Myanmar: Telecoms tender spells good news for investors

More than 40 telecoms giants from around the globe are vying for the opportunity to access Myanmar’s untapped market following a government invitation in January to submit expressions of interest (EoIs). Myanmar’s low penetration rates and large population are already generating high interest among industry players, as is the recently-announced investigation into corruption at the Telecoms Ministry, which forms part of a high-profile, government clean-up campaign.

The authorities began looking into malpractice at the Telecoms Ministry soon after the invitation for EoIs was announced, while also investigating the former Minister of Telecommunication and Information Technology, Thein Tun, who resigned earlier in January.

The tender process and corruption case will be the first major test for Myanmar as it moves to bring in foreign investors and develop out-dated infrastructure, in line with its long-term goals of becoming a more democratic and open market.

The mobile penetration rate in Myanmar, which is by far the lowest in Asia, means competition for telecoms licences will be fierce. The Asian Development Bank (ADB) put the country’s mobile penetration at 1.2% in 2010, while estimating a regional average of 78.2% in its 2012 Outlook data. Myanmar’s authorities believe local penetration stands at around 10%.

“This will be the most sought after licence in any sector,” Thura Ko, managing director of Yangon-based YGA Capital, one of the financial partners closely following the tender process for two telecommunications licences, told OBG. “I cannot think of any other market with such a large population and low penetration.” Others hoping to play a part in developing Myanmar’s telecoms industry include Russia’s VimpelCom, Norway’s Telenor, Vietnam’s VNPT-Fujitsu, Malaysia’s Axiata, the Caribbean’s Digicel and India’s Bharti Airtel.

After decades of military rule, the cost of a permanent SIM card in Yangon is now MMK200,000 ($234) , putting a functioning phone out of the reach of most locals. Yet prices are significantly lower today than they were two years ago, when a SIM cost an average of MMK500,000 ($584). In previous years, the price was known to have topped $3000, Ko told OBG.

SIM cards are currently issued by the Ministry to the state-run Myanmar Post and Telecoms (MPT), which, in turn, sells them to local vendors. Ko explained that the revenues from the set-up were not enough to maintain or expand the network. “Funding from local companies alone cannot deliver what is needed. So the government has only one option – to embrace foreign investors and inject much-needed capital and expertise into the system,” he said.

High prices have artificially suppressed the penetration rate for local telecoms network providers and heavily curbed business. Industry players will be hoping that a smooth tender process, coupled with access to cheaper communication technology, will produce a knock-on effect across other sectors of the economy, providing plenty more opportunities for investors.

“The government is quite aware of the need for better laws, a stronger banking sector and better infrastructure,” Ko added, “but telecommunications infrastructure is fundamental to growing the economy and everything else.”

The investigation into corruption at the Telecoms Ministry, which is one of the first forms of action taken against the old regime, forms part of a wider bid by Myanmar to comply with international standards. A new nine-member anti-corruption board was unveiled in February, headed by Vice-President Sai Mauk Kham, which will be looking to clean up all areas of government in the coming months. The campaign has already resulted in the prosecution of around 17,000 civil servants.

The drive is seen by some as the beginning of a purge that will send out a clear signal to potential investors that Myanmar is open for business and eager to improve governance.

“The Myanmar government is aware of the scrutiny it will get and will want to showcase this tender as being clean and transparent,” Ko said. “For example, they have appointed external tender consultants and brought in some industry professionals into the ministry.”

Voters are already keen to see change in Myanmar, even though there are suggestions that after decades of socialist military rule, it could take years to re-wire the system. Cheaper, state-issued SIM cards are expected to be released in the coming months, following a pledge made by the state to increase penetration to 80% by 2015. However, it will take major improvements to services for Myanmar’s businesses to fully feel the benefits of being connected on a global level.

For investors and entrepreneurs struggling to build businesses within the confines of Yangon’s cranky infrastructure, using slow and unreliable connections, the tender award, alongside the entry of an international player in the market, cannot come soon enough.