Huawei is battling back in the competition to build 5G networks in south-east Asia, one of the last regions where the Chinese telecoms equipment maker still retains influence after being blacklisted by Washington.
The company is among those lobbying for a role in Malaysia, according to three people briefed on the situation, after the country’s new government announced a review of its predecessor’s 5G plans, including a decision to award Ericsson the tender to build a state-owned network.
“It is a mixture of soft power and outright lobbying to try to get the adoption of their systems somewhere in the rollout,” said one person briefed on the discussions.
The south-east Asian country’s 5G plans have become a test of its relations with China and the west, as well as a challenge to Kuala Lumpur’s reputation for respecting the sanctity of commercial contracts.
Dogged by political infighting, Malaysia has been one of the slowest in the region to roll out 5G. The Ericsson contract has enabled it to launch a sole government-owned network that most mobile operators have agreed to use and which experts say means lower costs and a speedier rollout. In other countries, governments typically auction off spectrum for operators to build their own networks.
Sweden’s Ericsson beat Huawei and Finland’s Nokia to secure the RM11bn ($2.5bn) 10-year deal. However, since winning election in November, Prime Minister Anwar Ibrahim has ordered a review of the public tender process, citing transparency concerns.
One possible outcome is that the government allows another company to build a rival network to Ericsson’s. Another possible outcome is that it privatises 5G network operator Digital Nasional Berhad (DNB), which is owned by the finance ministry. It may also select a second vendor besides Ericsson to assist the current rollout, the people said.
Despite the uncertainty caused by the review, Ericsson has continued deploying 5G and Malaysia claims it has reached 50 per cent of populated areas at the end of 2022. Anwar last week brought forward by a year a target of 80 per cent coverage — to the end of 2023, making it one of the fastest 5G rollouts globally.
In an indication of the stakes involved, government envoys from the EU, UK and US warned Malaysia against reopening the tender process in February last year, when a revision was first rumoured.
“If Malaysia reopens this following a review, why would any investor or company in the future have trust and faith in the sanctity of commercial contracts in the Malaysian domain? It is important to all that processes be fair, open and transparent,” said Amit Mital, who sits on the board of several wireless technology companies and is a former US National Security Council official for cyber security policy.
“You have to ask why after so long has this review been started? What might be at play? There are only a few possibilities,” he added. The government said it expected “some kind of finality” to the review by the end of March.
Washington has imposed punishing restrictions on exporting American technology to Huawei as US security officials believe the company helps China engage in espionage. Huawei denies any involvement in spying. The Shenzhen-based company has been shut out of markets including the UK, parts of Europe, Australia and Japan.
Another former US security official said Washington was also engaged in talks with Kuala Lumpur about the review. “Some of the discussions are focused on looking at the security implications of going down this road,” the person said.
DNB, which awarded the contract, has previously said Ericsson’s bid was RM700mn lower than the next closest bid.
Malaysia’s finance ministry said the president’s review of the DNB would “ensure that it is managed more transparently and competitively”. “Discussions with stakeholders are ongoing,” it added. Huawei and Ericsson declined to comment.
Maxis, one of Malaysia’s biggest mobile carriers, is one of the holdouts yet to sign up with DNB for 5G access. Huawei is Maxis’s long-term network partner and the companies are collaborating on 5G in the country.
Proponents of the review say there is no downside to appointing another vendor. “Right now there is a single point of failure,” said an executive at one of the country’s biggest carriers, implying a second network would provide back-up. A number of Malaysian telecoms, many of whom would prefer to own the spectrum outright, have also been lobbying the government during the review.
Others argue that Malaysia’s model could become a blueprint for other nations around the world grappling with how to best implement the technology cheaply and efficiently.
Chris Watson, a London-based partner at CMS who advises telecoms, governments and regulators, said there were downsides to a second 5G network. “A second provider inevitably duplicates costs and eliminates scale efficiencies, both of which will have to be borne by and recovered from users and ultimately consumers through higher prices.”
Additional reporting by Richard Milne in Oslo