Myanmar’s mobile sector is regarded as one of the world’s last remaining frontiers for companies; mobile penetration in Myanmar estimated at around 11% is the fourth-lowest rate in the world

February 11th 2014

Telecoms take-off

The development of Myanmar’s nascent mobile telecommunications sector is poised to take off. Operating licences have been granted to two international telecoms operators, Norway’s Telenor and Qatar’s Ooredoo, which have committed to invest billions of dollars to provide almost total mobile coverage within five years. But with mobile penetration in Myanmar estimated at around 11%—the fourth-lowest rate in the world—and a lack of requisite infrastructure in large areas of the country, Telenor and Ooredoo have a daunting task ahead of them.

Myanmar’s mobile sector is regarded as one of the world’s last remaining frontiers for companies like Telenor and Ooredoo. More than 90 companies and consortia bid for licences, highlighting the interest that the sale created last year. More licences are expected to be made available soon, including one for a joint-venture partnership with Myanmar Posts and Telecommunications (MPT), one of the country’s twocommunications firms. Consortia headed by KDDI (Japan), SingTel (Singapore) and Orange (France) are reportedly interested in the sale.

The final frontier

The country of about 60m inhabitants has remained largely untouched by the telecoms revolutions that have taken place elsewhere. This reflects historic restrictions onfreedom of expression, the generally poor and underdeveloped infrastructure, and government policy. When mobile technology was introduced about 15 years ago, the government made the purchase of SIM cards prohibitively high. The military junta, fearful of possible dissent and anti-government campaigning if mobile technology took hold, was keen to give the freedom of mobile technology only to the elite.

This provides some indication of the momentous change anticipated with the arrival of multinationals into Myanmar’s telecoms sector. For its part, Telenor has revealed that it plans to launch voice and data services within eight months. It is aiming to provide coverage for approximately 90% of the population within five years on 2G and 3G networks. Meanwhile, Ooredoo estimates that it will begin rolling out a network to the country’s four main cities within six months, and is aiming to cover 97% of the population in five years. Alongside this, the country’s two state-backed telecoms firms, MPT and Yatanarpon (an Internet provider), are looking for investors in order to raise over US$1bn, as they improve services in an bid to compete with foreign players.

Looking ahead

For most, these are welcome developments. Some observers have highlighted the possibility of abuse of personal freedoms, but others view the possibility of greater freedom of expression as a key step in the country’s road to democracy. The government regards the licensing process as a success story, highlighting its ability to manage the reform process carefully. The international community watched the process with interest, and found it to be largely fair and transparent. It has, however, taken Telenor and Ooredoo several months to obtain their formal licences, delaying their anticipated start to operations.

Further challenges remain. Telenor’s share price dropped on the announcement of the licensing award. It is unclear what prompted this, but it is possible that the size of the investment, political concerns and the physical difficulty of developing a network in Myanmar unsettled investors. Telenor has said that it expects to invest around US$1bn before it begins to see a positive return, and anticipates breaking even after three years. Ooredoo expects to invest US$15bn in Myanmar over the 15-year licensing period. The companies will be building a network largely from scratch in a country where the topography is difficult, and wider infrastructure (such as roads and rail) is lacking in parts.

Bumps in the road

That said, challenges are to be expected in a frontier market like Myanmar, and Telenor, at least, is used to these. The Norwegian firm has aggressively expanded in Asia, with operations in Pakistan, Bangladesh, Thailand and India. Each country has posed its own challenges, ranging from political instability to navigating endemic corruption, but with such risk come massive markets that offer potentially high profits. Telenor is currently outperforming many of its Western counterparts, and puts part of this success down to its Asian markets, which account for around one-half of its profits.

Myanmar is likely to be the riskiest market either operator has entered. It is a challenge on many fronts: the physical logistics of building and operating a network, basics such as sourcing and recruiting sufficiently educated local staff, a lack of transparency, and the risk that the delicate political balance will unravel. The reform drive continues, but investors are sensitive to the fact that the process remains in its early stages, and that the government’s intentions on key questions such as the direction of democracy are largely opaque.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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