Myanmar: High opportunity, high risk
Over 90 operators were interested in entering the Myanmar market. Just two were selected to champion a new era of connectivity for the country. But is Myanmar ready?
In the early evening hours of 27 June 2013, the sun had just set in Yangon, Myanmar, and the news that the telecoms world had been waiting for began to filter through.
Qatari operator Ooredoo and Norwegian behemoth Telenor were announced as winners of the nation's first ever mobile spectrum auction, handing them access to one of the few remaining "greenfield" telecoms markets in the world.
It is difficult to think of any other country in recent history generating as much excitement in the carrier community as Myanmar. Over 90 global operators were reportedly eyeing the market, of which 22 of some of the largest players submitted bids.
From a shortlist of 12, just two went on to become the envy of all their peers.
What is even more astonishing is that no one knows just yet what they have even been bidding on.
A licence to create growth
Myanmar's government is two years young. Led by moderate reformist president Thein Sein, the post-Junta era has already heralded the abolition of press censorship, the passing of progressive laws and the release of political prisoners, after decades of military rule in the country formerly known as Burma.
The decision to open up the nation's telecoms market was announced this January and has widely been viewed as one of Sein's most noteworthy achievements to date.
The GSMA and the World Economic forum estimate that for every 10% increase in mobile broadband penetration, GDP should grow by 1.6%.
Sold for approximately $1.5 billion each, the mobile licences should ensure that the country is set for major infrastructure advancements, which will not only help accelerate the growth of its telecoms market, but stimulate the economy of the country as a whole.
For Myanmar's population of some 60 million, access to a wide range of communications services, including 3G, represents something far more profound. After decades of military rule – which left Myanmar in diplomatic isolation from the rest of the world – it symbolises that the country is open for business again.
"I don't look like I'm from Myanmar but I've been welcomed with open arms," quips Ross Cormack, senior representative from Ooredoo Group and one of the many international businessmen to make the trip over to Myanmar in recent months.
"The sense of excitement in the country is clear. They all know what we are trying to do, and they cannot wait for these services to become available," he adds.
The licence tender was the first big public contract outside the natural resources sector and is a further indication that the country's two-year-old reformist government is committed to facilitating economic growth through international investment.
That said, the country is still some way from political stability.
Myanmar was welcomed back to the international community after US and European sanctions were removed, on the basis that the new government was committed to democracy, the liberalisation of the economy and the settling of ethnic tension through non-violent means. But it has yet to hold its first democratic election, which will be the first real test to see if it remains true to its word.
All of which could have a huge bearing on any potential capital investments the two operators may be planning, in addition to other international companies already operating in the market.
A law unto itself
Ooredoo and Telenor may feel like they were the winners who never actually got to collect their prizes.
At the time of writing – almost three months after the companies were announced as winners – representatives from both sides are still unable to confirm for sure that they are even going to enter the country. The operators continue to await an essential piece of the puzzle; the passing of the country's telecoms law.
Cormack told Capacity the law has passed the administration's lower house, but still needs approval from the upper house before the companies can formally accept the licence within the 90 day period set, with the deadline dangerously close at the time of writing.
Both operators gleefully celebrated "an invitation" to accept the formal mobile licence rollout in June, but uncertainty still surrounds the development, even if the law is passed on schedule. [The law has since been approved.]
Telenor group VP Tor Odland told Capacity it wants to clarify the fact that the company "is finding it hard to comment on future plans until the award is finalised".
"We don't own anything yet, and we're still in the final negotiations with the government. We feel confident about the process, but we are still uncertain about how it will end up," he said.
Ready or not
A lack of transparency in the market, reaching right up to the president's office, has only heightened concerns regarding the political and economic readiness of Myanmar to accommodate foreign investment.
Rob Bratby – managing partner-Asia at consultancy firm Olswang Asia and a speaker at Capacity's Myanmar Connect conference in September – has been working with the regulator in drafting the telecoms law. He believes there is an element of "creative tension" between the president's office and the speaker of the lower house in getting the bill approved.
"I've seen a number of different drafts for it and effectively the licence award came from the president's office, but laws are passed by parliament and the speaker of the lower house," Bratby says.
"There is actually no debate in getting the law passed, but there is a sense of legislative scrutiny, which is fabulous, as it's unexpected in Myanmar and it's difficult to tell what will come out."
He doubts that parliament will create a problem in the process, however, particularly because the country is crying out for foreign investment across the board.
"While the process hasn't been perfect, it's been run well, and derailing the entire thing would not make sense at this stage," he suggests.
Newly liberalised telecoms markets typically pass laws favouring the incumbents. Myanmar could be different, says Bratby.
"The telecoms sector has been starved for development for so long that the incumbent does not have a big infrastructure or a customer base at the moment. It's actually likely the international new entrants will have the financing and expertise to build bigger and better networks than Myanmar Post Telecommunication (MPT) and Yataraporn Teleport (YPT)," he adds.
What parliament must first establish, according to Bratby, is whether a competitive telecoms law is going to be in Myanmar's national interest.
"If the law doesn't protect the process of competition, we may see the international players outcompete the local players."
Wholesaling from scratch
Despite the uncertainty, both operators have huge ambitions for Myanmar.
Cormack says Ooredoo is committed to "[making] telecoms services both affordable and available. By the end of five years, we will be covering 97% of the population, equating to 84% of land area".
Odland, too, is equally confident of enabling next-generation mobile technology in the country.
"Telenor will lead the charge for all things 3G, 4G and fibre, with a planned launch for both voice and data networks to accommodate a commercial roll-out next year," he says.
Both companies claim to have little interest in what the other is up to.
"We don't have an opinion on Ooredoo or where they are in the process," says Odland. "When the licences are eventually allocated, we have to quickly build our network to reach the population and that's our task."
Telenor already has a strong presence in Asia and the company announced favourable results across its markets in Pakistan, Malaysia and Thailand in July this year.
"The decision to enter Myanmar was easy," Odland says. "We already have extensive experience with buildings, businesses and networks in this part of the world, so it made sense."
Its experience in markets like Pakistan could indeed prove valuable, but market opinion suggests the project undertaken by both companies will be significantly different to anything they have ever done before.
With experience of operating in Myanmar on the fixed-line side, Andrew Kwok, president, international business at Hutchison Global Communications (HGC) and also a speaker at Myanmar Connect, believes an inherent lack of infrastructure both domestically and internationally could be the biggest stumbling block for the two operators.
"There is certainly room to improve. A lot of necessary infrastructure simply is not there and HGC is willing to play a key role in facilitating that," Kwok says.
HGC has been present in Myanmar since 2008, which Kwok claims make it one of the first ever international carriers to enter the country. Through a partnership with MPT, the company is aiming to improve the country's fixed internet and voice services coverage.
Kwok has seen the challenges of operating in Myanmar firsthand, and believes there are a lot of wholesale companies attempting to enter the market without knowing what they are actually getting into.
"We have seen a lot of wholesale companies looking to try and get into Myanmar since the mobile tender was announced and they are really rocking the boat of a potentially healthy telecoms ecosystem," says Kwok.
"Some people are simply just looking to get involved with no thought to the operating costs. We need a period of time to rationalise what everybody is going to offer and create a healthy telecoms environment to enable growth."
Andreas Hipp, CEO at carrier-neutral interconnection company Epsilon, also questions the government's commitment to truly opening up the market internationally.
Often in underdeveloped markets across Asia and the Middle East, domestic licences are made available to international players, but the state retains control of the international gateway licences. With most content accessed by these markets being based overseas, IP transit prices can remain high.
"If you can't reduce cost flow – which is a typical problem in low affluent countries – internet will always be expensive, as you have to be reliant on one or two international licence holders," he says.
Tellingly, Telenor's Odland confirmed to Capacity that the company had not purchased an international gateway licence.
Without an established telecoms law, but with an influx of international entrants and a lack of wholesale infrastructure to accommodate a large amount of investment, there is clearly a long list of concerns facing the country.
"It's high opportunity at high risk," says Bratby. "When you are making a large investment in a country that has no power grid, no payment infrastructure and a shortage of local talent, in addition to concerns over property ownership masts, need to be built, so there's a lot to consider."
Movement in Myanmar
Only one person in ten in Myanmar has access to a mobile phone. With profit margins becoming squeezed worldwide, the country represents a potential revenue goldmine.
"It's the most exciting telecoms opportunity on the planet and we love it," says Cormack.
Ooredoo Group has pledged $60 million in CSR initiatives and a commitment to ensure 99% of the company's staff is of local descent after an initial five-year period.
There is an expectation that telecoms will prove the catalyst for international investment across other industries, including transport, agriculture, retail and commerce. The hope is also that the mobile spectrum licences will be an example to the world of how easy it is to do business in the country.
It will not be in Myanmar's national interest to rock the boat pre-election, according to Bratby.
"A country like Myanmar has faced massive economic underdevelopment and allowing people access to modern IT technology could prove integral. Myanmar is like a rusted engine that you put oil into, which should eventually kick-start the wider economy."
The question investors will have to address is whether the potential returns outweigh the overriding risks in an unknown market.
Ooredoo and Telenor will sooner or later be finding out.
Capacity will hold its first conference dedicated to Myanmar's market in Nay Pyi Taw, from 10-11 September this year.