A Malaysian Internet service provider sidesteps its biggest competitor
“We had to,” says Mohd Ridzuan Mohd Nor. This man of few words is the wireless broadband manager at Jaring, Malaysia’s second-largest Internet service provider, and I’ve just asked him why his company is creating a 1-megabit-per-second wireless service. We’re on the roof of a 33-story office building in downtown Kuala Lumpur to look at the antennas and radios that make up one of the network’s 10 base stations in this city.
“We had to,” he repeats and starts walking ahead of me, down an open-air corridor cluttered with steam pipes and air ducts. A 3-meter-high wall blocks our view of the famous Petronas Twin Towers, for a few years the tallest office buildings in the world. Suddenly he stops and turns, his arms at his sides, palms up, a gesture of resigned explanation. “Ninety-eight percent.” That’s the portion of the broadband market owned by Jaring’s competitor, Telekom Malaysia Berhad, the national carrier, also based in Kuala Lumpur. It’s a tiny market at the moment, made up of only about 350 000 households in this nation of 24 million. But Telekom Malaysia has 98 percent of it. Right now, three out of every 10 Internet users in the country is a Jaring customer, but just about all of them use dial-up modems. It’s only a matter of time until they demand faster connections. Jaring thus needs to do something before 98 percent of its customers jump ship. It needs a network of its own. And unlike its competitor, it’s going wireless.
Malaysia has long been a telecommunications leader in Southeast Asia. It was the first country in the region to hook into the Internet. Its enlightened spectrum management policies encourage innovation. A so-called multimedia supercorridor—a miniature Silicon Valley constructed during the global dot-com bubble of the 1990s—still flourishes. So it’s not surprising that a wireless broadband service like Jaring’s is found here and only a few other places around the world. This type of broadband is not available in Taipei, home of the skyscraper that supplanted Petronas as the world’s tallest, nor in Chicago, where the Sears Tower once held that record, nor in any other large city in the United States, which once led the world in Internet access but is now lagging.
Jaring’s transformation from mere service provider to network operator comes with considerable risk. For one thing, the company had to choose from among at least half a dozen ways to provide wireless broadband. Most of them are relatively immature, yet with Moore’s relentless law still at work, they could all soon be superseded by some “next big thing” in radio technology. Capital costs, although only about one-fourth those of building a wired network, are nonetheless considerable. Getting the right licensed radio spectrum, in terms of both geography and frequency bands, is a challenge. But the biggest area of uncertainty for Jaring may be pricing these fast wireless connections, when monthly rates for comparable wired services are still in flux.
Yet the potential rewards are great, while the risks of doing nothing are greater still—and not just for Jaring. All over the world, Internet service providers face similar pressures. For example, in the United States, where spectrum is more difficult to acquire than in Malaysia, the second-largest Internet provider, Earthlink Inc., will be building a wireless network for the city of Philadelphia using Wi-Fi. This technology, which takes advantage of unlicensed spectrum, was never designed for municipal broadband. Unlike some newer methods, Wi-Fi can’t clear trees, punch through tall buildings, or reach a base station kilometers away.
If it works out—if Jaring can weave together a winning broadband network using the airwaves—its success could encourage other Internet service providers in the United States, Taiwan, and everywhere in between. All over the world, Goliath phone and cable companies have snagged customers using their preexisting copper phone lines and coaxial cables—a competition in which, until now, David had no slingshot of his own.
To mitigate the risks, Jaring chose equipment—base stations and end-user devices—that can operate on a variety of spectral bands and should be able to weather the storms of technological change. The maker of this gear, Soma Networks Inc., of San Francisco, claims that if its clients want to switch over to third-generation (3G) cellular technology, the needed modifications can be made at modest cost. Large cellular carriers such as Verizon, SK Telecom, and T-Mobile are bringing 3G, and even so-called 3.5G, services on line. And if, a few years from now, Jaring wants to move to the up-and-coming protocol known as WiMax, a long-distance alternative to Wi-Fi that is still being refined by an IEEE standards committee, again, the network can be easily changed over.
Besides this flexibility, Soma also claims to offer better phone service than its competitors, shielding the needed bandwidth from other applications being run over the data network. For an engineer, telephony is just one of many uses for a high-speed digital network, but to a marketer, it’s the most important—the one that people are accustomed to paying for and the one that will cause them to stay with, or change to, a service provider like Jaring. By encoding voice as data packets and sending it over the Internet (voice over Internet Protocol, or VoIP) instead of sending it over a dedicated circuit, as Telekom Malaysia does, Jaring can charge customers as little as 10 Malaysian sen, less than 4 U.S. cents, per minute, for domestic and even some international calls. For a few years at least, telephony is the killer app of wireless broadband, and it’s a key reason Jaring chose Soma’s equipment.
Ridzuan is on the move again. This short, wiry native Malaysian, who studied telecommunications engineering at the University of Missouri, has a terse way of speaking that reflects an ingrained eagerness to get on to the next thing. We step around a corner. The retaining wall that kept us from looking outward is now only at shoulder height. Earlier, viewed from street level, the city seemed a jungle of buildings, overcrowded sidewalks, and traffic-laden roads. Construction cranes loomed everywhere, aggravating the tropical heat and noise. Now the city unveils itself, and we can see its jagged skyline up close.
Kuala Lumpur is nearly 150 years old, yet in many ways it’s a completely new city, with all the growing pains of urban adolescence. A kilometer to the north of us are the Petronas Twin Towers, which shimmer like liquid, as if black oil and molten steel were poured down from a cloudless sky. To our west is the KL Tower, a graceful needle whose shaft is decorated in the Muqarnas style, a traditional floral and abstract motif, which is as common in the Islamic world as the Corinthian column is in the West. An ever-increasing number of 30- and 40-story structures populate the spaces around these leviathans.
Yet of all the buildings in this metropolis of about 1.5 million people, the most important right now might be the obscure titan on Kia Peng street on whose roof we’re standing. Here, Jaring’s new wireless signal radiates silently from two antennas. The new service isn’t so very fast—in the world of DSL (digital subscriber line), 1 to 3 Mb/s is considered fairly slow. Like DSL, this signal has a maximum range of some 5000 meters. Unlike DSL, though, it doesn’t need any phone lines, and that’s important. Before December 2004, when it officially began selling wireless service, Jaring had to lease a circuit from Telekom Malaysia (which sells a DSL service of its own) in order to give a customer a high-speed connection. The awkwardness of that situation is reflected in Jaring’s meager 1-in-50 DSL market share.
For Internet providers, in Malaysia and elsewhere, a wireless network is a solution to a problem. For users starved for broadband, though, it can be a salvation. Not everyone can get DSL. Many customers live outside the radius of reliable connectivity. In addition, the central telephone office has to be equipped with an expensive DSLAM (digital subscriber line access multiplexer); many rural central offices are not. In Malaysia’s most remote regions, some communities have no phone service at all.
It was back in 2003 that Jaring’s CEO, Mohamed Bin Awang Lah, concluded that his company needed a last-mile network of its own. Despite his academic bent—he has a Ph.D. in electrical engineering from King’s College, London—Mohamed is a hard-headed businessman, and this was the sort of decision he has had to make repeatedly in his career. He was the first to implement Internet technology in Malaysia in 1983 (with dial-up connections to Korea, Australia, and the United States) while a professor and deputy dean of engineering at the University of Malaya, in Kuala Lumpur. Then in 1986, Dr. Internet, as I heard more than one person here refer to Mohamed, moved to the Malaysian Institute of Microelectronic Systems, a government R&D organization, and began an Internet-access program that would become, in 1992, Jaring. He built the country’s first fiber backbone using the Internet Protocol in 1999, its first virtual private network in 2001, and SchoolNet, a satellite-based broadband network for 2000 remote schools, in 2004.
Jaring—the name is a Malay word that means simply “networking”—was finally spun off as a corporation in April 2005, but it is still wholly owned by the government. (Telekom Malaysia, though publicly traded, is similarly controlled, because the government holds most of the stock. The two companies are, however, controlled by different ministries.) Although Jaring had a head start, today Telekom Malaysia serves 60 percent of all households getting Internet access, about twice as many as Jaring serves, a testament to the power of telecom incumbency.
Mohamed’s decision to go wireless was aided by a quirk of Malaysian telecommunications—a ready availability of spectrum. Two 16-megahertz-wide slots in the 2.5- and 2.6-gigahertz bands became available. Rather than sell them in a high-priced auction, the government grants free licenses, and charges modest fees for the spectrum only when it’s used. So Jaring pays about 6000 Malaysian ringgit per base station per year—less than US $20 000 annually for the 10 base stations it’s built so far.
Mohamed opted for Soma’s equipment after visiting a demonstration network that this company operates in Toronto. There were, and still are, a number of wireless broadband alternatives. Mohamed’s choice was grounded in the short term: how could he build a network that would start paying for itself almost immediately?
The answer, Mohamed soon discovered, hinged on some questions of system design and performance for which there were only rough guesses. The basic network is simple enough. A subscriber gets a small device, which is heavier, but not much bigger, than a cigar box. The industry calls such a unit a CPE, for customer premises equipment. Stick its power adapter into the wall, connect it to your PC with an Ethernet cable, and voilà—you’re attached to the Internet, just as if you had plugged your computer into a DSL modem [see sidebar, “Voice Box, Data Box”]. The technology for making this happen is all pretty straightforward.
Yet, if you’re trying to figure out how to make money with the service, uncertainty abounds. How many customers can a single base station support? How many simultaneously? At what data rates? Over what distances? How many people live in the coverage area? Which ones can be expected to sign up? At what monthly rate? How expensive is the base station? The CPE? Will a customer buy or lease it?
They’re all questions that Mohamed and his colleagues had to face back in 2003, and I heard them asked anew when I visited Jaring this past October. Representatives of a large cellular company in India happened to be viewing the network at the same time. Although much of India still doesn’t have access to broadband, for the fraction that does, it’s becoming a commodity, I was told. There, the most basic level of DSL is available for just $6 to $8 per month. And Soma’s wireless alternative is appealing in India for the same reasons that it is in Malaysia: bad copper and long distances.
Soma’s assessments of how its equipment performs are based less on guesswork today than they were in 2003, largely because of Jaring’s still-formative experience. Because signals are weakened by distance and by obstacles like tall buildings, Jaring is selling its service in Kuala Lumpur only within a 3-kilometer radius of a base station, 2 km less than the nominal limit. There’s one area where more experience is greatly needed. Soma claims that a single base station radio can handle 500 users at once, and a base station can be equipped with as many as six radios, pointed in different directions, but, as of October, the Jaring network had yet to see more than 200 simultaneous connections per radio.
In the gritty world of building an actual network, problems come up that are rarely considered in the abstract universe of white papers and PowerPoint presentations. How are communications affected by trees and tall buildings? By mountains and lakes? How bulky and heavy is the base-station equipment? Can it be placed outdoors? What about “backhaul”—that is, how will you connect the base stations to the Internet?
Soma’s base stations and CPEs communicate with each other using a customized version of a new cellular standard known as high-speed downlink packet access, or HSDPA, which in turn, is a variation of third-generation GSM (an abbreviation for Global System for Mobile, the world’s most popular cellular protocol). Soma’s version is supposed to travel through buildings, a feature the industry calls “non-line-of-sight,” but in practice, some customers outside the official coverage area have had problems getting high data rates, even after placing the CPE next to a window. So Soma has created a weatherproof CPE that can be clamped to a windowsill or balcony. At each base station, the network is backhauled by fiber links, some directly and others via high-speed microwave relay.
Both Soma and Jaring are circumspect when it comes to answering questions about money, but base stations can cost $100 000 or more. (Jaring has spent about $5 million for its current network of 10 base stations.) The CPEs may run as much as $250 apiece. Those prices are expected to go down. In June, Soma worked out a deal with Sanyo Electric Co., of Moriguchi City, Japan, to have it make the equipment at both ends of the connection. Sanyo’s new base station is half the size and weight of the old one. An outdoor version is in the works as well; today, the radio and the antenna components can brave Malaysia’s annual monsoons, but the rack-mounted server and multiplexing components cannot.
Reducing costs is critical. As of November, after 11 months of operation but limited marketing, the service had only about 3500 subscribers, each of whom was paying $34 per month for 1-Mb/s service or $28 for half that speed. Telekom Malaysia offers DSL for as little as $22 per month. Jaring justifies its higher price by citing the low rates it charges for the voice telephony that comes with its broadband service. But VoIP is becoming increasingly common. If telephony is a killer revenue-raising app for broadband, it will probably remain so only for a few more years.
To blanket the 450-square-kilometer Klang Valley in which Kuala Lumpur sits, Jaring plans to install 18 more base stations; the company hopes to have them built by the end of March. The cost for the entire network, including all 28 base stations and their backhaul, construction, billing, and so on, will be about $25 million. For Jaring, that’s a big investment. Once the company starts to recoup those expenses, it expects to wire—wirelessly, of course—five more cities in western Malaysia with a total of 40 to 50 more base stations. Up on the Jaring rooftop, I asked Ridzuan how quickly he could build them. “I can build out the network right away if given....” At this point his voice trailed off. He rubbed his thumb and forefinger against each other, in the international gesture for money.
A wireless alternative to DSL is here today. Whether it will come to your hometown soon is more a question for the accountants than for the engineers.
GOAL: Develop a wireless equivalent to DSL (1 to 3 megabits per second) that can also carry high-quality telephone calls.
WHY IT’S A WINNER: It allows Internet service providers that don’t have a network of their own to compete with incumbent carriers for broadband customers; it also serves households that cannot get DSL.
ORGANIZATIONS: Jaring, Soma Networks Inc.
CENTER OF ACTIVITY: Kuala Lumpur, Malaysia.
NUMBER OF PEOPLE ON THE PROJECT: Current Jaring staff.
BUDGET: US $25 million.