Make or break moment for Myanmar reforms in opaque telecoms sector

Companies awarded telecommunications licences in Myanmar this week will need to spend billions of dollars rolling out networks across a country that has yet to pass a law to govern the sector and where opaque, state-owned enterprises will remain players.

The process is being watched closely as a test case for reform in Myanmar, although the risks did not stop 90 international firms and groups from joining the initial phase.

Faced with big investments and uncertain returns however, Vodafone Group and China Mobile dropped their joint bid for a licence, saying it did not meet their “internal investment criteria.” The remaining 11 short-listed contenders include Singapore Telecommunications, KDDI and Telenor.

“Nobody has any experience or any idea how the government is going to regulate the sector,” said Edwin Vanderbruggen of Yangon-based law firm VDB Loi, which advises telecom companies hoping to do business here.

After decades of isolation and economic mismanagement under the military, mobile phone penetration in Myanmar is put at 4 to 9 per cent of its 60 million people, lower even than North Korea.

The government of President Thein Sein has pushed through a series of political and economic reforms since 2011, and the award of mobile licences on June 27 should bring a leap forward in digital technology that could speed up economic development.

Vanderbruggen said potential foreign investors in other sectors are watching the process closely. “We really have a make-or-break moment for Myanmar,” he said.

One bad omen for the whole process though is a telecoms bill stuck in parliament.

“The absence of the law being passed or a clear timetable for its introduction adds considerably to uncertainty to those participating in the current bid round, particularly as it is unclear if there are particular issues with the draft that are causing the delay,” said Marae Ciantar, a Singapore-based lawyer with law firm Allens.

Human Rights Watch warned the draft bill incorporated proposals drawn up under the junta that violate freedom of expression.

A confidential tender invitation obtained by Reuters says firms might be required to restrict or intercept communications or let the government “utilise telecommunications equipment” during any public emergency, which was not defined.

The government plans to create a new regulator by 2015 and will transform the current one, Myanmar Post and Telecommunications (MPT), into a majority state-owned company.

The two international telecom companies that win licences will find themselves competing against incumbents that plan joint ventures to raise capital and expand their networks.

The sector is dominated by MPT, whose SIM cards went for as much as US$7,000 (HK$54,300)when they were introduced a decade and a half ago and still cost more than US$200 (HK$1,551) today.

Two other companies have much smaller networks: Yatanarpon, which is majority government-owned and primarily an Internet service provider until now, and Myanmar Economic Corporation (MEC), a labyrinthine, army-owned holding company.

The future role of MEC is far from clear. A latecomer into the telecoms market, it began selling cut-rate SIM cards on April 25. The military conglomerate is tax-exempt and even its board of directors is shrouded in mystery.

Meanwhile, Japan’s KDDI is in partnership with Myanmar Information and Communication Technology Development Corp, a local consortium that includes a company founded by Deputy Minister of Communications and Information Technology Thaung Tin.

“For perceptions of impartiality, fairness and a level playing field, it is highly undesirable for government officials to have personal commercial interests in the sectors which they regulate,” said Ciantar of law firm Allens.

Vanderbruggen of the law firm VDB Loi added some companies that expressed interest in the international licences might really be aiming to work with those domestic operators, becoming partners and helping them expand their networks. Newcomers have to start from scratch and Vanderbruggen estimated an operator could spend US$2 billion rolling out a network.