Wednesday, July 26, 2017

Military makes telecoms move

In the excitement surrounding the recent telecoms licence tender, a significant announcement went mostly unnoticed: army-owned Myanmar Economic Corporation will partner with state-run Myanmar Posts and Telecommunication to compete with the foreign firms.

SIM card lottery winner. Photo: Aung Htay HlaingSIM card lottery winner. Photo: Aung Htay Hlaing

The joint venture was revealed in a statement on June 28 announcing that Ooredoo and Telenor had been granted the licences but attracted little attention.

“It is planned to grant licences to two local operators – Myanmar Posts and Telecommunications and Myanmar Economic Corporation as a joint venture and the other Yatanarpon Teleport Co which will reshape itself as a public company,” it said.

While MPT and MEC will work together, “85 companies concerned were invited and discussions were made transparently to enable local companies to buy shares” in Yatanarpon Teleport, it said.

While hardly a surprise, the announcement brought greater clarity for investors and consumers and put to bed some persistent rumours about what form the local competition for Telenor and Ooredoo would take.

However, it raises questions about the future role of military companies in Myanmar’s economy and the implications for foreign investors. In the telecoms sector, they will be competing against an army-run firm that prospered from lucrative government concessions.

“If they are getting preferential treatment, seeing deals no one else sees, getting better terms, you're creating an environment that deters foreign investment,” said Jeremy Rathjen, vice president of Thura Swiss consulting in Yangon.

Telenor and Ooredoo could not be reached for comment. However, an international telecoms consultant said he did not believe the companies would be concerned about the new partnership.

While it was unlikely that they knew about the plans for a joint venture before it was announced, he described the timing of the announcement as a “non event”.

But even those close to decision makers in the government appear to have been in the dark about the joint venture plans. A government source, who declined to be named, said the committee that conductedthe tender was unaware of the planned joint venture when it was awarding the two licences to foreign companies but added that this would not have affected its decision. “If MEC is making a joint venture with MPT, that is the choice of MPT,” he said.

He said the government only wants to create a fair and level playing field and will not tell companies how they should operate.

He expressed confidence that the new telecommunications law would support a competitive market, adding that consultants from the Asian Development Bank are advising on how to ensure it meets international standards.

Meanwhile, an independent regulatory committee will be formed in 2015. While admitting that two years is a long time to be without such a committee, he said the whole process was generally “on the right track”.

Prior to the announcement there were indications that MEC planned to enter the telecoms sector. When cut-price SIM cards were released in April, many observers were surprised to find they had been manufactured by a previously unheard of company named MECTel. Over the following few months the company sold about 1 million SIMs, at K1500 each, and millions of dollars worth of credit top-up cards.

For the MEC, however, the decision to become a telecoms player is “probably strategic rather than financial”, said independent analyst Richard Horsey.

Unlike fellow military-owned firm Union of Myanmar Economic Holdings Limited (UMEHL), MEC is “mainly focused on securing access to key products that are of strategic importance to the military”, including cement, re-bar and vehicle tyres.

“Mobile communications could also be seen as a key strategic resource, albeit a potentially more lucrative one,” he said.

Both military firms were important players in Myanmar’s military-era economy and were regularly given lucrative import or domestic production monopolies, including on edible oils, vehicles, beer and alcohol. As a result they are both the subject of United States sanctions, which prohibits US companies from doing business with them.

Mr Horsey said that despite their continued role in Myanmar’s economy – UMEHL, for example, is a major shareholder in the Letpadaung copper mine project – “all the indications are that their footprint, while it will remain significant, is shrinking”.

“If MEC and UMEHL continued to dominate the new economy as they did the old, this would be to the significant detriment of the country,” he said. “[But] they have accepted to pay tax, and to lose all of their lucrative monopolies.”

Roger Barlow, an independent telecoms analyst and chief executive officer of Hong Kong-based RJB Consultants Ltd, said military involvement in telecommunications is by no means unique to Myanmar. Vietnamese telecoms firm Viettel is military owned and “has transformed the market and been very successful”, he said. “Maybe MEC is looking to emulate this success.”

While seeing the potential for the joint venture to trouble foreign investors, Mr Rathjen said he was withholding judgement until it becomes clear how the newly formed company will operate.  “Whoever can provide the best service should be allowed to do it.  We'll have to see if [the military] can add benefit to the consumers,” he said.

Edwin Vanderbruggen, a partner at law firm VDB Loi, said he had not been surprised to see the military firm enter the telco fray. The announcement showed that rumours that the companies would work individually with foreign firms were “baseless”.

“For me, the next big question on the telecom front is indeed what MPT and MEC have come up with. I mean, they are not just waiting for the competition to come in, they must have come up with a strategy,” Mr Vanderbruggen said.

“They have a head start, and plenty of sites. So, the big question is, what is their next move? Will they tie up with a foreign joint-venture partner? Or will they raise money themselves? Everyone is waiting to see this.”
– Additional reporting by Thomas Kean