Myanmar’s transformation of the telecommunications landscape-
The Myanmar government awarded two mobile licences in June 2013, hence giving much credence to its announced plans of achieving a teledensity of 80 per cent by 2015–16. These licence allocations are part of the government’s larger plans to open up its economy to greater global participation after decades of military rule that had left the country lagging behind its peers in the region, in terms of economic development.
Another key step towards the opening up of the telecom market was the formulation of the Telecommunications Law in 2012, which is expected to be approved by Parliament soon. The law that sets out a new regulatory framework for the industry would replace the State-owned Economic Enterprises Law that allows only government companies to set up telecom infrastructure in the country. The implementation of the new telecommunications law will pave the way for private companies to enter Myanmar’s telecom market. While these initiatives are positive and have been welcomed by investors, the country will still need to do far more to transform the country’s archaic telecom industry.
Current status
At present, the Ministry of Communications and Information Technology oversees policy developments in the sector, while the Posts and Telecommunications Department is the regulatory authority. The telecom market is highly concentrated: Myanmar Post and Telecommunications (MPT), a state-owned company, is the only mobile operator in the country. It offers GSM and CDMA services in the 900 MHz the 450 MHz, and the 800 MHz bands, respectively. The operator also provides 3G services in the 2100 MHz band, which were launched in 2008. Meanwhile, Yatarnpon Teleport (YPT), a joint venture comprising local companies, the government, and MPT, offers internet services across the country.
As of December 2012, the mobile subscriber base in the country stands at 5.44 million, which implies a wireless teledensity rate of 9 per cent. This figure is substantially lower than that of Myanmar’s counterparts in the Southeast Asian region: Thailand (125 per cent), Malaysia (over 130 per cent), and Laos (about 90 per cent).
Of the 5.44 million mobile subscribers, 3.62 million are supported through the GSM network, 1.1 million via the W-CDMA network, and 0.74 million through the CDMA network. The abysmally low mobile penetration can be attributed to a multitude of factors including the prohibitive SIM card acquisition cost, the cumbersome activation process, and delays in SIM activation. A SIM card costed about $500 till early 2012, when the government reduced it to $250; however, this price is still high as compared to that in other countries. Next, the costs of acquiring and activating an average smartphone amount to about $300–400, which deters customers from opting for mobile services.
The fixed line segment fares even worse. Total subscribers are about 604,500, constituting only 1 per cent of the total population. About 39 per cent of these customers reside in Yangon, 12 per cent in Mandalay, and the remainder are spread across other regions. The country’s internet subscriber base stands at 678,000, the majority of which are mobile users. Most fixed line internet connections are serviced through ADSL technology, while the remainder utilise dial-up and Wi-Max technologies. The small fixed line internet subscriber base is the result of high tariffs, lower bandwidth availability, and limited telecom infrastructure, particularly in the rural areas. The speed provided by ADSL can be as low as 3 kbps due to network sharing between several users and the low bandwidth of the backhaul network.
YPT, in partnership with Red Link Communications, also provides 4G services through its Wi-Max networks in Yangon and Bagan. Like other services, 4G has yet to gain traction in the country due to high tariffs. Even the basic plan that offers 3 Gb of data usage at 512 kbps is priced at $30 per month, which is unaffordable for most users with incomes of about $90 per month.
The country has a fibre network of about 14,000 km: MPT owns only 2,800 km, with the remainder operated by the military. At present, there are over 10,000 active fibre-to-the-home (FTTH) users, most of which have subscribed to private service providers – Elight Tech and Fortune. FTTH users are required to pay installation and access charges of about $900 and $50 per month, respectively, for a 512 kbps internet plan. In addition, users have to pay an annual fee of about $70.
Myanmar is connected to the global communication networks through the Southeast Asia-Middle East-Western Europe-3 submarine cable. However, recurrent cable cuts in the recent past have severely impacted internet services in the country. Myanmar also has terrestrial fibre cable links with India, China, Thailand, and Laos.
Heightened interest from foreign companies
After years of subdued growth and government restrictions, the telecom sector finally seems to be making some headway, with several positive developments in the past year. Following the government’s announcement to ease the entry of foreign companies and allocate licences to private firms in early 2012, as well as the removal of sanctions by the US government and the European Union, a host of international companies have ventured into the Myanmar market to gain a competitive edge.
For instance, smartphone major Samsung Electronics entered the market in November 2012 in an endeavour to sell products directly to customers. Since then, its extensive marketing of all its smartphones has led to a rise in sales. Taiwan-based HTC went a step further in introducing a slew of handsets with local language functionality.
Equipment vendor Nokia Solutions and Networks received approval to set up a subsidiary in Myanmar, which will enable the company to sell its telecom equipment. In addition, the Myanmar government signed an agreement with Japanese firms Sumitomo Corporation, NEC, and NTT Communications to strengthen and upgrade the existing networks, as well as roll out optical fibre networks, in Yangon, Mandalay, and Naypyidaw.
Entry of Telenor and Ooredoo: Transforming market structure and driving mobile usage
In early 2013, the government invited bids from foreign and domestic companies to set up mobile networks across the country, which is in line with its commitment to opening up markets. After two rounds of the selection process, the government awarded mobile licences to Norway-based Telenor and Qatar-based Ooredoo (erstwhile Qatar Telecom) out of a total of 91 companies that included the regional heavyweight SingTel. The entry of new licensees is expected to improve competition in the market that has been dominated by MPT and YPT, which will produce better value for customers.
For Telenor and Ooredoo, the Myanmar market offers significant opportunities. Ever since the government initiated reforms, foreign investments into the country have been steadily increasing, which is, in turn, contributing to a rise in employment and improvement in consumer spending power. The entry of foreign firms and local companies will also generate overwhelming demand for telecom services. Considering the high growth prospects of the telecom market, the two operators will likely be able to benefit from their first-mover advantage.
To seize upon these opportunities, Ooredoo plans to invest $15 billion in setting up telecom infrastructure, as well as opening 240,000 SIM card and 720,000 prepaid top-up outlets. Telenor, meanwhile, is planning to set up 70,000 SIM card and 95,000 prepaid top-up outlets. It intends to launch 2G and 3G services by mid-2014.
Moreover, Telenor and Ooredoo have also decided to substantially reduce the acquisition cost of SIM cards and tariffs to facilitate mobile usage. Both operators will offer SIM cards at about $1.5, compared to the prevalent price of $200. Further, Ooredoo’s subscribers will be charged a tariff of 35 kyat per minute for voice calls, while users of Telenor will be paying 25 kyat per minute. These price reduction measures are expected to drive mobile usage in the country. “Despite the very high cost of SIM card and limited availability of services, the number of SIM card holders has doubled in the past one year as per a survey conducted by Analysys Mason recently. As the prices of mobile services decline, usage is likely to increase significantly,” says Tom Mowat Principal Analyst, Head of Asia Programme, Analysys Mason.
As for mobile penetration, Telenor is targeting voice and data coverage in 83 per cent and 78 per cent of the country’s market, respectively, by 2018, while Ooredoo intends to offer voice and data services to 84 per cent of the market within the same period. Apart from providing voice and data services, the operators will provide value-added services such as m-healthcare, m-finance, and m-education, along with weather and agriculture updates. Such services have transformed the lives of billions of people across African and South Asian countries. For instance, Vodafone’s m-pesa service has facilitated financial inclusion in Kenya, India, and Bangladesh, among others.
Concerns linger amidst optimism
Despite extensive roll-out plans, the two operators’ telecom journey in Myanmar is likely to be fraught with risks. One of the biggest constraints that could hamper telecom progress is political uncertainty. While a nascent democracy and greater political freedom, combined with the opening up of the economy for international participation, have made Myanmar an exciting frontier market, country risk perceptions remain high. Ethnic strife is high in some parts of the country and political freedom is still fragile.
Inadequate infrastructure is another roadblock. About 70 per cent of the country’s population resides in rural areas that have limited, or no, power supply. Consequently, Telenor and Ooredoo will have to opt for alternative solutions including renewable power or diesel generators to power their telecom towers. However, deploying these solutions would require substantial upfront investments that would drive up the overall costs of operations.
Moreover, the roll-out of cable networks, especially in urban areas, would require operators to get approvals from the government, which could delay the network roll-out considerably. Acquiring rural land would be even more challenging due to protests from farmers and uncertainties regarding the implementation of the FarmLand Law and the Vacant, Fallow and Virgin Lands Management Law, which were passed in 2012.
The low technical know-how of the local population could also prove to be a hurdle. Consequently, the operators would need to invest heavily not only in marketing its services, but also in educating customers about their benefits. In addition, the operators will have to provide training to its staff on modern telecommunication technologies, which will raise their capex in the initial years of operations.
Telenor and Ooredoo have acknowledged these challenges and put strategies in place to address them. Telenor has already accumulated considerable experience in rolling out networks in underdeveloped countries such as India, Thailand, and Pakistan; thus, it is wellpositioned to build upon the lessons learned from these markets. Ooredoo, on the other hand, reckons that it has considerable expertise to counter risks such as political instability, given its ability to continue offering services in Iran and Tunisia even during political turmoil. The next few years would be really interesting for market watchers, as these companies roll out their networks in Myanmar.
Much hinges upon the success of these two operators in achieving their market penetration targets. Not only will their success enhance urban productivity, but it will also boost the rural economy by providing greater access to market information. The government is also an important player in the success of these firms. As on August 16, 2013, the formal licences have yet to be awarded, pending the enactment of the Telecommunications Law of 2012. The other pieces of the market development jigsaw puzzle, where the government needs to play its part, include the expansion of technical education, the establishment of research and development infrastructure, and the creation of an enabling environment for private investment. Only through the combination of public and private strengths would the Myanmar telecommunications market be truly transformed.
