp offered cheap SMS, back in the day when SMS was charged for not bundled. Once the service achieved broad adoption, it focused on adding services like WeChat Pay, and building out an ecosystem, becoming the First Point of Contact to the Internet. WeChat had to create its initial conditions to become a service innovation platform, whilst MoMo could use MTN’s position.

I think we’ll see Axiata package up Boost, Asparasi, and other capabilities such as carrier billing, identity authentication, insights and analytics into a financial services entity that will spin out to grow and dominate in Malaysia. Telcos can innovate, they just need to keep the service innovation at arm’s length to the rest of the business, copy what’s working in other similar markets, focus on local compliance and local market needs, and let it break free when the time is right.

Keep an eye on Malaysia 🙂

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