In only three years Myanmar’s telco sector has become the largest driver of FDI in the country, with international companies scrambling to enter the market.
Myanmar’s opening represents the dismantling of one of the world’s last pariah states. Over the past several years, the government has made concerted efforts to reintegrate the nation of some 54 million into the global community. The most poignant symbol of this was the rise to power of long-time dissident and human rights campaigner Aung San Suu Kyi in April 2016. The hurdles facing Suu Kyi are immense, and the recent upsurge in violence against the Rohingya Muslim minority, as well as increased rebel activity have tarred the country’s efforts at reform.
While sectarian tensions remain a key risk factor to watch out for in 2017, one sector at least – namely the telco sector – has seen impressive growth in recent years, with 2017 shaping up to see even more expansion. Indeed, the telco sector accounted for the largest share of all foreign investment in the country for the 2016-2017 fiscal year, accounting for 47% of the country’s $3.46 billion FDI, according to the Myanmar Investment Commission. It is important to note that this is $1 billion less than in 2015-2016; however, this is attributed to a cautious ‘wait-and-see’ approach by investors regarding new laws and regulations. Of particular importance is the new Investment Law which was ratified on October 18th, and which comes into force on April 1st, 2017.
This new law is part of the government’s efforts to streamline and consolidate its outdated and confusing legal code, which has hampered greater investment. The government expects more entrants into the market in 2017 once investors familiarize themselves with the new system.
Partnerships with local telco firms reaping rewards
Given Myanmar’s (until recent) isolation, the telco expansion in that country has been a rare example of successful reform. There has also been a rapid adoption of communication technology among Burmese citizens, with cell phone penetration rising from less than 10% in 2013 to almost 90% in 2016. This rapid adoption rate was facilitated by early entry by foreign telco providers, namely Norway’s Telenor and Qatar’s Ooredoo in 2014.
More recently, Myanmar Post and Telecommunications partnered with Japan’s KDDI to improve local telco services. Furthermore, on January 12th Myanmar awarded its fourth (and for the moment final) telco license to Vietnam’s Viettel in partnership with two local firms. This creates the second Burmese majority owned operator in the country with Viettel owning a 49% stake, and Myanmar National Telecom Holding Public, and Star High Public Company holding 23% and 28% respectively.
The license (which nets the government some $300 million) is valid for 15 years and can be renewed: Viettel has since announced that it is planning to invest $1.5 billion in Myanmar. Ooredoo has also announced expansion plans, hoping to have 4,500 cell towers and 13,000km of fibre cables in Myanmar by the end of 2017. Ooredoo, the first firm to offer 4G services in Myanmar, is now working on expanding rural 4G coverage, with the company reporting 8.2 million customer as of Q2 2016. This includes the expansion of cheap smartphone plans starting from $22.70.
Another interested party is France’s Canal+ group, which has announced expansion plans into Myanmar as part of its overall Asian strategy. Canal+ is looking as Southeast Asia and Africa as growth markets to offset falling domestic subscription rates: the second half of 2016 saw the company have more international than French customers for the first time. Canal+ already has 800,000 customers in Vietnam, and is looking at working with Myanmar’s Forever (itself partnered with state-owned MRTV) to create a major pay-TV player in the country. This move is in response to the growing potential of a market of some 12 million pay-TV users. Canal+ and Forever will be going up against Shwe Than Lwin Media’s Skynet service, which already offers a rival suite of services, and currently owns broadcasting rights for many international sporting events.
Even the state-run broadcaster is jumping on the reform bandwagon, with MRTV announcing that it will be reducing its informational programs from 60% to 45% of its broadcast schedule, while increasing entertainment to 35% – the station’s 20% educational segment remains unchanged. These changes were accompanied by statements from Minister of Information U Pe Myint stating that MRTV would be moving away from state propaganda, with the aim of becoming a true public service provider.
Easing of payment rules aids growth
Another important development is Myanmar’s increasing efforts to move towards a digital economy. To this end the Central Bank of Myanmar lifted restrictions on international payment companies on January 11th. This move has been hailed as “a landmark announcement” by Visa, with the company currently working with Burmese banks to issue a credit card for domestic and international use.
This is an important for the telco sector in particular, and the wider economy in general, as it will facilitate further adoption rates. The introduction of Visa cards in Myanmar will give consumers an internationally recognized card with which to make local and online purchases, as well as pay for cell phone, pay-TV, internet and other services. This also gives (especially international) companies easier, more secure access to more potential customers.
While the Central Bank’s recent announcement is good news, Myanmar still has a long way to go towards providing widespread cash point and digital payment access. Indeed, the country only welcomed its first ATM in 2011, and currently the nation’s 54 million citizens are only (under) served by some 1,500 ATMs. By way of comparison, Vietnam’s 90 million citizens have access to 17,330 ATMs.
Despite boom, risks remain
While the government continues to reform and facilitate investment, the hybrid military-civilian nature of the government, combined with decades of oppression means that serious risks remain for investors. One of these is the controversial Telecommunications Law, which prohibits the use of telco networks to defame people. Given the junta’s touchy nature, defamation is a rather loose concept, which if infringed carries a fine and three year jail sentence.
This risks for companies from this law has been exemplified by the ordeal of Eleven Media Group, which saw its CEO and editor-in-chief arrested in November on defamation charges after a column owned by the company suggested that a local politician had taken a bribe. To make matters worse, Eleven Media reporter Ko Soe Moe Tun was found murdered in mid-December: he had been investigating illegal logging operations. Many local and high-ranking military officials (and rebel groups) seeking personal enrichment are engaged in illegal logging and mining operations.
While CEO Than Htut and editor-in-chief Wai Phyo were each released on $37,000 bail on January 6th, the charges remain, with both men facing trial in 2017. Eleven Media’s experience shows that telco and media companies must remain wary of running afoul of the military. That said, since the government is courting international companies, these firms are largely insulated from this threat; however, their local partners could be at risk, which could put foreign investors in a difficult situation dealing with ‘guilty by association’ related fallout.
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Under the Radar is written by Senior Analyst Jeremy Luedi.