Myanmar Telecom Frontier Draw May Make It Costly: Southeast Asia

Myanmar’s promise as a rare opportunity to tap an undeveloped telecommunications market may prove to be a costly affair for the license winners.

“It is one of the few markets left in the world with significant untapped voice and data potential,” said Sachin Gupta, a Singapore-based senior analyst at Nomura Holdings Inc. “The opportunity is tremendous, but not without risks either.”

The country of 64 million people will award two licenses by June, for which it has 91 expressions of interest. Singapore Telecommunications Ltd., Southeast Asia’s biggest phone company, Malaysia’s Axiata Group Bhd., ST Telemedia Pte and Norway’s Telenor ASA have indicated they may participate.

Myanmar, where 9 percent of the population has a mobile phone, wants to boost telecom coverage to as much as 80 percent of the country by 2016. By comparison, Cambodia has a penetration rate of 70 percent, Laos 87 percent and Thailand more than 100 percent. The challenge for new operators will be to recoup the cost of building a network in a country the size of Texas that is one of Asia’s poorest.

The licenses may last as long as 20 years with an option for renewal, the government said in a statement on Jan. 15. The 91 expressions of interest came from companies in Asia, the Americas, the Middle East, Europe, Oceania and Africa, including “some of the largest global telecommunications companies,” according to a statement posted on the Myanmar Posts and Telecommunications Ministry website on Feb. 15.

Widespread Poverty

Myanmar has one of the lowest per-capita gross domestic products in Asia, standing at $855 last year compared with $5,851 for Thailand, according to International Monetary Fund estimates. An Asian Development Bank assessment of Myanmar released in June last year found that a quarter of the population lives in poverty and about three in four people don’t have access to electricity.

Mobile phones have been out of reach for most Myanmar consumers since limited services were first introduced in 2001. The cost of activating a phone using the global system for mobile communications standard, or GSM, was initially about 4.5 million kyat ($5,250). That has since fallen to about 200,000 kyat for a GSM chip, according to prices at phone vendors in Yangon, meaning a handset is still out of reach for most.

Myanmar said last month that the goal is to make “telecommunications services available to the public at affordable prices in both urban and rural areas, and to give the citizens and the enterprises the capability to choose their telecommunications services.”

Political Risk

Myanmar had 5.44 million mobile-phone subscribers as of December, equivalent to a 9 percent penetration rate, the government said last month. About 1.3 percent of the population has access to fixed-phone lines and 0.03 percent has broadband Internet, according to estimates from the ADB.

“There are 60 million users there potentially, but that needs a lot of network investment,” said Nomura’s Gupta, whose team was ranked first for telecommunications research in Asia by Institutional Investor last year. “It’s almost building from scratch when it comes to rolling out towers, access, transmission and distribution.”

Any investment may also come with political risk, said Ken Ang, a Singapore-based analyst at Phillip Securities Pte.

“The political scene has improved but there’s still some areas of uncertainty,” Ang said, noting that a change in government might lead to different requirements or previous agreements not being honored. “Should nationalism issues be brought up, this could see some threats to foreign ownership in the telecoms sector in Myanmar.”

Selection Process

Rules for the second stage, where bidders eligible for the third and final stage will be determined, will be provided “in coming weeks,” according to last week’s statement.

“Having prior emerging market experience should be beneficial, along with the ability to deploy capital, relationships with the equipment vendors or handset procurement,” Gupta said. “Reforms in the telephony sector are critical for overall development and progress, so they will need to be mindful of security and social issues too.”

Parliament may approve a draft telecommunications law in the first half of this year, which will include the creation of an independent regulator by 2015, the government said last month.

The winners will be “those that have the financial muscle to stay in the game for the long-haul,” said Jonathan Koh, an analyst at UOB Kay Hian in Singapore. Southeast Asian bidders that are backed by telecommunications companies “may have a better chance,” he said.

Historical Presence

“They would likely favor a country that has an existing relationship with the Myanmar government, not necessarily” from Southeast Asia, said Ang at Phillip Securities. “Japan has quite a lot of business presence in Myanmar, so we cannot rule out the Japanese.”

Bidders with Myanmar partners may also have an edge, Koh said. “It’s normally seen as a plus, that the local investors also benefit from the growth of the country.”

SingTel, which owns Australia’s second-biggest phone company and holds stakes in wireless operators in countries including Thailand, the Philippines and India, said last month it submitted its expression of interest with Myanmar partners.

SingTel wants to focus on wireless services because they are “more cost effective, a faster solution to provide communications infrastructure to the masses, particularly in the rural areas, very quickly,” Chief Executive Officer Chua Sock Koong said in a Bloomberg Television interview on Feb. 14.

Other contenders are Kuala Lumpur-based Axiata and ST Telemedia, a unit of Temasek Holdings Pte. Axiata has mobile-phone interests in countries including India, Indonesia, Bangladesh and Sri Lanka, while ST Telemedia controls StarHub Ltd., Singapore’s second-biggest phone company, and holds stakes in wireless companies in Malaysia and Vietnam.

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