Telenor Predicts Fivefold Myanmar Wireless Surge
Telenor ASA (TEL) Chief Executive Officer Jon Fredrik Baksaas said mobile-phone subscriptions in Myanmar, a new market for the wireless carrier, will surge more than fivefold to about half of the population by the end of 2017.
Telenor, the Nordic region’s largest phone company and one of two operators selected to build Myanmar’s telecommunications network, expects the license to be issued formally by the end of the year, Baksaas said. Services will start eight to nine months after that, he said in an interview in Singapore Sept. 28.
“Penetration figures will grow from presently below 10 percent to a very visible figure in a very short time,” Baksaas said. “We shouldn’t be far away from 50 percent penetration already three years down the line.”
Telenor, based in Fornebu near Oslo, is seeking growth in Russia, India and other parts of Asia as competition intensifies at home. Myanmar selected Telenor and Ooredoo QSC of Qatar in June, opening up one of the world’s last remaining untapped markets. The expansion in Myanmar will boost Telenor’s sales by 7 percent to 8 percent in 2020, according to an August estimate by Swedbank AB. Baksaas declined to give financial targets for the Myanmar investment.
Telenor and Ooredoo beat nine other bidders including Singapore Telecommunications Ltd. (ST), billionaire George Soros and Bharti Airtel Ltd. in the final stage. The licenses allow the carriers to run a nationwide wireless network serving Myanmar’s about 59 million people for 15 years. The license term will start when the license is formally issued, said Baksaas, who joined Telenor in 1989 and has been its CEO for 11 years.
Myanmar, which is a “cash society,” will benefit from the ability to use mobile phones for financial transactions such as money transfers when they become available, said Baksaas, who was in Singapore between visiting Myanmar and Thailand, where the company controls Total Access Communications Pcl. (DTAC)
“This is a population which does not have access to financial services the way we know them,” he said. “The digitalization of cash handling has happened through banks in general but the mobile phone takes it to the next layer.”
Telenor’s unit in Pakistan now handles $2.5 billion of transfers annually on a rolling basis, compared with $1.2 billion last year, Baksaas said. Of 35 million customers in Pakistan, 6 million regularly use financial services, he said.
“These are all people with no access to any bank or any financial services before,” Baksaas said. “So suddenly the mobile phone stands out as a distribution mechanism for funds, as well as a collection or transfer mechanism for funds, and it will facilitate money from one part of the country to another part of the country.”
Separately, Telenor also announced joint ventures with Schibsted ASA (SCH) and Singapore Press Holdings Ltd. for online classified advertisements in South America and Asia. Telenor will pay about 145 million euros ($196 million) for its stakes in the ventures, it said in a statement today.
Telenor fell 1.5 percent to 137 kroner at 10:21 a.m. in Oslo. The stock had gained 24 percent this year through yesterday, giving Telenor a market value of 211 billion kroner.
“Telenor remains one of those rare attractive growth stories in the sector, although the growth profile is becoming more challenged,” said Barry Zeitoune, an analyst at Berenberg in London, who recommends holding the stock. “Telenor’s entry into Myanmar is as expected, and Telenor has vast greenfield rollout experience in Asia.”
Baksaas, 58, said the network in Myanmar will rely more on solar power than any of its other grids, both out of necessity and to achieve energy savings.
“This is very important because energy is scarce,” he said. “We need energy on every base station and there is no grid in the countryside, which means that we have to establish and build energy capacities ourselves.”
Telenor has about 1,500 base stations powered by solar energy in Pakistan and Bangladesh, Baksaas said.
“We will probably see a network built out in Myanmar with the highest degree of solar panels that we’ve seen,” he said. “My vision for the future is basically that a base station can be energy neutral.”
Solar energy and batteries to store the energy is complemented by diesel generators, he said.
When asked about expansion opportunities, Baksaas said Telenor’s management will focus on building out the Myanmar operations and integrating Globul, the second-largest mobile carrier in Bulgaria that Telenor agreed to buy in April for 717 million euros.
“We have no specific focus over and beyond the two new countries that come into the Telenor group in 2013,” Baksaas said, referring to Myanmar and Bulgaria. “This is our focus and this has to do with the management attention, the board attention and the overall capacity of the group.”
The company is also expanding its footprint through VimpelCom Ltd., Russia’s third-largest wireless carrier and a service provider in other former Soviet countries, Italy and Africa. Russian billionaire Mikhail Fridman controls VimpelCom, with Telenor holding a minority stake.
The assets in faster-growing regions such as Asia have helped Telenor outpace Nordic competitors including Sweden’s TeliaSonera AB. (TLSN) The Norwegian company’s sales rose about 2 percent in the second quarter, compared with a 4 percent drop at TeliaSonera. Telenor is also reducing costs and expanding its Nordic wireless network to fend off local competitors such as Sweden’s Tele2 AB and Denmark’s TDC A/S.
This month, Telenor reiterated its goal of 5 billion kroner in cost savings and operating cash flow of 28 billion kroner to 30 billion kroner in 2015.
“Telenor’s expansion and asset base is significantly more attractive and more diverse versus that of the Nordic incumbents,” said Daniel Johansson, an analyst at Fondsfinans ASA in Oslo with a buy rating on the shares. “Risks are more balanced for Telenor.”
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