Telenor, Ooredoo Win Myanmar Telecoms Licences

Communication Tower
Michael Betts | Photographer's Choice | Getty Images
Communication Tower

Norway's Telenor and Qatar's Ooredoo won licences on Thursday to provide telecommunications services in Myanmar, bringing foreign companies across one of the world's last telecoms frontiers.

Companies have been lobbying hard to get into the market, despite the risks of rolling out costly networks in a country that has yet to pass a law to govern the sector.

Ooredoo plans to spend $15 billion over the 15-year licence period, including operational and capital expenditure, licence fees and taxes, Jeremy Sell, Ooredoo chief strategy officer, told Reuters in a telephone interview.

"The licence is actually a small part of it," said Sell.

He said Myanmar's relative lack of mobile communications infrastructure was advantageous in that his company would not need to upgrade old networks, but could create a purpose-built data network with voice capabilities.

(Read More: CNBC Exclusive: Myanmar President Confident About Future of Reform)

"It's not a mobile phone business we are building, it's a broadband network," he said, adding Ooredoo's Myanmar operations were likely to break even after four years.

The Ministry of Communications said that if one of the two licence winners failed to meet post-selection requirements, the back-up candidate would be France's Orange in partnership with Marubeni of Japan.

The winners had "committed to offer a wide range of services to the public at affordable prices in both urban and rural areas", it said.

The lower house of parliament voted on Wednesday to delay the award of the two licences until a new telecommunications law was enacted, but the government body overseeing the tender said parliament had no authority to delay the process.

"In the telecom sector, there is geopolitical risk and regulatory risk and it (Myanmar) has them both," said Ooredoo's Sell.

"It's a very young democracy and the organs of state are in their infancy and don't have much experience, but we were very pleased the process was so intelligently planned and executed and with transparency. So if they continue as they have started we would be very happy."

The winners were selected from a shortlist of 11 bidders, whittled down from more than 90 companies and consortia that had expressed interest in working in a fledgling market of 60 million people, where 9 percent at most have a mobile phone.

(Read More: Mobile Revolution in Myanmar is On the Cards, but Too Slow for Many)

State-owned Posts and Telecommunications (MPT) is the sole provider of telecom services, according to its website.

The bidding in Myanmar's first telecoms auction had been seen as a test case for economic and political change initiated by the quasi-civilian government that came to power in 2011 after 49 years of military rule.

State-controlled Telenor, which has 150 million customers worldwide and operates in neighbouring Thailand and Bangladesh, said it would launch its network next year and achieve nationwide coverage within five years.

The government has said it will finalize the 15-year licences by September and the chosen operators would need to launch services within nine months. They have to provide voice services across three-quarters of the country within five years and data services across half of it.

Political Risk

The telecommunications bill is still making its way through parliament, but the government statement said it was expected to be passed in the current session.

"These issues could have been raised and addressed with the government much earlier in the process," said Marae Ciantar, a lawyer with the Singapore-based firm Allens, which has advised international telecoms companies seeking to invest in Myanmar.

The motion passed by Myanmar's lower house on Wednesday also stipulated that licences should go only to bidders that had domestic companies as partners in a joint venture.

"The attempt to impose such a requirement does give rise to real concern for investors," said Ciantar.

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He noted that the foreign investment law passed last year did not include such restrictions on the telecoms sector, while the government "made it very clear during the tender process that joint ventures with local partners were not required".

Soe Yin, a parliamentarian with the pro-government Union Solidarity and Development Party, which is made up largely of retired military officers, said the motion called for further discussion on the issue, but did not entirely reject the notion of full foreign ownership.

"Some people are not happy we are giving all these tenders to the private foreign companies," he told reporters in Naypyitaw, the capital.

Ooredoo's Sell said there was no obligation under the licence terms to take its Myanmar unit public, but did not rule doing so in the future.

"We quite like IPOs - it contributes back to the society we are making money from, helps to develop capital markets and it's good for customer loyalty too," said Sell.

(Read More: Myanmar to Quadruple Economy by 2030: McKinsey)

Building telecommunications networks is expected to bring a leap forward in digital technology that could speed up economic development in Asia's poorest country after Afghanistan.

But Vodafone and China Mobile abandoned their joint bid, saying it did not meet their "internal investment criteria".

The remaining short-listed contenders, some of whom had local or foreign partners, were:Singapore Telecommunications, KDDI, Digicel, Axiata, Bharti Airtel, MTN, Vietnam's Viettel, and Millicom International Cellular.

MTN said it "still considers Myanmar an attractive market. To this end, we will review other options as they become available."