The shock from the 3G licenses issue is still reverberating. Oon Yeoh looks beyond to see what the winners (and loser) might do next.

Oon Yeoh

When the first round of bidding for 3G licences were held a couple of years back, DiGi didn’t even bother to submit an application. Instead, it went ahead and pushed for EDGE, which can be described as 2.75G, or a souped-up version of GPRS.

EDGE is quite fast, three times faster than GPRS, but not quite 3G speed. It was a risky approach because 3G could easily make it obsolete.

While the two original licencees, Maxis and Celcom, took their time to roll out 3G, DiGi quickly rolled out EDGE, which became quite popular among businessmen and executives who needed Internet connectivity on the go. Instead of waiting for 3G, they just signed up for EDGE which had broad coverage and was affordable.

When it was announced that the government would give out two more 3G licences, DiGi decided it had to hop on the bandwagon and began making serious plans to roll out 3G.

What a shock it must have been for the folks at the HQ when they found out that they had lost out to two non-telcos.

DiGi CEO Morten Lundal put it best when he said, “We’re extremely surprised by the news… that the Malaysian government believes two non-mobile operators can use the 3G spectrum more effectively than DiGi. That is hard for us to understand.”

It is hard to understand indeed but it’s what’s happened. Those in the investment and telco industry can speculate until the cows come home the reasons behind DiGi’s failure to get a 3G licence but the reality is that DiGi will have to move forward without a 3G licence.

Rather than dwell on what could be the actual reason behind this unexpected outcome, let’s look at what MiTV, Time (the two winners) and DiGi can do going forward.

Firstly, MiTV. It’s a natural rival to Astro, not Maxis or Celcom. So what’s it going to do with its 3G licence? Become a full-fledged telco? Unlikely. There are two likely possibilities.

Firstly, it will probably lease spectrum to Mobile Virtual Network Operators (MVNO). An MVNO is a company that does not own a licensed frequency spectrum but resells services under its own brand name using the infrastructure set up by some other company.

An obvious prospective client would be DiGi. But according to press reports, it doesn’t look like DiGi is interested. Its CEO Lundal was quoted as saying, “We will very unlikely be a service provider on their (Time and MiTV’s 3G) network. They will have to find other customers to recoup their investments.”

There are other potential customers, namely the various Voice over Internet Protocol (VoIP) players who are scrambling to find new business models now that Skype, Yahoo, Microsoft and Google are offering VoIP for free.

But how much money can MiTV make from leasing spectrum to such small players? If MiTV doesn’t have DiGi as an MVNO customer, it can forget about making money from the MVNO business.

Surely, its business model does not rest on being an MVNO alone. Perhaps what it’ll do with 3G is use it as a platform for Digital Video Broadcasting - Handheld (DVB-H), a technical specification for offering broadcast services on handheld devices.

DVB-H adapts the technology for digital terrestrial television to the specific requirements of handheld, battery-powered devices. In other words, it can offer broadcast TV (this is not the same thing as streaming video) on your mobile phone.

It’s an interesting proposition, for sure, but there’s still the problem of content. MiTV, which has hardly taken the country by storm and poses no threat to Astro, will be hard pressed to find TV programs that people will want to watch on their mobile phones.

Next, let’s look at Time. Like MiTV, it will probably be a service provider for MVNOs. But unless it secures DiGi as a customer, it won’t make much money leasing spectrum to small VoIP players.

Perhaps it will use 3G to offer broadband. That means the focus is not on voice but data services. In other words, it would be competing less with Maxis and Celcom and more with Streamyx.

But if that were the case, it’s looking at the wrong technology. WiMax – though still in advanced development stage – would be far superior to 3G for offering mobile broadband. Maybe it can’t wait for mobile WiMax to be ready but the capital expenditure required for rolling out 3G is no joke. We’re talking about potentially a billion ringgit. It would make sense to wait for a better technology to arrive especially when it’s not that far off in time.

Perhaps there is a third option. Which is to be gobbled up by a bigger player which wants a 3G licence. There is already some speculation about that.

So, what can DiGi do? It could be an MVNO but there’s really no point of it doing so as it would not be able to offer disruptive pricing. And the coverage area for its 3G service would only be as wide as what MiTV or Time offers. In other words, without a 3G licence, DiGi cannot offer 3G on its own terms.

So, what’s the point of offering 3G at all? Maybe the answer is there’s no point.

Looking at the situation as it is, it would actually make more sense for DiGi to just stick with its EDGE service which offers fairly fast Internet access, though not quite 3G speed.

Since it will not have to spend RM800 million for rolling out 3G (plus the RM52 million for the licence) it can afford to offer EDGE at a markedly reduced price, and it should.

EDGE is currently being offered at RM99 per month for unlimited access. It would make all the sense in the world for that price to be reduced down to say, RM60 or less. To encourage high adoption rates, DiGi could offer subscribers heavily-subsidized phones and data cards.

Then, not only would it be cheaper than its 3G competitors by at least half, it would also be cheaper than Streamyx. Subscribing to EDGE would be a no-brainer for anyone who wants broadband. In other words, DiGi now has the unique opportunity to have the biggest market share of broadband subscribers in this country.

Perhaps it’s true what they say, that not getting what you want is sometimes a good thing. This might very well be the case for DiGi and its application for a 3G licence.