In June 2013, the Myanmar government awarded two mobile licences in line with its objective of achieving a teledensity of 80 per cent by 2015-16. The licence allocation is part of the government’s larger plans to open up its economy to greater global participation after decades of military rule, which has impacted Myanmar’s economic growth.

Another key step towards opening up the telecom market was the formulation of the Telecommunications Law in 2012, which is expected to be approved by Parliament in the near future. The law, which provides a new regulatory framework for the industry, would replace the State-owned Economic Enterprises Law, which allows only government-owned companies to set up telecom infrastructure. Implementation of the new telecom law will pave the way for private companies to enter Myanmar’s telecom market.

Although these initiatives are positive and have been welcomed by investors, the country will need to do much more to transform its telecom industry.

Current status

At present, the Ministry of Communications and Information Technology (MCIT) oversees policy developments in the sector, while the Posts and Telecommunications Department is the regulatory authority. The telecom market is highly concentrated with Myanma Post and Telecommunications (MPT), which is a state-owned company, being the country’s only mobile operator. It offers GSM and CDMA services in the 900 MHz and 450 MHz bands as well as the 800 MHz band respectively. The operator has also been providing 3G services in the 2100 MHz band since 2008. Yatanarpon Teleport (YPT), a joint venture between local companies and the government, and MPT offer internet services across the country.

As of December 2012, the mobile subscriber base stood at 5.44 million, which implies a wireless teledensity of 9 per cent. This is substantially lower than other Southeast Asian countries like Thailand (125 per cent), Malaysia (over 130 per cent) and Laos (about 90 per cent). Of the 5.44 million mobile subscribers, 3.62 million are supported through the GSM network, 1.1 million through the WCDMA network and 0.74 million through the CDMA network. The low mobile penetration can be attributed to factors including prohibitive SIM card acquisition costs, cumbersome activation processes and delays in SIM activation. The cost of a SIM card had been about $500 till early 2012, when the government reduced it to $250, which is still high as compared to that in other countries. Also, the cost of acquiring and activating an average smartphone is $300-$400.

The scenario in the fixed line segment is even worse. The total subscriber base is about 604,500, which represents only 1 per cent of the total population.  About 39 per cent of these customers reside in Yangon, 12 per cent in Mandalay and the remaining are spread across other regions. The country’s internet subscriber base stands at 678,000, the majority of which are mobile users. Most of the fixed line internet connections are serviced through ADSL technology, while the remaining utilise dial-up and Wi-Max. The low fixed line internet subscriber base has been a result of high tariffs, low bandwidth availability and limited telecom infrastructure, especially in rural areas. The speed provided by ADSL can be as low as 3 kbps due to network sharing among several users and low bandwidth of the backhaul network.

YPT, in partnership with Red Link Communications, also provides 4G services through Wi-Max networks in Yangon and Bagan. Like other services, 4G is yet to gain traction owing to high tariffs. Even the basic plan, which offers 3 GB of data usage at 512 kbps, is priced at $30 per month, which seems to be unaffordable for most users as their income is about $90 per month.

The country has a fibre network of about 14,000 km, but only 2,800 km is owned by MPT and the remaining is operated by the military. At present, there are over 10,000 active fibre-to-the-home (FTTH) users, most of which have subscribed to private service providers – Elight Tech and Fortune. FTTH users are required to pay installation and access charges of about $900 per month and $50 per month respectively for a 512 kbps internet plan. In addition, they pay an annual fee of about $70.

Myanmar is connected to global communication networks through the Southeast Asia-Middle East-Western Europe-3 submarine cable. However, recurrent cable cuts in the recent past have impacted internet services in the country. Myanmar also has terrestrial fibre cable links with India, China, Thailand and Laos.

Growing interest from foreign companies

After years of subdued growth and government restrictions, the telecom sector finally seems to be making some headway with several positive developments in the past one year. Following an announcement by the government in early 2012 to encourage the entry of foreign companies and allocate licences to private firms as well as the removal of sanctions by the US government and the European Union, several global companies have entered this market.

For instance, smartphone major Samsung Electronics entered the market in November 2012 to sell its products directly and since then has been extensively marketing its smartphones, which has led to an increase in sales. Taiwan-based HTC went a step further and introduced a range of handsets with local language functionality.

Equipment vendor Nokia Solutions and Networks has received approval to set up a subsidiary in Myanmar, which will enable the vendor to sell its telecom equipment. In addition, the Myanmar government has signed an agreement with Japanese firms Sumitomo Corporation, NEC and NTT Communications to strengthen and upgrade the existing networks in Yangon, Mandalay and Nay Pyi Taw, besides rolling out optic fibre networks in the three cities.

Entry of foreign players to change market structure

In early 2013, the Myanmar government invited bids from foreign and domestic companies to set up mobile networks across the country. After two rounds of the selection process, the government awarded mobile licences to Norway-based Telenor and Qatar-based Ooredoo (the erstwhile Qatar Telecom). A total of 91 companies including regional heavyweight SingTel had bid for the licences. The entry of new licensees is expected to increase competition in the market which has been dominated by MPT and YPT.

The Myanmar market offers major opportunities for Telenor and Ooredoo. Foreign investments in the country have been steadily growing since the government’s launch of reforms, which has increased employment and consumers’ spending capacity. The entry of foreign firms and local companies will also generate demand for telecom services. Considering the high growth prospects of the telecom market, these operators would benefit from their first-mover advantage.

To capitalise on these opportunities, Ooredoo plans to invest $15 billion in setting up telecom infrastructure, and 240,000 SIM card and 720,000 prepaid top-up outlets. Meanwhile, Telenor intends to set up 70,000 SIM card and 95,000 prepaid top-up outlets, following which it would launch 2G and 3G services by mid-2014.

Telenor and Ooredoo also plan to significantly reduce the acquisition cost of SIM cards and tariffs to facilitate mobile usage. Both the operators will offer SIM cards at about $1.5 as against the prevalent price of $200. Further, Ooredoo’s subscribers will be charged 35 kyat per minute for voice calls and Telenor’s customers will pay 25 kyat per minute.

Telenor is targeting voice and data coverage of 83 per cent and 78 per cent in the country respectively by 2018, while Ooredoo intends to offer voice and data services to 84 per cent of the market. Apart from providing voice and data services, the operators would offer value-added services such as m-healthcare, m-finance, m-education, and weather and agriculture-related updates, which will facilitate rural growth. These services have transformed lives in African and South Asian countries. For instance, Vodafone’s m-pesa service has facilitated financial inclusion in Kenya, India and Bangladesh, among others.

Operators optimistic despite concerns

The two operators are expected to face several challenges in implementing their major roll-out plans in Myanmar. Among the biggest of these is political uncertainty. While the nascent democracy and greater political freedom combined with the opening up of the economy to global players has made Myanmar an attractive market, the risk perceptions about the country remain high. Some parts of the country witness a high level of ethnic strife and political freedom is still fragile.

Inadequate infrastructure is another roadblock. About 70 per cent of the country’s population lives in rural areas, which have limited or no power supply. Consequently, Telenor and Ooredoo will have to opt for alternative solutions including renewable power or diesel generators to run their telecom towers. Deploying these solutions would require substantial upfront investments, which would increase the overall cost of operations.

In addition, rolling out cable networks, especially in urban areas, would require operators to secure government approvals, which could delay network roll-out. There will be bigger challenges in acquiring rural land, especially due to protests from farmers and uncertainty regarding the implementation of the Farmland Law and the Vacant, Fallow and Virgin Lands Management Law, which were passed in 2012.

Low technical know-how of the local population could also prove to be a hurdle and operators would be required to significantly invest not only in marketing services, but also in educating customers about their benefits. In addition, they will have to provide training to staff on modern telecom technologies, which will increase the capex in the first few years of operation.

Telenor and Ooredoo acknowledge these challenges and have strategies in place to address them. Telenor has significant experience in rolling out networks in underdeveloped regions in countries such as India, Thailand and Pakistan and is well positioned to build on the lessons learnt in these markets in Myanmar. Ooredoo, on the other hand, has expertise in countering risks such as political instability, given that it continued to offer services in Iran and Tunisia during political crises.

The achievement of these operators’ market penetration targets will not only enhance urban productivity, but also boost the rural economy by providing greater access to market information. Moreover, the government will play an important role in ensuring the success of these firms. The formal licences are yet to be allocated pending the enactment of the Telecommunications Law, 2012.

The Myanmar government needs to play a crucial role in the expansion of technical education and research and development infrastructure, and create an enabling environment for private investments. A combination of public and private strengths can drive growth in the Myanmar telecom market.