June 28 (Bloomberg) -- Norway’s Telenor ASA and Ooredoo QSC of Qatar won licenses to expand telecommunications in Myanmar, one of the world’s last remaining untapped markets where only about one in 10 people has a mobile phone.
The two carriers beat nine other bidders including Singapore Telecommunications Ltd., billionaire George Soros and Bharti Airtel Ltd. in the auction. A France Telecom SA-Marubeni Corp. group was named as a backup in case one of the winners doesn’t fulfill final requirements.
The decision ends a six-month race that drew 91 expressions of interest to operate in the country of 64 million people. The licenses are among the biggest prizes for foreign companies since President Thein Sein moved to allow greater political and economic freedom after taking power in 2011. They’ll be awarded according to a telecommunications law that parliament expects to adopt soon, according to a statement yesterday.
“The growth factor will be pretty significant since we all start from zero,” said Jon Fredrik Baksaas, chief executive officer of Telenor, the Nordic region’s biggest carrier. “We’ll see a rapid build up in penetration.”
The government went ahead with the award even after parliamentarians tried to delay the decision. Set Aung, deputy minister of national planning and economic development who is overseeing the process, said the process would only stop on Thein Sein’s orders.
Set Aung said that while he’d prefer local companies, the process complied with international practices. Four of the groups had local partners, including those led by SingTel; Digicel Group Ltd. and Soros; Japan’s KDDI Corp.; and South Africa’s MTN Group Ltd. “The playing field should be level,” he said.
Myanmar plans to boost telecommunications coverage to as much as 80 percent of the country by 2016. It has a mobile-phone penetration rate of 9 percent, compared with 70 percent in Cambodia, 87 percent in Laos and more than 100 percent in Thailand, the Communication Ministry said in January.
Telenor’s Baksaas said he expects Myanmar to mirror the company’s experience in Pakistan, where it invested $2 billion over eight years. While Myanmar is smaller, Telenor may take three years of operations to break even if its reduces costs by sharing basic infrastructure, the CEO said in a phone interview. Telenor also has units in Thailand, Malaysia, India and Bangladesh.
In Pakistan, penetration started at between 15 percent to 17 percent in 2005, climbing to 50 percent within four years.
For Ooredoo, formerly known as Qatar Telecom, Myanmar will become the Doha-based company’s second-biggest market by population after Indonesia. The carrier plans to invest “heavily” for at least four years, Chief Strategy Officer Jeremy Sell said in a phone interview.
“After that you start to generate cash returns and get money back a fair few years out,” Sell said. “We are in Iraq, Algeria; Tunisia had a revolution; Indonesia has instability. We are mature and savvy enough to appreciate the risk and mitigate against it.”
Ooredoo shares rose 1 percent to 120.5 riyals in Doha yesterday. Telenor slipped 0.3 percent to 121.4 kroner on the Oslo exchange. France Telecom gained 0.2 percent to 7.395 euros in Paris.
SingTel, Southeast Asia’s biggest phone company, rose 1.3 percent to S$3.77 as of 2:56 p.m. in Singapore, while Yoma Strategic Holdings Ltd., which was part of the Digicel-Soros group, fell 5.7 percent to 90.5 Singapore cents. KDDI closed 4.5 percent higher at 5,160 yen in Tokyo, while Marubeni fell 0.9 percent to 663 yen.
The U.S. and European Union have moved to ease sanctions, attracting companies such as Coca-Cola Co. and Ford Motor Co. to the former military-run state even as human rights groups warn of abuses against ethnic and religious minorities.
“I have never seen any investors who are not coming to a country before everything is perfect,” Set Aung said by phone. “All the companies understand there are risks. Some companies probably think there is too much risk, and other companies think it’s a calculated risk.”
France Telecom strategy chief Elie Girard this month described Myanmar as “the biggest telecom desert” with less telephone use than in North Korea or Cuba. The company, bidding with Japan’s Marubeni, is prepared to spend $1 billion to build a network by 2019 to cover more than 75 percent of the country’s geography in five years.
As the “reserve applicant,” France Telecom will be given an operational role if either winner fails to meet Myanmar’s requirements within 100 days, the Paris-based company said in a statement.
The two licenses allow carriers to build and operate a nationwide wireless network for 15 years. Vodafone Group Plc and China Mobile Ltd., the two biggest mobile-phone companies, withdrew their bid on May 31, saying the returns wouldn’t justify the investment required.
Other bidders included Axiata Group Bhd., Sumitomo Corp., Millicom International Cellular SA and Vietnam’s Viettel Group.
Myanmar had 5.44 million mobile-phone subscribers as of December, the government said in January. About 1.3 percent of the population has access to fixed-phone lines and 0.03 percent has broadband Internet, according to the Asian Development Bank.
In May, New York-based Human Rights Watch warned that companies bidding for the licenses risk being linked to human rights abuses if they invest before laws are in place to protect against illegal surveillance and censorship.