Myanmar's new digital strategy improves ICT development and network readiness

The ICT sector is perhaps Myanmar’s most advanced area of the steadily growing economy. Nevertheless, the era of easy growth and customer acquisition for telecommunications players has come to an end, and a new phase of intense competition has ensued. As the ICT sector matures, there is room for companies to grab market share in the country’s nascent but fast-growing digital economy.

Oversight & Structure

Myanmar’s ICT policy is directed by the Ministry of Transport and Communications (MoTC), established in 2016 under the newly elected National League for Democracy-led government. The ministry’s Universal Service Strategy for Myanmar 2018-22 seeks to extend telecoms services to more than 90% of the population, internet access to at least 85% and high-speed internet to more than 50%. Despite the first two targets having likely already been achieved given the extent of 3G and 4G mobile coverage, the strategy will continue to expand services in rural areas, funded by a 2% levy on the annual revenues of the country’s four telecos. In August 2019 Myanmar launched its first satellite, allowing the MoTC to receive C- and Ku-band services as it seeks to provide near-universal broadband coverage for the country. The $155.7m Intelsat 39/ Myanmar Sat 2 satellite will also deliver emergency communications in the wake of natural disasters.

The Posts and Telecommunications Department (PTD), which falls under the MoTC, handles regulation, and manages the licensing of operators and allocation of spectrum. Under a draft law published in 2017, the PTD is theoretically transitioning into the Myanmar Communications Regulatory Commission, though this effort has stalled. As it stands, the PTD is the industry watchdog. In July 2019 it fined telecoms company Mytel MMK300m ($196,000), equal to 5% of its operating income, for breaking the sector’s tariff rules by offering new subscribers free SIM cards. The MoTC’s IT and Cybersecurity Department handles cybersecurity matters, among other things. Important non-state actors include the Myanmar Computer Federation, an umbrella organisation for related associations and technical groups, and the Myanmar Computer Industry Association, which coordinates cooperation between the government and industry at a regional level. A parliamentary working group handles interactions between the government and foreign donors in the ICT space.

Initially, state-owned Myanma Posts and Telecommunications (MPT) was the sole mobile and telecoms operator in the country, until the government awarded licences to Norway’s Telenor and Qatar’s Ooredoo, both of which launched services in Myanmar in 2014. In the same year MPT welcomed investment from Japan’s KDDI and Sumitomo to help compete against the foreign entrants. Mytel, jointly operated by Vietnam’s Ministry of Defence-owned Viettel and a consortium of local firms, and the Myanmar military-backed Star High Public Company launched their own services in 2018. MPT is the primary provider of fixed-line services, and the leading fixed-line broadband operator in urban areas.

Digital Roadmap

Myanmar ranks among the lowest in ASEAN on four indicators of digital readiness: ICT development, e-government development, network readiness and cybersecurity. Published in February 2019 the Myanmar Digital Economy Roadmap 2018-25 aims to rectify this situation by enabling the use of digital technology in government, trade and investment; developing digital skills and security; and encouraging innovation. The plan lists 14 goals, including raising the share of online financial transactions in the economy from 0.5% in 2019 to 30% by 2025, and increasing foreign direct investment (FDI) in digital industries from $6bn to $12bn over the same period. A Digital Economy Development Committee, chaired by the minster of planning and finance, and other deputy ministers, oversees the road map’s implementation. The roadmap runs in tandem with the Myanmar e-Governance Master Plan 2016-20, under which the country is working to digitise all areas of government and improve its ranking of 157th out of 193 countries in the UN e-Government Survey 2018. For example, in October 2019 the Central Statistical Organisation, along with Telenor and UNICEF, rolled out an electronic birth registration system in Mon State as part of a Mobile Birth and Death Registration project. The move raises the productivity of frontline health staff by reducing paperwork, and empowers children by ensuring they have the right to health, education and social care. Meanwhile, the MoTC is earmarked to receive $93m to build an e-government data centre as part of a loan agreement with South Korea.

However, the feasibility of these plans is undercut by the absence of an updated ICT policy and legal framework, according to the Myanmar Centre for Responsible Business (MCRB). In a policy brief the MCRB highlights gaps in the legal framework covering data privacy and protection, cybersecurity, cybercrime, and intellectual property, among others. These allow for selective enforcement of existing laws, many of which are outdated or vaguely worded. For example, the prosecution of at least 200 people under Article 66(d) of the Telecommunications Law, which allows for defamation proceedings related to comments made online, has had a negative effect on investor confidence, as have lingering questions over the scope of forthcoming cybersecurity legislation. Additionally, the fate of a telecoms master plan, which was drafted by the then-Ministry of Communications and Information Technology, is unclear.

Cybersecurity

The rapid expansion of telecoms infrastructure has left Myanmar vulnerable to cyberattack, with the country ranked 128th out of 175 countries in the International Telecommunication Union’s Global Cybersecurity Index 2018. As e-commerce in Myanmar grows, it will become a larger target for cybercrime, with phishing scams already becoming prevalent. U Myo Khaing Win, deputy director of the Department of Trade, told local media in March 2019 that of Myanmar’s population of around 54m people, 220,000 are active online buyers, and their activity accounts for just 0.07% of GDP.

“Cloud technology will alleviate many of the safety issues that onsite data centres have,” Junichi Kyo, managing director of digital solutions provider ICT Star Group Myanmar, told OBG. “That said, individual behaviour remains the most difficult factor to control.” The majority of cybercrimes in Myanmar involve fraud and sexual abuse, as well as hacking government websites and inciting hate crimes, particularly against ethnic minorities. Monitoring of such crimes, namely on social media, has been made more difficult because oversight remains limited. Myanmar lacks legal provisions to ensure the safety of online communications and transactions, and is actively engaged in drawing up an all-encompassing law that covers e-government, e-commerce and cybersecurity. The World Bank is assisting in this process, according to U Soe Thein, permanent secretary of the MoTC, ahead of a public consultation on a draft law. In January 2019 the Japanese government offered to lend its knowhow to the MoTC cybercrime workshops. Additionally, in September 2019 Russia offered its expertise in e-government, digital platforms and transitioning from analogue to digital broadcast systems.

The MCRB suggests that plans for a single law are too broad and is leading efforts to ensure that whatever form the legislation takes, it balances the security of networks, devices and data with protections on freedoms of expression and privacy. Its cybersecurity and cybercrime briefing published for the Myanmar Digital Rights Forum in January 2019, which it co-hosted, urges the government to consider a separate data protection law as part of a coherent cybersecurity policy framework that clearly defines cybercrimes and avoids vaguely worded provisions that can be used to inhibit freedom of expression and act as a block on digital participation.

Performance & Size

Estimates as to the economic contribution of Myanmar’s ICT sector are difficult to ascertain, but a 2013 McKinsey Global Institute report forecast that the sector would grow from $100m in 2010 to $6.4bn in 2030. World Bank estimates suggest the sector generated $1bn, or 1.5% of GDP in 2018, while the wider digital economy, including ICT, was worth around $1.2bn.

Penetration rates for the internet, mobile internet and social media all stood at 39% each, with the number of internet users rising by 17% year-on-year (y-o-y) to 2m in 2019, according to Hootsuite’s “Digital 2019 Myanmar” report. These rates reflect the fact that many people in Myanmar equate Facebook with the internet and use the nouns interchangeably.

Fixed broadband penetration, meanwhile, remains very low – estimated at 0.1% in 2018 – as a result of the dominance of mobile internet and the high cost of installing connections. However, more than 100 internet service providers now serve fixed wireless internet and fibre-optic connections, running off a nationwide fibre backbone that stretches for 68,000 km. These include local firms Ananda, Myanmar Net and Myanmar Information Highway Company, and Japan’s NTT Communications, among others. Competition is intense, with set-up fees falling below $100 and unlimited data packages available from MMK35,000 ($22.82) per month, with the average broadband tariff in 2019 at $3 per Mbps, down from $50 in 2016. Despite falling prices, the sector remains a beacon for FDI because of its high growth potential. For example, Frontiir, which owns Myanmar Net and has 500,000 subscribers primarily in Yangon and Mandalay, received $30m from the UK’s Commonwealth Development Corporation Group in 2019, in addition to investment from Myanmar-based Delta Capital Myanmar. Frontiir plans to spend the funds on expanding services to 20 cities and towns.

Ooredoo, MPT, GTMH, Singapore-headquartered Campana Group and Thailand-headquartered TrueMoney all operate data centres in Myanmar, serving their own needs and those of industries required to keep data in Myanmar. The majority of enterprises favour cloud storage solutions, including Amazon Web Services and Microsoft Azure, while banks and others legally obligated to do so retain on-site storage. As of November 2019 Myanmar lacked an IP telephony system that allows businesses to integrate their telephony systems, data collection and billing into the cloud. However, local telecoms companies are said to be working on integrating their services with international vendors, according to local media.

Mobile

The mobile penetration rate reached 113.8% in 2018, according to the World Bank, suggesting a high incidence of multiple SIM cards. Indeed, the SIM penetration rate stood at 105% in May 2019. Demand for data services is growing rapidly due to increased video viewership. In terms of handsets, China’s Xiaomi is the leading player, commanding 25.6% of the market as of October 2019, followed by Samsung and Huawei, which hold market shares of 17.8% and 14.5%, respectively.

Huawei sold more than 1m smartphone devices in Myanmar in 2018 and its consumer business grew by 36%. For telecoms companies in Myanmar an era of profitability is ending amid heightened competition. Mytel’s market entry in 2018 attracted significant traction after the regulator allowed the company to offer major price discounts for a 90-day period. Price plans offering 1 GB of data for substantially less than $1 are now commonplace, making Myanmar one of the world’s most affordable smartphone markets.

Service and quality is also advancing: Myanmar saw the second-largest improvement in mobile download speeds in the world in 2018, rising by 121.8%, and 4G download speeds improving by 78%, according to Speedtest Intelligence, a firm offering global performance metrics using data from consumer-initiated tests. Nevertheless, in October 2019 in the Speedtest Global Index ranked Myanmar 83rd out of 141 countries, with a mobile download speed of 22.9 Mbps.

In the second quarter of 2019 Telenor’s revenue declined by 13.4% y-o-y, and its earnings before interest, tax, depreciation and amortisation (EBITDA) margin decreased from 43.8% to 40.5%. Telenor added 1.4m new customers to reach a record total of 19.8m, and revenue from traffic and subscriptions was on an upwards trajectory in 2019. Capital expenditure was focused on increasing coverage of its 4G network and expanding capacity for higher data usage. For Ooredoo, which spent $1bn on acquiring its operating licence – half the amount spent by Telenor – revenue recorded in the first half of 2019 was down 14% y-o-y due to aggressive market pricing, though its EBITDA margin increased from 18% to 25% y-o-y. The customer base expanded by 19% to 11.1m people. Wireless broadband growth and the My Ooredoo app were recognised as key successes in its earnings report.

Expansion

State-owned MPT boasts more than 23m users on its website, along with mobile network coverage of “96% throughout Myanmar”; however, this is hard to assess as of late 2019, as the company is not publicly listed. The same is true of Mytel, which is the only operator to offer a complete package of mobile, fixed-line, transmission and IT services nationwide, despite being the smallest network provider in terms of subscribers. Hoang Trung Thanh, CEO of Mytel, told OBG that the company had 5m users as of January 2019, investment of nearly $1bn, and aims to double its customer base and investment outlay by end-2019. OpenSignal’s report for the five months to May 2019 showed that 4G availability is expanding in Myanmar, led by Mytel and Ooredoo, which achieved coverage of 92.9% and 82.3%, respectively. Mytel was the leader in video experience and matched Ooredoo in download speeds, while Telenor led in latency speeds. Ananda, meanwhile, is distinguishing itself among the competition by offering data-only SIMs.

Network Upgrade

5G is expected to significantly shift the market in Myanmar, and momentum is building for next-generation data services. In August 2019 Mytel announced it had successfully debuted 5G data services on C-band at 3.5 GHz, achieving connection speeds of up to 1.6 Gbps, about 10 times faster than the 4G network limit of 150 Mbps. Mytel is piggybacking on Huawei’s 5G backbone, which Myanmar has pledged to continue using despite pressure from the US government to drop the Chinese telecoms equipment supplier after it was banned in the US for its alleged involvement in digital espionage. Elsewhere, in May 2019 Ooredoo Myanmar and China’s ZTE signed a memorandum of understanding to collaborate on a 5G network development. By September 2019 the partnership was ready to showcase a 5G-enabled immersive virtual reality experience and a drone-based monitoring system during a test event in Yangon. Ooredoo Myanmar’s 5G network has reportedly provided speeds of up to 1.75 Gbps during live speed tests. While this might suggest an imminent commercial rollout, U Soe Thein told the 2019 Mobile World Congress in Barcelona, Spain, held in February, that Myanmar will not be ready to deploy 5G before 2023, citing a lack of compliant handsets and insufficient spectrum as key reasons for the delay.

Internet

In October 2019 Myanmar became the last major digital nation to switch to the Unicode system that underpins digital communications worldwide. Telecommunications companies, content providers, device makers and other ICT stakeholders have all been urged to lead the transition, in the hope of encouraging the 90% of users who render Myanmar language content in the homegrown Zawgyi code – a holdover from its international isolation under military rule to follow suit. It is hoped that a gradual switch to Unicode will help further integrate Myanmar into the global digital community. For example, Facebook told local press that the switch would better enable its content tracking tools to detect hate speech. Government officials also said the switch will help ease software compatibility issues and help hasten Myanmar’s transition to e-government.

The vast majority of consumers in Myanmar access the internet through their phones, in large part due to the high rates of SIM card and smartphone penetration. The popularity of mobile internet means that the country’s fixed-line infrastructure lags far behind, but significant improvements have been made to the country’s internet backbone in recent years. International internet connectivity now runs in excess of 440 Gbps, more than 10 times the level when ICT sector reform began in earnest in 2015. In October 2018 Campana Group secured series B equity funding of $80m to build a new subsea link between Singapore, Thailand and Myanmar. Equity will be used to fund the four-fibre pair 2200-km Singapore-Myanmar Submarine Cable System (SIGMAR) that will connect Campana’s International Gateway facility in Thanlyin, Myanmar to Tuas, Singapore, according to international media. Campana will also increase investments in the metropolitan core and last-mile provision to accelerate growth in enterprise and cloud services. SIGMAR complements cross-border terrestrial cables linking Myanmar to China, India and Thailand, and two other submarine cables: the Asia-Africa-Europe-1 and South-east Asia-Middle East-Western Europe-5. The additional bandwidth is critical for Myanmar to effectively transition to 5G given that many servers and staging stations are hosted outside the country. “Myanmar customers have embraced connectivity and are now active data users. To keep pace with this transition, regulations need to be more data-centric and facilitate cross-border data flows,” Sharad Mehrotra, CEO of Telenor Myanmar, told OBG. “Fast, efficient and reliable connectivity is crucial to deliver the digital entertainment services users now expect.”

Mobile Technology

Myanmar has the potential to leapfrog technological development, skipping desktop-based connectivity to emerge as a mobilefirst digital ecosystem. “The regulation of mobile financial services in Myanmar is open to innovation. This provides a great opportunity for creativity in the telcos space, as we see the convergence between the telecommunications and the financial services industries gather pace,” Thanh told OBG.

With a smartphone penetration rate of roughly 80%, Myanmar is ripe to embrace financial technology, which will in turn lead to the growth of a vibrant digital economy. However, a lack of trust in the banking system among a population jaded after successive banking crises and currency collapses is a major stumbling block. In 2018 around 48% of the population were unbanked. Moves are afoot to broaden the number of consumers who can participate in the digital economy. For example, Norway’s Nets Group is introducing QR code payment systems to Myanmar, while the Myanmar Payment Union has already developed a national payments switch solution, modelled after Singapore’s system. However, significant investment in education will be required to shift the mentality of citizens.

Digital Transition

Yangon-based Nexlabs is a digital transformation specialist on the frontline of Myanmar’s transition from a paper to a digital economy. U Hein Win Toe, chief technology officer at Nexlabs, told OBG that most clients lack the capacity to undergo a full-scale digital transition. This is in part due to a lack of general financing, but also the misunderstanding that digital transformations are to be enacted piecemeal by IT departments, rather than led company-wide by senior executives. Another difficulty is a lack of basic digital literacy among employees, as well as very high churn rates for ICT staff, who are constantly being tempted to shift roles by higher salaries. “There is high demand for qualified staff, and people are bringing in a lot of digital transformation talent,” Hein Win Toe told OBG. “Banks can pay double the market rate, while small and medium-sized enterprises struggle to find replacements.” The onus is consequently on employers to create non-salary benefits, such as training opportunities, to hang onto their talent.

Many of the 3000 or so graduates emerging from Myanmar’s more than two dozen computer science educational institutions each year lack the soft skills required in the workplace and could benefit from specialist training in coding. However, this consistent talent flow, coupled with ultra-competitive graduate wages of about $200 per month, rising to over $1000 for senior developers, will likely swell the pool of software companies seeking to enter the market. Mobile money is a bright spot in the digital space, with various services rapidly supplanting outdated means of moving funds, including cash delivery and other informal remittance channels. Wave Money, a joint venture between Telenor and Yoma Bank, is the market leader. The company reports having 50,000 agents, 11m customers and $2.8bn in remittances from January to September 2019. TrueMoney is the second-largest player, with 20,000 agents, 5m customers and $65m in annual remittances.

There is also significant activity in the mobile payments space. KBZP ay, a mobile wallet backed by KBZ Bank and Huawei, said in February 2019 that 1.6m people have downloaded its app and 1m have verified accounts. KBZP ay’s network extends to 40,000 agents, allowing customers to make cashless transactions, transfer money, top up mobile credit and pay bills. However, the company has not released data on transactions, and take-up of its services among merchants is limited. In Myanmar tight profit margin vendors cannot afford the transaction fees involved in frequently moving money in and out of the wallet.

Outlook

Myanmar has wide-ranging plans to grow its digital economy and is actively engaging in efforts to improve the foundations of its digital ecosystem and convert its smartphone-wielding population into online consumers. However, it will require significant development of a policy framework, as well as investment in digital literacy and ICT skills, to realise the country’s digital economic potential.

These might focus on providing digital vocational training and fostering ecosystems that allow pure technology companies to thrive. In telecoms the arena has become ultra-competitive and highly price-sensitive, and it will need to be determined whether the market can support four players as capital expenditure demands increase in the race to lead the market in 5G services. Irrespective of whether there is an element of consolidation, Myanmar’s ICT market remains a strong medium- to long-term bet for both consumer-facing and enterprise-focused companies.