US, EU, CN, Speeding Up Recovery Via 5G Delayers Will Be Losers!

How crucial is 5G to any serious post-pandemic economy?

The Covid-19 pandemic revealed the weakness of the current state of digitization in many countries. Earlier generation mobile phones or 4G only performed basic e-commerce or social networking functions but did not meet the broadband requirement in the sophisticated real-life usage environment.

The United States and the European Union are taking steps to address the problems. President Biden proposed in his infrastructure bill to Congress allocating $100 billion to connect all Americans to affordable, high-speed internet. The EU targets all households covered by gigabit connectivity and all populated areas by 5G by 2030 in its Digital Compass project. The project is funded by a minimum of 20 percent of its €672.5-billion Recovery and Resilience Facility.

The steps taken by both the US and the EU show a change of view on digital infrastructure. Earlier thinking that the government should concentrate on physical infrastructure such as roads, rails, harbors and airports and letting private entities work on telecommunications is now being modified to having the government be very actively involved in investment in the digital infrastructure. This change in thinking from laissez-faire to the need for an industrial policy in digital connectivity is epochal.

The shift reflects the realization that digital technology is changing so fast that the market alone is insufficient to incentivize private telephone companies to pump in huge investments to keep people updated on technology.

A country must put digital at the center of the post-Covid-19 infrastructure plan as it is critical in generating longer-term economic growth, competitiveness, national security and environmental benefits.

Among Asean middle-income countries, Malaysia took the initiative last November 2020. It declared that the federal and state governments now recognize internet connectivity as a ‘third utility’ in addition to electricity and water. The concept of utility means that the government will take it as a fundamental right of the citizen to have access to digital infrastructure.

The Ministry of Communication and Multimedia is tasked to strengthen the country’s digital infrastructure, particularly in internet connectivity, digital economy, creative economy and cybersecurity. The ministry has drafted the National Digital Infrastructure Plan (JENDELA) 2020-2022.

The plan includes spending on subsidy and infrastructure: telecommunication credit assistance of RM180 (USD 40) per person for the B40 group (bottom 40 percent of the household income group, which in 2019 was monthly household income less than USD 1200), amounting to RM1.5 billion; free internet data by telecommunication companies amounting to RM1.5 billion; internet connectivity for 430 schools nationwide amounting to RM500 million; expansion of broadband services for 2021-2022 via Malaysia Communication and Multimedia Commission (MCMC) amounting to RM7.4 billion; and internet connectivity in 25 industrial areas amounting to RM42 million.

The focus of the plan is digital accessibility of the low-income group and school connectivity. The choice of spending in the face of Covid-19 stress on government budget is laudable.

The Malaysian government also took a bold step to improve digital connectivity by building the 5G infrastructure itself instead of relying on private telco carriers. The government will set up a special purpose vehicle and invest RM 15 billion (USD 4.1 billion) to build the network, own the 5G spectrum and manage the network. Existing wireless telephone companies will lease the network from the government and offer the 5G service as a mobile virtual network operator (MVNO).

The move is a pragmatic solution to the monetization dilemma facing many mobile telephone companies worldwide in rolling out the 5G service. The high-frequency spectrum employed in 5G calls for higher capital investment, when only the current use case is satisfied by the 4G network.

In the 5G rollout, China, the undisputed leader, worked out a 5G network co-investment scheme with two leading telephone companies, China Telecom and China Unicom, to cut capital investment. The country also asked its three telephone operators to merge the tower network to meet the more dense tower requirement in 5G.

Lack of short-term monetizing opportunity is particularly true in Southeast Asia, where the mobile network is used mainly for social networking, followed by e-commerce. The transmission speed-sensitive real-time video screening or mobile game or real-time industrial application is not yet catching on in the region. It takes time for killer applications of 5G to develop in the Southeast Asian market, such as smart cities, 4K video streaming and real-time industrial internet applications such as telemedicine.

If the telephone operator follows the traditional bidding model for spectrum and then set up the network, the financial burden will be heavy and delay the speedy rollout of the 5G service. Besides, the telephone company ownership of the spectrum will hinder the third party value-added service introduction and be detrimental to the innovation potential offered by the massive connectivity and short-latency time feature of 5G.

When asked about the decision of the government undertaking the 5G infrastructure investment, Communications Minister Saifuddin’s answer was terse, “It will be faster.”

The Malaysian approach to digital connectivity as a utility and its initiative to directly invest in 5G will be closely watched in Asean. The post-pandemic trilemma faced by developing countries as coined by the International Monetary Fund in describing many African economies holds for Southeast Asia. Governments must balance conflicting requirements of increased spending, lowering taxes and reducing debt. Investing smartly for the future is critical more than ever.

Is the Philippines moving on this? Good and bad news. The government has a bill pending in Congress led by Rep. Daza to make telco tower approvals easier, long a “right of way” issue hindering internet access to even the National Capital Region (Metro Manila) because of community opposition. Slow response by providers is now accelerated by President Rodrigo Duterte warning the telcos to speed up access, which improved by 50 percent in the last two years and was made available in public spaces. But many schools and students still do not even have workable access. Shared telco towers are now being explored but need to start. Decisions at local and enterprise levels need knowledgeable and faster approvals, less corruption and politics. The government’s Anti-Red Tape Authority led by Atty. Jeremiah Belgica streamlining processes are helping inject new energy into the system. 5G line installations started, sped up by the partnerships of PLDT and Globe with technology innovators Huawei and FiberHome and new competition from new players Converge optic-fiber laying and Dito new telco. Departments of Education (DepEd) and of Information and Technology (DICT) needs to apply softwares, update curriculums and facilities and manage learning systems. The people immersed in social media need to spend time using access more for learning and enterprise. Government and private entities are installing digital payments and process improvements, including for vaccinations, but need to integrate designs for inter-organization and inter-system accesses, or at least start planning for them, even while national ID registration has started.

The Philippine moves are in the right direction, but the country needs to speed them up to catch up with neighbors. Strategy is sound but practical, competent and experienced ground implementors are needed. The government and the people need to give serious focus to this digital infrastructure as a foundational utility that will determine if the Philippines will remain behind its neighbors again in the next round of growth, or finally catch up and keep pace.

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Dr. Henry Chan is an internationally recognized development economist based in Singapore. He is also a senior visiting research fellow at the Cambodia Institute for Cooperation and Peace and adjunct research fellow at the Integrated Development Studies Institute (IDSI). His primary research interest includes global economic development, Asean-China relations and the Fourth Industrial Revolution.

Also published in Manila Times on May 16, 2021. We welcome logical feedback and possibly working together with compatible frameworks (idsicenter@gmail.com).