Instacom on Malaysia: From State-backed to cross-country towercos

Anne Kung Soo Ching is one of the pioneers of the Asian tower industry. A pioneer Director of Indonesian STP, she is also the CEO of one of the most respected managed service providers of Malaysia, Instacom Engineering Group Berhad, a company listed on the Kuala Lumpur Stock Exchange.

A passionate believer in the independent towerco model, Anne kindly shared with us her views on the potential for further expansion of the Malaysian tower industry as well as perspectives on the regulatory environment and operational challenges faced by key players.

TowerXchange: Please tell us about Instacom, its activities and footprint

Instacom Engineering started operating in East Malaysia and then expanded into the West as an end to end contractor for the telcos who were at that time building their own towers. Our services include site acquisition, permitting and tower construction. We work with OEMs to install equipment and also offer O&M services. More recently, in light of 4G LTE rollout, we started laying fibre for operators.

In 2005, Instacom partnered with Desabina, the State-Backed Company then operating in the state of Terengganu, to build towers. Desabina had the rights to build sites but lacked capital. Therefore, Instacom successfully raised a MYR200 million Islamic Murabahah Bond. It was the first Sukuk of this kind in the Malaysian bond market, which contributed to strengthening our position and credibility in the local market.

As a contractor, Instacom doesn’t have any geographical restriction and can build nationwide. State-Backed Companies receive an NFP (Network Facility Provider) license with specific geographical limitations. In addition to the many State-Backed Companies throughout the country there are also other companies with NFP licenses that allow them to own infrastructure nationwide.

Malaysians are very sensitive towards the possible consequences of cell site densification and we often face residents’ protests when new sites are being built. One way to overcome this challenge is to be very creative in the way we present our sites; we are now adopting a variety of aesthetic solutions to prevent towers from disrupting the landscape. For example, we sometimes use existing minarets or  build new ones to accommodate equipment.

Instacom is now offering in-building solutions (IBS) for operators. Operators have embraced the towerco model. They now prefer to pay a monthly fee rather than having to come up with the capital to build their own infrastructure.

We serve mobile network operators, OEMs and state-backed companies. State-backed companies such as Sacofa, Common Tower Technologies and KJS were introduced in Malaysia about ten years ago and serve the country as build-to-suit contractors. Each of them has been given monopoly rights in a specific state and works as the sole provider of towers to be offered for co-location to operators.

TowerXchange: What kind of technical challenges do you face in Malaysia when installing new sites? 

In Malaysia, we face more logistics challenges rather than technical ones. Road infrastructure is very poor and sometimes, we need to manually carry equipment to sites. We don’t have a sky-lift higher than 40 meters anywhere in the country and towers above that height need to be lifted manually. Sometimes we build in areas where every single piece of equipment has to be delivered via boat, by foot or even helicopter.

Power is another issue in Malaysia. Diesel gensets are the typical solution to overcome power shortages but they are extremely expensive and we then have to deal with the problem of transporting diesel to the sites. Although renewable options are now being taken into consideration, we still cannot rely entirely on them.

These issues are worst in East Malaysia than West. In fact, I’d say that 90% of existing infrastructure - telecommunication, roads et cetera - are in the west side of the nation whereas the east still presents plenty of logistics challenges and many isolated areas in terms of mobile connectivity.

One way to fund rural coverage has been the creation of the Universal Service Provision Fund (USP Fund). The Fund was created about ten years ago by then Minister in charge of telecommunication who realised that the economics of investing capital to cover remote areas didn’t always add up for mobile operators. Therefore, the government made it compulsory for each company receiving an NFP license to contribute 6% of its annual turnover to the USP Fund with the purpose to fund infrastructure projects in areas where they aren’t commercially viable.

To date, the USP Fund stands at a healthy MYR5 billion (approx. US$ 1.5 billion) and the Prime Minister has recently announced that 1,500 new towers will be built over the next 3 years with MYR1.5 billion from the Fund.

We believe the Fund is a great way to push for rural coverage as operators don’t have to pay for these capex-intensive projects but have funded them throughout the years. Mobile network operators in Malaysia are financially healthy companies and are contributing to the development of their own industry via the Fund. This will give rural communities an opportunity to access education, e-commerce and generally evolve with industry money and we are very excited about it!

TowerXchange: And on the regulatory front: How is the legal framework for telecom tower erection, new permitting et cetera?

With the creation of state-backed companies, the government solved the issue of site permitting and the overall procedure to establish greenfield sites. In fact, state-backed companies are mandated by the State and have the right to issue permits. We refer to them as the One-Stop Agency (OSA)  and they handle the relationship with key authorities such as local councils and the fire and aviation authorities.

The national regulator, the Malaysian Communications and Multimedia Commission (MCMC), is in charge of regulating the overall development of the telco infrastructure and their approval is also required whenever a tower site is proposed but in reality, the process is fairly straight-forward. We face more challenges in urban areas because of their density but overall, there are very defined guidelines for the telecom industry.

I believe that MCMC has done a splendid regulatory work which could be taken as an example by emerging countries. The key feature is that MCMC isn’t an impediment to the development of the telecom sector; quite the contrary, it has been a great supporter.

TowerXchange: What is the status of 4G LTE deployment in Malaysia?

With the development of 4G LTE, we are now facing different and more challenging requirements in terms of cell site densification. In-building and small cell solutions are becoming very popular in metropolitan areas and in very congested cities such as Kuala Lumpur.

LTE is in progress but to be honest, the rollout is not advancing as fast as we would like. The reality is that laying fibre is a more complicated challenge that putting up a stand-alone site, like a tower, as we need to deal with underground utilities, local councils and construction permits at a federal and local level.

Fiberization for LTE is not progressing to keep up with the demand and access isn’t really good even in cities like Kuala Lumpur where we’d expect seamless connectivity. One of the viable solutions would be for the government to push for consolidation and force operators to share fibre.

In comparison, ten years ago operators were forced by law to share towers by renting from state-backed tower companies. When it first happened, the government faced huge resistance but to date, this system is a given and operators aren’t even thinking about building their own towers anymore. Thanks to that, operators have been able to expand their network much faster as they weren’t constrained by capex.

Now we are facing similar issues with fibre. Each operator is laying its own fibre which makes it extremely expensive (MYR billions) and technically challenging. The challenge is not so much about fibre itself, whose prices have dropped considerably, but about the construction workload. Fibre can be shared, which would mean easing the process enormously as only one project would need to be developed, including all the permits and technical analyses required.

We are proposing to the government to take a look at what has successfully been done with state-backed companies, and to adopt a similar approach to fibre. I think the change needs to be regulator-driven as it happened ten years ago. MCMC has proven to be able to drive these changes and, although we know operators won’t like it at first, we believe sharing fibre would be the only solution to speed up the process and improve LTE services.

Operators do like to have first mover advantage in the market - I understand that. But it just doesn’t make sense to lay fibre for each of them separately.

TowerXchange: Do you think the region is ready for a pan-Asian towerco? And would there be space for more than one, now that edotco has been created?

I believe that Viom Networks has been trying to put together a pan-Asian towerco for some time now. They have contacted us to see if we could be their local partner in Malaysia and we have been in talks but haven’t gone too far yet.

edotco has the potential to be a game changer as the first cross-country towerco in the region. It might face some challenges as its link to the Axiata Group doesn’t create the perception of it being truly independent, especially in the eyes of its competitors such as Maxis and DiGi.

TowerXchange: How do you compare the evolution of the Malaysian towerco industry with the rest of the region (eg. Indonesia, India)?

Malaysia is a mature tower industry and I think the best opportunities are behind us. We are now entering a new phase which could still be quite interesting though. State-backed companies own small to medium portfolios of assets and we wonder if the best move wouldn’t be to actually consolidate them all into one larger state-backed company. We believe that a lot of value could be created as towers are still income-generating assets but not every state-backed company is aware of it, also because of their “political nature”, sometimes detached from the reality of the telecom industry. You see, some state-backed companies change hands as the political situation varies. Tower companies need a more stable operational environment to succeed and shouldn’t be affected or determined by politics. As Malaysia is going through changing times, we wonder if there’s room for some shifts in the industry too.

edotco could maybe be the catalyst of this change. Imagine if all towers were combined under one roof! We estimate that Celcom and Maxis are comparable in size with 7,000-9,000 towers each, prior to the carve out of edotco’s towers from Celcom. DiGi is the third player with about 4,000-5,000 towers and all the other operators combined should have a portfolio of approximately 5,000-6,000.

I believe that the Malaysian telecom industry could still evolve. Not so much in terms of new sites but with consolidation and deals between operators and towercos.