Easy part’s over

At the end of June, Qatar’s Ooredoo and Norway’s Telenor were awarded licences to provide mobile telecommunications services in Myanmar (formerly Burma). The two companies beat out interest from around 100 telcos from around the globe, and though the potential for growth in the country is tantalising, it is not a forgone conclusion that it will prove a licence to print money

Myanmar, capital city Yangon, is a country of some 60 million inhabitants with a mobile penetration rate of less than 10 per cent

Following the announcement that it had been selected as one of the two new mobile operators in Myanmar, Qatar’s Ooredoo (formerly Qtel Group) promptly announced its plans to invest as much as US$15 billion over the 15-year duration of the licence, including operational and capital expenditure, licence fees and taxes, according to Jeremy Sell, the company’s chief strategy officer.

“The licence is actually a small part of it,” said Sell.

Myanmar’s relative lack of mobile communications infrastructure is advantageous in that Ooredoo will not need to upgrade legacy networks, but could create a purpose-built data network with voice capabilities.

“It’s not a mobile phone business we are building, it’s a broadband network,” Sell told Reuters news agency, adding Ooredoo’s Myanmar operations were likely to break even after four years.

According to the country’s Ministry of Communications, the winners had “committed to offer a wide range of services to the public at affordable prices in both urban and rural areas.”

The potential challenges faced by the new licensees have already begun to become apparent, virtually from the outset of their award, with Myanmar’s lower house of parliament voting the day before the announcement of the two winning bids to delay the award until a new telecommunications law was enacted. However, the government body overseeing the tender said parliament had no authority to delay the process and duly announced the winners the next day.

“In the telecom sector, there is geopolitical risk and regulatory risk and it (Myanmar) has them both,” said Ooredoo’s Sell. “It’s a very young democracy and the organs of state are in their infancy and don’t have much experience, but we were very pleased the process was so intelligently planned and executed with transparency. So if they continue as they have started we would be very happy.”

The winners were selected from a shortlist of 11 bidders, whittled down from more than 90 companies and consortia that had expressed interest in working in a fledgling market of 60 million people, where nine per cent at most have a mobile phone.

State-owned Posts and Telecommunications (MPT) is the sole provider of telecom services, according to its website.

Telenor, which has 150 million customers worldwide and operates in neighbouring Thailand and Bangladesh, said it would launch its network next year and achieve nationwide coverage within five years.

The government was set to finalise the 15-year licences by September and the chosen operators would need to launch services within nine months. They have to provide voice services across three-quarters of the country within five years and data services across half of it.

The Ministry of Communications has also said that if one of the two licence winners failed to meet post-selection requirements, the back-up candidate would be France’s Orange in partnership with Marubeni Corp of Japan.

According to Informa Telecoms & Media’s chief research officer, Mark Newman, the awards in Myanmar cement Telenor and Ooredoo as two of the most ambitious and aggressive investors in the Asian telecom sector. Both companies have relatively small home markets and have identified Asia as their preferred region for expansion. That is not to say that either company has had a smooth ride. Telenor faced much criticism when it entered India, with investors questioning the business case for arriving relatively late in a market with enormous investment requirements and some of the lowest per-subscriber revenues anywhere in the world. Ooredoo’s biggest investment to date in Asia has been in Indonesia, a fiercely competitive market which, at one time, had 10 mobile operators.

“Telenor’s and Ooredoo’s experience in these countries and their ability to maintain viable businesses while offering extremely competitive prices will have been crucially important in the government’s decision to award them the licences,” Newman commented.

Telenor and Ooredoo rank 7th and 22nd, respectively, among global mobile operator investors and their “proportionate” subscribers. However, this ranking fails to show how much the two operators have expanded internationally in comparison with their peers, according to Newman. He says this is because both have small home markets. Furthermore, both operators have much greater growth potential than other operators because they are present in huge markets where there is still strong untapped potential for basic mobile connectivity.

Additionally, both operators have delivered strong financial performance over the last 12 months.

Telecom suppliers have, not surprisingly, been quick to look for opportunities to sell kit and devices to the two licensees, with a major telecommunications infrastructure and mobile technology event, CommuniCast 2014, already under development to be staged at the Myanmar Convention Centre in Yangon from March 5-7, 2014.

According to a recent study by International Data Corporation (IDC), Myanmar’s devices market is on target to take centre stage as the country hurtles towards becoming an ICT-driven nation.

The licence award in the country has caused prices of SIM cards and service provision to dip considerably towards levels even low-wage earners are able to afford, the research company says.

IDC expects this to drive a considerable uptake in demand for both mobile phones and tablets.

“The Myanmar government has set highly ambitious targets for mobile subscriber penetration over the next two years. At this point, they are on the right track, but there is still much work left to be done,” said Daniel Pang, ASEAN research manager for Client Devices at IDC Asia-Pacific.

“While SIM cards are being issued at a hectic pace, much of the country still suffers from poor network coverage, and thus, they continue to be put up for sale in the black market instead of into new mobile phones. Therefore, vendors will likely boost shipment quantities only in Q214 or Q314 once the telecom infrastructure has improved and more SIMs are available to consumers,” Pang said.

“The tablet market, however, does not face any barrier to growth. More Wi-Fi hotspots are being developed to improve access to Internet for tablet users. Furthermore, prices for tablets dipped significantly at the end of 2012 and are continuing to fall, which will drive much higher demand across 2013 and beyond.”

For its part, Ooredoo has recently teamed up with the Cherie Blair Foundation for Women to promote female ownership of mobile phone airtime sellers in Myanmar.

Ooredoo and the Cherie Blair Foundation for Women are developing a franchisee model to enable 30,000 women by 2016 to become entrepreneurs by selling prepaid Ooredoo airtime to their communities.