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Special Report: Guide To Myanmar’s Burgeoning Telecom Industry

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Special Report: Guide To Myanmar’s Burgeoning Telecom Industry

Background

With area of 676,578 square kilometer and population of just 53 million, Myanmar is nestled between Thailand, China and India. Having spent most of the last fifty years in a civil war, Myanmar remains one of the poorest countries in Southeast Asia.
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However, it is going through a number of political, social and economic reforms. A key part of these reforms was liberalization of telecommunications sector. Ooredoo and Telenor and Myanmar Post and Telecommunications (MPT) were awarded licenses in 2014. Besides MPT, a second local player MecTel operates as a Mobile Virtual Network Operator licensee.

Myanmar has emerged as one of the most dynamic telecom markets in the Asia Pacific region. Mobile penetration in the country has increased from less than 10% in 2013 to around 90% now, which is one of the fastest growth in mobile penetration ever recorded.

There are several factors boosting Myanmar’s telecom industry. “The expanding middle class is a major growth driver, where according to the United Nations and World Bank, Myanmar’s per capita income increased from $800 in 2010 to $1,200 in 2014. Additionally, the price of SIM cards, data and voice packages have all reduced in price. In 2014, sales of SIM cards were restricted, and they were available at USD100-200 in the black market. Today, it’s a healthy competitive market with three licensed operators, SIM cards cost just slightly over a dollar, and voice and data tariffs have fallen by over 60%,” says Damien Dujacquier, Senior Partner, Head of TMT, SouthEast Asia, Roland Berger, a global consultancy firm.

“Besides, the connectivity for the price paid has improved tremendously in the last two years. In 2014, there was only basic voice and mostly 2G data, but two years later, high quality voice and 3G coverage is now available in most of the country,” says Mohit Gidwani, Principal, Singapore, Roland Berger.

Unlike other countries in the region, nearly 50% of the population uses smartphones in Myanmar today. On the other hand, Philippines has just 22% and Indonesia just 21% smartphone penetration.

“Consumers, whose first mobile phones are smartphones, are able to download and use apps, take photos with a smartphone – and not a camera – and access a variety of VAS, all of which are not available with feature phones. They’ve also skipped the possibility of ever using a desktop, particularly if they are mobile workers primarily use portable devices. Myanmar people have clearly leapfrogged many use cases and services (such as SMS, MMS, ringtone and other content downloads), that are typically seen in growing telecom markets,” explains Dujacquier of Roland Berger, which had assisted Myanmar Government recently in conducting spectrum and licensing process some time back.

Two service providers have deployed extensive 3.5G networks and have recently launched 4G. the pace of technology and service evolution has been unprecedented in Myanmar.

New Entrant

Myanmar’s telecommunications regulator, Post and Telecommunications Department (PTD) recently issued a tender for a new national telecom license. Seven foreign companies (Singtel, Viettel, China Telecom, Free, MTN, 1COM and Beijing Xinwei) had expressed interest in the tender launched at the end of 2015.

Hanoi-based Viettel was finally selected to negotiate with a local consortium, including a military partner, to receive a minority stake in a company that might be awarded the country’s fourth telecom license. In case this tie-up is approved, the company will come together with a group of 11 public Myanmar companies and a subsidiary of military-run Myanmar Economic Corporation to form a joint venture, which is likely to procure fourth telecom license for countrywide services. It will receive license of 15 years initially with the option of further extension.

The process of handing over fourth operator is very different from the earlier issued licenses. While Ooredoo and Telenor are majority stakeholders in their ventures, the new service provider will only be a minority stakeholder in the venture. Lack of experience in telecom of most of the companies in the consortium is further likely to complicate matters.

Increased competition, if maintained at a healthy level, with the entry of the fourth player is going to be beneficial for the customers. “The lack of competition can cause harm to the industry, given that it does not spark impetus to innovate. The sector functions as a backbone to create jobs and reduce poverty but more importantly, contribute to Myanmar’s broader economic growth and lifts standards of living. By making telecom services available at affordable prices, in both urban and rural areas across the country, the sector spurs commerce, reduces the unbanked population and delivers mission- and life-critical services to people who normally cannot access those services,” says Gidwani.

While the interest in this tender has been high the service provider is likely to face stiff competition in the market. Increased competition has brought down the tariff and lowered the profitability of the telcos. The anticipated entry of the fourth player can further bring down the profitability of the service providers.

“Too much competition can hurt industry prospects as it starts a “race to the bottom”, eroding margins for all players, eventually hurting the industry as the overall propensity to invest declines. This is not very different from what has happened in some areas in India, where customers are faced with call drops and suboptimal network quality. This was because operators did not find it profitable to invest in a sustainable manner as prices were driven down too much,” explain Dujacquier and Gidwani in an email interaction.

Subscriber Base And Market Share

As of June 2016, the country had sold 47 million SIM cards between the four operators. It represents a penetration of nearly 90% as per a local news report. In comparison, the country had a penetration of just 7% at the end of 2012, before liberalization. However this penetration figure should be taken with a pinch of salt since there is a significant number of users who use more than one SIM.

Ooredoo had 8.2 million subscribers at the end of June 2016. On the other hand, Telenor had a subscriber base of nearly 16.9 million at the end of June 2016. MPT is the market leader with 20 million subscribers.

Ooredoo and Telenor have recently launched 4G network. Ooredoo, which launched 4G only in May 2016 has a subscriber base of 500,000 4G customers.

Most of the subscribers are based in urban areas while rural area of the country, where nearly two-third of Myanmar’s population resides, remains unconnected. The Government hopes that this will change with the entry of the fourth operator.

The Question Of Internet and Infrastructure

The country boasted internet user base of 30 million by mid-2016. Myanmar had just 2 million internet users before the reforms started. Because Myanmar opened up its telecom sector only three years back it was able to leapfrog several technologies. Most of the subscribers go directly to 3G to access internet.

Myanmar has a total of nearly 11,700 towers installed. On the other hand, national fibre backbone expanded from 7600 km in 2013 to 31,000 km in mid-2016.

As the internet proliferation increases and ecosystem gets developed regulation is awaited for ecommerce, Voice over IP and mobile payment. The Government is also planning to hold an auction of 2600Mhz spectrum. RedLink Communication, one of the internet service providers in Myanmar might bid for this spectrum.

The Road Ahead

The growth of Myanmar’s telecom industry is not without challenges. The telcos in the country need to learn from operators in other countries and try not to make similar mistakes.

“To capture such ballooning growth in an expansive country like Myanmar, the necessary investments into infrastructure must be made, which could become very costly, very fast. Telecom operators would do well by analyzing the revenue potential in the market for future growth, which segments are most-profitable, customer expectations of each segment, and understanding their advantages over competition. This could give an indication on where and how much to invest. The telecom operator should additionally measure and determine corresponding returns on invested capital,” says Dujacquier and Gidwani.

Roland Berger believes that mobile phone penetration is likely to cross 100% rate (one phone per person) by 2017. Some slowdown in the industry can be expected at that time.

“It is normal for telecom operators in mature markets to offer data-centric packages and upsell services to existing consumers. Operators also devise specific strategies to identify, acquire and retain profitable customers,” adds Dujacquier.

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