Myanmar telco market attractive, but dangers abound

Proposed reforms to open country to foreign firms, particularly in telecoms space, promises much but lack of clarity in regulations and red tape key hurdles for investments, observers note.
Written by Ryan Huang, Contributor

As Myanmar looks to toward economic reforms that are likely to open its telecom market up to outsiders, a huge untapped opportunity may be on the horizon for foreign companies, note industry watchers. They also caution that investments may take a long time to pay off.

The Southeast Asia nation has a new communications law which, upon approval, would provision four new telecommunication licenses and opens up the market to foreign telcos, according to a report by the Wall Street Journal. It noted that the proposed law was one of several reforms designed to make the country more attractive to foreign investors.

Commenting on these developments, Rob Bratby, international telecoms and technology lawyer at Olswang, said: "Following recent political reforms in Myanmar and the recent electoral success of Aung San Suu Kyi‘s National League for Democracy, Myanmar is currently flavor of the month as an investment destination, and could soon see significant investment in telecoms infrastructure."

He added that other positive reforms included the liberalization of foreign exchange controls with the floating of its currency from Apr. 1 this year.

Rising market potential
"Myanmar is one of the last untapped markets with a huge population and very low [mobile] penetration currently for foreign telcos [to aim for]," said Sachin Gupta, regional head of telecommunication research at Nomura Securities.

"Myanmar is one of the last untapped markets with a huge population and very low [mobile] penetration currently for foreign telcos [to aim for]"
-- Sachin Gupta
Regional Head, Telecomms Research
Nomura Securities

Gupta, in a separate research report released this March, noted that despite having a population of about 60 million people, Myanmar only had around two to three million mobile phone subscribers. He also noted that the Internet penetration was below 1 percent, or about 110,000 people.

"The government is now targeting 50 percent wireless penetration by 2015, implying a 50 percent CAGR (compound annual growth rate). For this to happen, competition [that results in] lower prices, significant infrastructure investment, and clearer policies around interconnect, etc, are required, in our view," he added.

The Nomura analyst shared that there were two main local telco players currently. State-owned operator Myanmar Post and Telecommunications (MPT) controls the majority of subscribers on 2G and 3G networks, and Yatanarpon Teleport functions primarily as an Internet service provider (ISP).

"The size of Myanmar's population is close to Thailand’s, where the combined market cap of the top 3 operators is US$23 billion," said Gupta. "However, Myanmar’s current GDP per capita of US$1,300 is 80 percent lower than Thailand's. We think this could improve if the reforms can be sustained."

The artificially high costs of handsets--at around US$600 to US$1,800--has been be an obstacle for adoption too, Gupta noted. However, he pointed out that the availability of imported handsets has increased with time, with some costing as low as US$50.

Journey can be 'derailed easily'
Despite the potential of the market, he noted there were still many uncertainties. "There still isn't a lot of clarity on the regulatory framework, licenses, foreign ownership, etc, for us to understand and analyze the economics of it," he said.

"Rolling out networks will be one of the key challenges--we understand both fixed and wireless infrastructures are still very limited. Then there are issues like distribution, procurement, IT services, etc, so it will take time and effort to set it all up," the Nomura analyst added.

Government red tape could also remain a significant issue for investors, warned Ng Kian Teck, lead analyst at SIAS Research. "For telco operators that generally have a high upfront capital expenditure when investing in a particular area, they will need the blessing of the nation's regulator and usually conduct a high level of due diligence and feasibility test before investing."

"In addition, telco infrastructure is a sensitive asset and regulators are usually unwilling to let foreign entities operate such strategic assets. Foreign entities may be more involved in service providing or own a non-majority stake in the entity," he added.

Bratby agreed, saying that companies need to remember how poor the country is today and where it is starting from, and not just focus on its potential and scope for growth. With its GDP per person at US$1,300, Myanmar is ranked alongside sub-Saharan African countries such as Rwanda and Mali, he added.

"Whilst there are opportunities, Myanmar is starting out on a long journey that could be derailed very easily," the lawyer surmised.

When approached, Singapore-based operator Singapore Telecommunications said it had no comments, while Malaysian telco Axiata declined to respond.

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