Dual network and 5G row

MALAYSIA’S telecommunications sector is entering a more complex phase in its 5G evolution.

The government’s decision to transition to a dual 5G network structure has left Digital Nasional Bhd (DNB) and Telekom Malaysia Bhd (TM) at odds.

The big question is whether TM still retains the right to terminate its wholesale access agreement with DNB, the state-owned entity responsible for building and operating Malaysia’s first nationwide 5G network.

Both sides differ over the interpretation of contractual provisions governing access to the national 5G network.

Given that the issue could potentially develop into a dispute between the parties, DNB says it is unable to provide further details beyond confirming that it will pursue the appropriate avenues to protect and enforce its contractual rights.

DNB adds that its commercial arrangements with telecommunications companies (telcos) – referred to as access seekers – were structured with clear provisions governing early termination, particularly in light of Malaysia’s shift from a single wholesale network model to a dual-network framework.

“These arrangements clearly provide for early termination, subject to defined timelines and conditions,” it says.

To date, DNB notes that only one access seeker – U Mobile – has exercised its right to terminate its agreement in accordance with the contract’s specific conditions.

TM, however, has refrained from commenting on the specifics of the contractual provisions, citing confidentiality obligations.

“As the matter is being addressed through contractual and regulatory processes, and both the access agreement and TM’s arrangement with U Mobile are subject to strict confidentiality clause, it would not be appropriate to comment further on specific provisions or commercially sensitive terms,” the company says in response to queries.

TM adds that the agreement itself provides mechanisms to address disagreements over interpretation.

“The access agreement provides mechanisms to address any differences in interpretation, and TM will pursue the appropriate processes under the agreement.”

DNB’s disagreement with TM comes as the Malaysian telecommunications industry recalibrates following the government’s decision to introduce a second wholesale 5G network after initially adopting the single wholesale network approach.

Under the earlier framework, DNB was tasked with rolling out the country’s 5G infrastructure while telecommunications operators purchased wholesale access to the network rather than building their own.

While the model accelerated deployment, it also drew criticism from industry players who argued that it constrained competition and operational flexibility.

The subsequent decision to allow a second network provider has prompted operators to reassess their long-term infrastructure strategies and, in some cases, revisit existing commercial agreements.

RHB Research notes that TM has maintained that it has complied with the legal provisions governing the termination of the wholesale access agreement with DNB.

The contract allows access seekers to terminate within 30 days after the release of a reference access offer (RAO) by another 5G access provider.

The RAO for the second network was published by U Mobile on Jan 25, potentially triggering the termination window.

However, the situation may not be so straightforward.

According to RHB Research, under a worst-case scenario TM may need to continue accessing DNB’s 5G network for another year before transitioning fully, with January 2028 acting as the long-stop deadline for operators to terminate their agreements – six years after the contract was originally signed.

If that scenario materialises, TM could be forced to forgo around RM127mil in unutilised prepaid capacity purchased from DNB.

At the same time, analysts believe that moving to the alternative network could eventually lower wholesale costs for the company. Participation in a multi-operator core network arrangement with U Mobile’s 5G infrastructure is expected to deliver cost efficiencies, particularly after TM experienced a spike in expenses when it transitioned to a fixed 5G access payment structure in financial year 2025.

The issue also highlights operational challenges that arise when a national infrastructure framework undergoes structural changes midway through its rollout.

While the single wholesale network model allowed Malaysia to accelerate 5G deployment, the introduction of a second network inevitably introduces new commercial dynamics, with operators gaining greater flexibility.

Against this backdrop, analysts say investor focus has increasingly shifted toward the future role of DNB and how the dual-network model will ultimately reshape the sector.

Key concern

Hong Leong Investment Bank (HLIB) says the direction of DNB remains a key issue for investors heading into 2026.

“While we believe execution risk is increasingly in the price for both Maxis Bhd and CelcomDigi Bhd, a sustained re-rating will likely require greater clarity regarding DNB’s long-term direction,” the research house says in a recent sector update.

With the share transfer of DNB to telecommunications operators completed in March, CelcomDigi and Maxis are expected to begin equity-accounting their respective 33% stakes in the company.

This means any potential losses from DNB could begin to appear in their financial statements, potentially creating short-term investor anxiety.

Nevertheless, HLIB believes stakeholders are likely to introduce measures such as cost optimisation, deeper network sharing and spectrum refarming to support a more sustainable long-term operating model for DNB.

For the telecommunications sector overall, HLIB maintains a positive outlook, noting that mobile operators navigated 2025 better than initially feared despite concerns over higher 5G wholesale costs.

The research house expects the mobile segment to deliver low single-digit revenue growth in 2026, supported by a stable competitive environment and continued migration of users from prepaid to postpaid plans.

In contrast, fixed-line operators remain the preferred investment theme, given their central role in broadband and 5G infrastructure as well as strong balance sheets.

HLIB has maintained an “overweight” stance on the telecommunications sector and continues to favour fixed-line players such as TM, which it regards as its top pick with a target price of RM8.60.

The firm said these operators are well positioned to benefit from growing demand for broadband connectivity and emerging opportunities linked to data centre developments in Malaysia.

Beyond the dispute with TM, DNB also addressed reports suggesting it had taken legal action against numerous infrastructure vendors over issues such as delayed or incomplete delivery of services and facilities.

“As part of ongoing activities of managing contract administration and operations, DNB issues notices to vendors where necessary, in line with the terms and conditions of such agreements,” it says

DNB also rejected suggestions that it is adopting an increasingly litigious stance to safeguard its financial interests.

“That is incorrect,” the company says.

As Malaysia’s telecommunications sector continues to transition toward a dual-network 5G environment, the outcome of the disagreement between DNB and TM may offer an early indication of how the industry’s next phase will unfold.

For now, the issue highlights a broader reality: as policy shifts reshape the infrastructure landscape, contractual arrangements are likely to face closer scrutiny.