The Malaysian government says it is willing to fund 30 percent of a proposed multi-billion-dollar high-speed broadband services project, which will include provisions for a "last-mile" fibre-optic network.
Najib Tun Razak, Malaysia's deputy prime minister, last week unveiled plans to embark on an ambitious initiative to roll out high-speed broadband services across the country. The government official also revealed that incumbent fixed-line carrier Telekom Malaysia (TM) has been awarded the broadband project.
Aimed at covering 2.2 million premises, the project is estimated to cost 15.2 billion ringgit (£2.19bn) over 10 years, Najib was quoted as saying in local news reports.
"We have asked the Finance Ministry to verify the figure, which includes the cost of 'last-mile' fibre, core network and [improvements to] international connectivity," Najib told local reporters.
State-owned TM has been directed to start initial work on the project, though deployment of the physical infrastructure is likely to come only six months after the partnership agreement has been signed. The government is aiming to ink the agreement as soon as possible, Najib said.
The country's deputy premier explained that the Cabinet Committee on Broadband, which he heads, chose to partner with TM because the telco already owns an existing infrastructure. This, he said, would allow additional investment to be done on a lower cost basis and at a faster speed.
"We want the [new high-speed broadband] service to be rolled out quickly and in a cost-efficient manner, so that Malaysia [will] not be left behind in terms of competitive edge," Najib added.
Najib left open the possibility for other telcos to take a part in the project, although he noted that their role would only be determined later.
Studying the cost
According to local reports, the government commissioned consultant firm McKinsey & Company to conduct a feasibility study, and they estimated that an investment of 15 billion ringgit would be required to lay fibre-optic lines to every home in Malaysia's major urban areas. To reach every home in the country, this investment would need to increase to 53 billion ringgit (£7.6bn).
With the announcement last week, it appears the Malaysian government has opted for the less costly option.
The slow rollout of broadband services in the past few years has recently forced the government to lower its household broadband-penetration target from 75 percent to 50 percent by 2010.
Currently, only 11.7 percent or 643,500 of Malaysia's 5.5 million homes have broadband. However, these users have had to put up with poor service quality and slow speeds because existing copper telephone lines cannot support the increases in subscriber volume and bandwidth demands.
According to a recent report by RHB Research, TM cornered 96 percent of Malaysia's broadband market last year, though its internet business only comprised some five percent of its overall revenues.
Hafriz Hezry, an investment analyst with TA Securities, anticipates TM's deployment of high-speed broadband services to homes is likely to be delivered over a fibre-optic network. Currently, the bulk of TM's much-criticised broadband service, Streamyx, is delivered to homes via the telco's copper-based last-mile network.
"Theoretically, FTTH [fibre to the home] technology has the capability to deliver [access speeds of] 100Mbps but, initially, I think TM is aiming to provide speeds of up to 10Mbps," said Hafriz. Households with broadband access currently get speeds of up to 1Mbps.
Laying a fibre-optic network may account for the high cost estimates for the project.
"Fibre optics is more costly than the existing copper infrastructure, or even last-mile WiMax solutions," Hafriz said. "For example, [WiMax licence holder] Green Packet is [only] spending 500 million ringgit (£72m) to roll out WiMax in major towns in peninsular Malaysia."
However, the analyst pointed out that Green Packet's capital expenditure only covers last-mile connectivity, data centres and related equipment. In comparison, he said that TM's fibre-optic network may include core network, infrastructure spending and international connectivity, resulting in a higher investment.
According to Hafriz, TM should have the financial resources to undertake the project because it will be rolled out over 10 years. "The average [capital expenditure] is about one billion ringgit (£144m) a year [and] spending is [typically] heavier during the early years of implementation." he explained. "However, the government will bear one third of the total cost of the 15.2 billion ringgit [cost estimate]."
In addition, TM would benefit from the tax incentives for capital expenditure related to last-mile broadband infrastructure announced in last month's 2008 budget, Hafriz noted.
Hafriz also said TM could eventually partner with other players in the deployment of the high-speed broadband project, with a potential candidate likely to be Time dotCom, which has an existing fibre-optic network.
Hafriz added that it was possible TM would eventually open up its last-mile infrastructure to other telcos. "Since the government will invest one third of the total [capital expenditure], other players may be allowed to have access to the network," he said, noting that the project is expected to strengthen TM's virtual monopoly of the backbone of the telecommunication and broadband services market.