[Analytics] East vs West battle for SE Asia’s 5G rollout

Chinese telecom giant Huawei predicted in late December that the number of 5G connections worldwide would jump from around 20 million in 2019 to over 200 million by the end of 2020. Nowhere will the corporate and geopolitical contest to lead that rollout be more hotly contested than in Southeast Asia. Simon Roughneen specially for the Asia Times.

Since a successful launch of commercial 5G services last April in South Korea, where around 3.5 million people have signed up for more expensive high-speed 5G and are using three times the data of 4G subscribers, mobile network providers across Asia could be set to cash in if the technology is made widespread soon.

If those millions can soon become tens or even hundreds of millions, 5G, which promises download speeds between 20 to 100 times faster than the current leading 4G system, could revolutionize fields from public transport to healthcare to manufacturing, a potential that Dutch bank ING suggests could be “an economic light-bulb moment.”

In a September report previewing Southeast Asia’s potential 5G uptake, consultancy AT Kearney suggested that “5G promises to fuel the next wave of growth” in Southeast Asia. It predicted that by 2025 “operators could have an annual unconstrained additional revenue potential of US$4.5 billion to $6 billion, or 9-12% of current telecom revenues.”

Geopolitics, however, threatens to crimp 5G’s growth potential. In April, US President Donald Trump described 5G as a race the US “must win” and has continued to press allies in Southeast Asia not to partner with Huawei in building their 5G networks.

Trump and his administration’s officials have alleged that Huawei is a security risk due to its opaque ties to the Chinese state, meaning that Beijing will have a backdoor to countries’ telecommunications systems and data if they use its equipment.

US-China tensions have flared over the revolutionary transition to 5G, with the Economist Intelligence Unit warning in its Industries in 2020 overview that “the US-China trade war will continue to pose a major risk, given the dominance of Chinese companies such as Huawei in the build-out of telecoms infrastructure.”

“The trade war will make any firm think twice about committing huge sums to make 5G a reality,” said ING in a report which suggested that if 5G takes off, it could result in a world divided along 5G lines, “with a Chinese standard adopted across Asia, and a US/European standard for the West.”

With Huawei already a long-standing presence in the region’s telecoms markets and the currently low-cost provider of 5G technology, it’s not clear many Southeast Asian nations, including US allies in the Philippines and Thailand, will heed the US warnings, particularly if they run the risk of falling behind regional rivals.

Wealthy Singapore looks set to be the first Southeast Asian country to see fast and wide 5G uptake, with hopes that half the tiny city-state’s area could have reliable coverage by 2022.

“The high population density means the city will be covered with 5G relatively quickly, so we expect 5G adoption to skyrocket in 2020,” said Opensignal, a mobile network analytics company operating in 88 countries.

Certain less-developed countries are trying to gain an economic edge through fast adoption. Cambodia, one of the region’s least developed countries, was the first Southeast Asian nation to start building a 5G network backed by Huawei in a deal secured last April.

Local Cambodian network providers came up with download speeds of over a gigabyte per second three months later during testing, though there is still no timeframe for for the kingdom’s commercial roll-out.

Speaking in Tokyo in May, Malaysia’s Prime Minister Mahathir Mohamad shrugged off concerns that utilizing Huawei would compromise his country, quipping that “yes, there may be some spying, but what is there to spy on in Malaysia? We are an open book.”

Malaysia’s telecommunications regulator has said it wants to see 5G roll out in the country by late 2020, with analysts at Maybank Kim Eng suggesting that network operators will share infrastructure to cut costs.

That said, certain countries in the region are willing to consider other options, even if more costly. Vietnam, which is embroiled in a maritime dispute with China in the disputed South China Sea, is reportedly developing its own homegrown 5G machinery.

On December 13, Norwegian telecommunications network provider Telenor picked Ericsson from neighboring Sweden as its main 5G equipment provider, after a decade of collaboration with Huawei over 4G.

Telenor’s move could in turn see increased competition in Southeast Asia for Huawei, given Telenor’s significant market shares in Malaysia, Myanmar and Thailand, countries where Huawei also has a significant presence. Thailand, in particular, is engaging both Huawei and Ericcson for its 5G rollout.

Finland’s Nokia, once the world’s biggest mobile phone maker, is also aiming to sell its 5G equipment for use in Malaysian ports, pivotal locations given that the country’s coastlines on the Strait of Malacca and the South China Sea, two major maritime trade conduits.

If Huawei competitors like Nokia and Ericsson can catch up with Huawei’s much-vaunted first-mover 5G advantage – a possibility if the technology is slow to spread across a region where hundreds of millions of users in rural areas still do well to pick up a 3G signal – then Huawei might not achieve the dominance that American jeremiads suggest.

The obstacles to 5G’s mainstreaming, in Southeast Asia are not solely related to US-China rivalry, however.

“Current 5G networks have limited reach, meaning the vast majority of users are still relying heavily on 4G,” noted Opensignal in a report. Other tests have appeared to show 5G stations or masts having limited reach, with signals and download speeds dropping when the device is moved just a short distance from source.

Various industry reports also suggest that there will be difficulties in auctioning spectrum – radio frequencies allocated by governments to the mobile industry and other sectors for communication over the airwaves – to enable quick roll-out.

The Economist Intelligence Unit predicts that such teething problems “will result in slow uptake of 5G among consumers, with only early adopters willing to pay a premium for top performance.”

Providers also face daunting financial outlays in building enough masts or stations to ensure widespread coverage, with S&P Global Ratings credit analyst JunHong Park noting that “costs related to rollout and competition will hurt margins” even as 5G subscribers generate more revenue on an individual basis.

In Southeast Asia, where gross domestic product (GDP) per capita varies wildly, from wealthy Singapore to middle-income Malaysia and Thailand to poorer stretches of Cambodia, Myanmar and Indonesia, rollout costs could prove a significant deterrent.

AT Kearney warns that “consumers may not be willing to pay a premium for 5G, thus affecting operators’ business cases.”

On the consumer side, 5G-enabled phones look unlikely to drop in price anytime soon, even to the US$500 mark, a potential hurdle in Southeast Asia given that smartphone and mobile internet use has ramped up over the past decade in large part due to the availability of cheap devices.

This could mean, according to AT Kearney, that 5G in Southeast Asia might be slow to take off, outlining a scenario where “consumers and enterprises do not see the added value from a widespread deployment.”

As a result, AT Kearney reported, operators could continue to “focus on recouping investments in the 4G cycle and only slowly and selectively deploy 5G in hotspot areas”, while enterprises could end continuing to invest in alternate technologies as “they see no benefit in paying a premium for 5G.”