Myanmar witnesses increased demand for mobile communications

Myanmar’s telecoms sector is in the midst of an energetic expansion, which is reshaping the economic and social composition of the country. The arrival of international mobile network operators (MNOs) in the autumn of 2014 is expanding the ICT market well beyond its former capacities, with an array of new technologies that are dramatically changing the landscape of the country.

Rapid Growth

Hailed as the last true telecoms greenfield in Asia, Myanmar’s communications sector has radically evolved in recent years. An impressive number of international companies – a total of 91 – competed for two operating licenses in 2013, which were eventually awarded to Norway’s Telenor and Qatar-based Ooredoo. They joined the market, which was previously monopolised by Myanmar Post and Telecommunications (MPT), and by mid-2015 there were approximately 30m SIM cards sold between them, which represents a 518% increase since 2012, when there were only 5.4m mobile phone users, approximately 10% of the total population. A fourth service provider, MecTel, operates under a separate licensing agreement (see below) and had a further 3.8m customers registered by mid-2015.

Myanmar ranked as the third-fastest-growing mobile base in the world in Q1 2015, behind neighbouring China and Thailand. Yet it has not taken long for investment to boom. According to the Myanmar Investment Commission (MIC), telecoms accounted for 31% of total foreign direct investment (FDI) in the first five months of the 2014/15 fiscal year. Through 2014 and 2015 total foreign investment in telecommunications reached $2.8bn.

Local industry experts expect the market to evolve much further in the future. “The sector is still in a transition phase and we can still expect some adjustments to the legal framework that will suit a more competitive environment,” U Thaung Htike, CEO of Myanmar Interactive Telecom, told OBG. “Myanmar is quickly moving out of the infancy stage in terms of ICT development. Foreign investment and technology is enabling us to leapfrog ahead,” he added.

Growth has been impressive, but operating in Myanmar remains complicated a complicated undertaking. While the entrance of international MNOs has greatly improved the ease of doing business, their roll-out targets have not been achieved without difficulties. Limited infrastructure has delayed the import of equipment, while an unstable supply of electricity means that mobile towers must run at a high cost and often rely on a solar or diesel alternative. In addition to these issues, there is a scarce supply of local ICT experts which has made staffing and retention challenging.

Tug Of War

In an effort to narrow the knowledge and financial gap between MPT and its wealthier competitors, the former monopoly entered into a joint venture with KDDI Summit Global Myanmar (KSGM), a collaboration between Japanese giants KDDI and Sumitomo. So far the 10-year deal, valued at $2bn, is paying off.  Out of the three national telecoms license (NTL) holders, MPT is leading the subscription race, crossing the 16m user mark in August 2015. Telenor is next in line, selling more than 10m SIM cards by July 2015 and approximately $70m in top-up cards by June 2015. In contrast, Ooredoo remains the biggest telecoms investor with $1.4bn spent by October 2015. By the end of June 2015, the Qatari company had sold approximately $49.3m in top ups and 4.3m SIM cards.  

Total in-country revenue generated by the Norwegian firm in H1 2015 amounted to an impressive $140m, whilst Ooredoo had generated $75m. As subscription numbers continue to grow, average revenue per user (ARPU) is dropping as more rural users come onboard. ARPU for Ooredoo went from $7 in Q1 to $6.5 in Q2 2015. Similarly, Telenor ARPU dropped from $6.7 to $5.7 over the same period.      The arrival of new MNOs has created opportunities and challenges for local enterprises. Daw Phyu Phyu Win, CEO of ABC Telecom, told OBG that, “the arrival of Telenor and Ooredoo has increased the amount of projects available for local companies, but it has also resulted in a decrease in the availability of skilled labour and an increase in the cost of land, which has impacted tower construction”.

New Operators

While local and international media often refer to the arrival of a fourth operator, there already is one, MecTel. The often over-looked service provider is owned by the military-run Myanmar Economic Corporation (MEC). While the firm does not have an NTL, it does have a mobile virtual network operator license, issued by the central government, which has allowed the firm to sign up 3.8m customers by mid-2015. Since its commercial launch in April 2013, the firm has expanded its 800 MHz network across a number of regions with a concentration in the Ayeyarwady Region. MecTel is attracting a lot of attention, as it has been suggested that it has plans to leverage off of its military backing. However, the company may struggle to compete with the other main operators as the market matures.

A fourth NTL is expected to be issued in 2016. Announced in early 2015, the tender was only opened to local companies. 17 proposals had been received by the Ministry of Communications and Information Technology (MCIT) by the deadline in August 2015. The invitation stated that only local firms with registered capital of at least MMK3bn ($2.7m) may apply. Candidates also had to agree to pay their share of foreign consultation fees. By late December 2015 no official announcement had been made as to the winner of the fourth NTL. However, local media sources have suggested that of the 17 NTL applicants, 11 had been selected to form a public consortium, each contributing the required $2.7m into a total shared pot. According to the MCIT, the final details of the consortium will be officially announced before the new government takes office in March of 2016.

Domestic private player Yatanarpon Teleport (YTP) is another strong candidate. Initially known as Bagan Cybertech, then rebranded as Myanmar Teleport, it later became YTP under a joint venture with MPT. With a history of providing broadband services, the company was granted a network facilities license in early 2015 that allows it to participate in communication-related services such as fibre-optic installation. The company had not been given permission to move into a mobile operator position by the end of 2015. However, industry analysts suggest that YTP is well positioned to capitalise on the liberalisation of the market. International reports have claimed that YTP was merging with Viettel Global, the investment arm of Vietnam’s military-run Viettel Group, for an initial $800m, while local sources suggest that YTP is planning to form a consortium with Myanmar Information and Communication Technology Development Corporation and A1 Construction Company. However, by the end of December 2015, no official confirmation had been made.

While the end user stands to benefit from this environment of increased competition, the market might already be too crowded for the new player. Regardless of who wins the fourth NTL, it will be difficult for them to penetrate the market. By the time they enter, the existing operators, including MecTel, will have the vast majority of Myanmar covered.

Spectrum

In terms of spectrum allocation, the two international operators were initially assigned two lots of 5 MHz in the 900 MHz band and two lots of 10 MHz in the 2100 MHz band, which are due to expire in 2029. Each firm agreed to the $500m license fee. Since the initial allotment, Telenor has paid an additional $75m for 5 MHz of 2100 MHz spectrum. Both firms are eager to migrate to 4G long-term evolution (LTE) technology. As of December 2015, only MPT had tested LTE technology using 20 MHz in the 1800 MHz band. YTP currently operates WiMAX, and claims 40 MHz in the 2600 MHz band, and has announced it also has plans to move into the 4G realm.

Data Is King

As it stands, 3G demand is leading the market. The growth in demand for data far exceeds the growth in voice. According to Ooredoo statistics, its data usage among mobile phone users doubled from Q1 to Q2 2015, with 80% of users choosing smart mobile phones. From the onset, Ooredoo opted for a 3G-only network, in comparison to Telenor, which chose to operate a combination of 2G and 3G technologies. This approach was based on the initial assumption that approximately only 60% of users would have access to smart phones. However, Telenor has announced it will prioritise 3G coverage due to the major upswing in data demand. According to research conducted by Telenor, voice traffic grew 93%, while data usage increased 196% from January to June 2015.

To assist with managing increased data demand, operators are working on alternatives to the normal tower installation, including small-cell solutions that can be put on alternate sites such as lamp posts or on rooftops, to improve the quality of the network.

Tower Power

The construction of mobile towers is flourishing. Operators have been able to leapfrog older technology, speeding up the implementation process. According to research by the International Finance Corporation and the Groupe Speciale Mobile Association in 2014, 17,300 telecommunication towers need to be constructed by the end of 2017 in order to reach the 70% coverage targets. According to industry estimates, 11,700 towers had been agreed for construction between the three main operators and eight tower firms, of which 7410 had been finished by October 2015, with a concentration in Yangon, Mandalay and Naypyidaw. 2400 of these belong to MPT/KGSM. Irrawaddy Green Tower (IGT) is the only company to have been contracted by both foreign operators, and is responsible for 2900 sites – 1800 for Telenor and 1100 for Ooredoo.

According to Telenor officials, the company planned to have 4000 towers by the end of 2015 and approximately 9000 towers within five years. By June 2015 it had 2308 sites covering 50% of the population. Apollo Towers, funded by Texas Pacific Group (one of the world’s largest equity funds), is responsible for the construction of 1800 towers for Telenor, of which 1040 had been completed by October 2015. A subsidiary of the Young Investment Group called Eco-Friendly Towers has also agreed to build 700 towers for Telenor. Moreover, in early December 2015 Malaysia telecoms service provider OCK Group and its local Myanmar partner, King Royal Technologies, signed a 12-year deal to build and lease more than 900 towers for Telenor. By the end of 2015 the Norwegian firm had signed a build and lease memorandum of understanding for a total of 5227 towers.

Ooredoo had contracted four firms by October 2015 to build 4073 towers, while MPT and its Japanese partners had built 2400 towers by October 2015. The second largest contractor is Pan Asia Majestic Eagle Limited (PAMEL), which secured $85m in financing to build 1250 towers for Ooredoo. Myanmar Tower Company (MTC) owned by Edotco Group and Yoma Strategic Holdings (YSH) had completed 220 towers for the Qatari firm by Q3 2015. Moreover, Myanmar Infrastructure Group (MIG) has signed up to construct 500 towers for Ooredoo.

The versatility shown by individual tower companies in overcoming the challenge of finding access to capital has highlighted investor confidence in the sector. Myanmar’s financial services industry was liberalised in late 2014, albeit with certain restrictions on foreign banks. The PAMEL finance deal, an agreement for $85m between five major financial institutions in Q3 of 2014, was one of the first of its kind in Myanmar, at a time when foreign institutions were still jostling for banking licenses in the country. Not to be outdone, Malaysian telecoms giant Axiata Group has joined the market, issuing $500m in Islamic bonds in November 2015, the largest ever corporate bond issue in Malaysia. This issue has gone to fund its subsidiary, Edotco Group, in a bid to move into the frontier market – $125m of this amount has been used to acquire a 75% stake in MTC, while the remaining 25% is still under YSH, chaired by local business giant Serge Pun. Apollo Towers secured $30m in equity from Myanmar Investments International Limited, after receiving a $250m loan from the Overseas Private Investment Corporation, a development finance arm of the US government.

Land & Power

While telecommunications companies have been able to take the edge off funding restraints, they still must navigate the numerous obstacles associated with infrastructure development. These challenges are most apparent in the lack of clarity over property rights. Myanmar still suffers from a legacy left over from the past nationalisation of land ownership. This has resulted in a lack of overarching policy for land registration and titling issues, so landowners who claim to own property often have little, if any, valid documentation. In some cases one piece of land is claimed by numerous parties. Tower companies continue to struggle as site locations are difficult to acquire and a great deal of negotiation needs to take place when entering into land contracts.  As it stands, foreign companies are not allowed to own land. Instead they enter into a 50-year lease agreement.

Lack of infrastructure continues to hinder the progress of network expansion. Many areas are not reachable by road. Instead of trucks, buffaloes are used in the rainy months to transport expensive equipment. Many sites need to be erected in rural areas where there is often no national grid coverage. As a result many towers are run off a combination of diesel fuel and alternative power sources, such as solar power, which increases operation costs, particularly during the monsoon season when solar power is of little use. The weather has also made progress difficult, with the rainy season typically lasting four months. In addition, Myanmar has a history of ethnic and religious conflict, which makes extending coverage to some areas a challenge.

Sharing

In an effort to surmount the challenges associated with network expansion, operators are agreeing to share towers, which translates into greater income for the tower companies and a reduction of costs for operators, while speeding up network coverage. This is also expected to reduce the cost paid for services by customers. The practice of tower sharing is unusual in urban zones and central Myanmar. However, cooperation is set to increase as efforts move more towards harder-to-reach locations, particularly along the borders of China and Thailand. IGT, for example, has focused more on peripheral and southern states and announced that they expect sharing on 700 of their first 2000 sites, with a tenancy rate of 130%.

Mobile Market

Chinese manufactured smart phones continue to dominate the market, with international communications company Huawei occupying slightly more than 50% of the market, down from 71% in 2013. While there is a decrease in market share for the Chinese firm, resulting from a rise in international imports such as Apple, Samsung and Vivo products, the amount of phones being sold are still increasing at a solid pace as network coverage reaches new communities. A survey conducted by Mileage Communications Myanmar on 250 people in Yangon found that 37.3% of those surveyed owned a Huawei device, 20.5% owned a Samsung and 11.2% owned a Sony. The survey also concluded that 33.3% were prepared to pay MMK200,000 ($180) for a new phone, while 32.7% would be willing to pay MMK400,000 ($360). This demonstrates the increasing purchasing power of Myanmar’s emerging middle class.

Mobile Money

Digitised cash is set to gain momentum in 2016, as more firms look to tap into the urbanisation of Myanmar. Operators are teaming up with local banks and solution providers to establish e-money transaction accounts. Numerous banks have already introduced mobile banking, which is available to people with existing bank accounts. On the other hand, mobile money is largely aimed at the unbanked, and with only 6% of adults having access to a bank account in 2014, the potential for e-money growth is substantial.  While the concept has been tested with great success in African markets such as Kenya, experts believe that Myanmar’s model will more closely resemble those followed in other Asian markets.

Industry insiders are particularly optimistic. “It is groundbreaking territory for Myanmar. For the first time many people that were previously excluded from the financial sector are now able to send and receive money using their mobile devices,” Brad Jones, CEO of Wave Money (a partnership between Yoma Bank and Telenor), told OBG.

The first mobile money platform was launched in January 2014 by the company Myanmar Mobile Money, and since then a growing number of products have entered the market. Yet challenges still remain for the service providers. “Banks have to educate customers and gain trust. Myanmar is still very much a cash-based society. Older generations want to see a product to believe in it, so it is more of a challenge to get them onboard,” U Min Myat Soe Moe, managing director of Skylark IT Solutions and Managed Services, told OBG.

Outlook

Telecommunications development remains a fundamental pillar in the evolution of Myanmar’s economy, and supports the development of other sectors, particularly financial services. Network expansion initiatives will remain a dominant force behind foreign investment and job creation for the foreseeable future. Telecoms infrastructure spending is set to increase as border coverage grows and demand continues to increase.