Asia Telecoms - Myanmar-An Untapped Telco Market (14 Mar 2012)

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Asia Telecoms TELECOMS EQUITY RESEARCH Myanmar – an untapped telco market  March 14, 2012 The appeal of 60mn people but less than 3mn mobile users Myanmar: Telecom liberalization on the horizon With around 60mn people and only 4% wireless penetration and 3% fixed, Myanmar is one of the last untapped telco markets in the region. Given the lack of interoperability between GSM/CDMA, the number of unique users we believe could be 2.0mn. Currently, the state-owned operator, Myanmar Post and Telec
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    Asia Telecoms TELECOMS EQUITY RESEARCH Myanmar – an untapped telco market   The appeal of 60mn people butless than 3mn mobile users March 14, 2012 Myanmar: Telecom liberalization on the horizon With around 60mn people and only 4% wireless penetration and 3% fixed,Myanmar is one of the last untapped telco markets in the region. Given thelack of interoperability between GSM/CDMA, the number of unique userswe believe could be 2.0mn. Currently, the state-owned operator, MyanmarPost and Telecommunications (MPT), has a majority of these subscriberson 2G/3G. Yatanarpon Teleport is the other smaller operator, primarily anInternet service provider (ISP). Recent reforms on labour laws and mediacensorship in the country are progressive, in our view, and based on ourrecent discussions with local regulators, we understand that a new telecomlaw, which could allow for more licenses (up to 5) and direct or indirectforeign operator participation, is also in the making (currently in finalstages of drafting). Hence, the telecom sector in Myanmar is likely to be onthe radar for most telcos for incremental investment, we believe. We thinkthere is legitimate cause for fresh optimism on possible political andeconomic reforms in Myanmar, but given the military’s heavy influence,coupled with the strategic importance of Myanmar to China and the US,we believe decision making and implementation will remain challenging. Target to increase wireless penetration to 50% by 2015 Unstable politics and bottlenecks, including: 1) high handset prices(USD45-600); 2) SIM registration cost of USD150-200; 3) long waitingperiods (up to 2 years) and connection hurdles; 4) poor networks andcoverage; and 5) lack of competition have hampered growth. Thegovernment is now targeting 50% wireless penetration by 2015, implying a50% CAGR. For this to happen, competition (lower prices), significantinfrastructure investment (only around 400 BTSs now), and clearer policies(around interconnect etc) are required, in our view. What is the telco opportunity if Myanmar becomes the next Thailand? There is no foreign operator in Myanmar now, but a few Thai and Chinesecompanies (Huawei and ZTE) provide telecom/ satellite equipment. Thesize of Myanmar’s population is close to Thailand’s, where the combinedmarket cap of the top-3 operators is USD23bn. However, Myanmar’scurrent GDP per capita of USD1,300 is 80% lower than Thailand’s; wethink this could improve if the reforms can be sustained. Stocks to watch…a long list Venturing into Myanmar, if and when it opens up, would be consistent withSingTel, Axiata and many other regional/ foreign telcos’ stated strategy toseek growth in underpenetrated markets, but timing remains uncertain. Key details in this report 1) A review of recent political reforms; 2) comparison of Myanmar to otherregional markets; 3) a review of the telco market, including regulations andinfrastructure; 4) foreign participation; and 5) role/objective of regulator. Anchor themes Myanmar’s 60mn population,but 4% penetration suggests anuntapped opportunity and ahigh growth potential market Nomura vs consensus Myanmar is an under-researched market Research analystsASEAN TelecomsSachin Gupta, CFA - NSL sachin.gupta@nomura.com+65 6433 6968 Neeraja Natarajan - NSL neeraja.natarajan@nomura.com+65 6433 6961 Pankaj Suri - NSFSPL pankaj.suri@nomura.com+91 22 4053 3724 Gopakumar Pullaikodi - NSFSPL gopakumar.pullaikodi@nomura.com+91 22 4053 3733   See Appendix A-1 for analystcertification, importantisclosures and the status ofnon-US analysts.  Nomura |Asia Telecoms March 14, 2012  2 Contents 3 Myanmar – the beginning of reforms? 4   How does Myanmar stack up against other Asian markets?   7 An underpenetrated telecom market 7   Low penetration, low competition, high costs   8   Sub 1% internet penetration   9   The regulator/ government – targeting 50% by 2015   10   State of current infrastructure   12 Foreign telcos in Myanmar 13 Appendix 1 – about PTD 14 Appendix A-1  Nomura |Asia Telecoms March 14, 2012  3 Myanmar – the beginning of reforms? Fig. 1: Myanmar – an overview Source: Wikipedia, World Bank, IMF Economic Outlook, Internetworld stats, WCIS ã Following the last elections in 2010, Myanmar’s current President Mr Thein Sein hasbeen progressive in passing reformatory laws, including labour laws that allowfor the formation of unions, relaxation of foreign and domestic media censorship,and the release of thousands of political prisoners.  ã This has also seen the opposition political leader, Ms   Aung San Suu Kyi, re-register her party, the National League of Democracy (NLD), and she is likely torun for the 1 April 2012 by-elections. We think this would be considered a positivestep, but this election is for only 48 of the 664 seats; hence, the majority could still bewith military-backed appointees and/or other parties. The government is also re-negotiating with various ethnic groups, such as the Kachin Independence Army (KIA),and has even signed ceasefire agreements with insurgent groups like the Shan StateArmy-South.ã Various international governments have openly stated their willingness toimprove diplomatic and trade relations with Myanmar, provided these reformsare sustained and not derailed . – Myanmar is expected to chair the ASEAN meeting in 2014. – Earlier this year, the EU also lifted travel restrictions on Myanmar’s top leaders – including the president and vice president. – Foreign investments have since increased from USD300mn in 2009 to USD20bn in2010-11 ( Taste of democracy sends Burma's fragile economy into freefall  , theIndependent, 20 September 2011).   ã However, we note there are still many risks and hurdles to overcome – Thecountry is emerging from nearly two decades of military rule, which still has the powerto seize control, and the objectives (and history) of various insurgent groups may not General facts CapitalNay Pyi DawLanguagesBurmese Area (sq. km)676,578CurrencyBurmese Kyat Demographics Population (mn)62 Popn Growth Rate2.0%Urban population34%Urban population growth2.7% Telecom statistics as per regulator Mobile Subscribers (mn)2-3Mobile penetrationUp to 5%Internet users110,000 Internet penetrationSub-1%Telephone lines (mn)1-2PenetrationUp to 3% Economic indicators 2012F  GDP, current prices (USDbn)52.2GDP per capita, PPP (USD)1,387 GDP Growth Rate4%Inflation4% MYANMAR  Nomura |Asia Telecoms March 14, 2012  4 align with government’s vision. Moreover, we understand public and socialinfrastructure is poor, and even the IMF and the World Bank have them on a watch list.In the late 1980s/ early 1990s, Myanmar had moved to ‘open-door’ policies andreforms, especially for foreign trade, but these were short lived. Fig. 2: Timeline of recent reforms in Myanmar Source: As compiled by BBC country profile, ‘Timeline: Reforms in Burma’, How does Myanmar stack up against other Asian markets? ã Myanmar is rich in natural resources such as oil, gas and timber, and primaryindustries including agriculture contribute around 43% of Myanmar’s GDP ( as per CIA World factbook  ). However its growth outlook as per the IMF is much lower thanthat for other Asian nations; it is expected to grow at an average 4% over next fewyears.ã It is the eleventh most populous country in Asia , but one of the smaller economiesin South East Asia. Myanmar has a population of around 60mn, similar to that ofThailand which is the second-largest economy in SE Asia, or roughly seven times theeconomy of Myanmar. However, Myanmar’s population density of 74 persons per sqkm is below Thailand’s 132.ã Myanmar’s per capita GDP (on a PPP basis) is one of the lowest in Asia at USD1,300as per IMF estimates and compares to India’s USD3,700 and Thailand’s USD9,700.ã 34% of the population is urban (according to World Bank), and this isn’t verydissimilar to that of other developing SE Asian markets.ã Around 70% of the labour force is involved in agriculture and other primary industries(as per CIA World factbook).ã Around 50% of the land is covered by mountains and forests (northern and easternparts), we understand. 2010 NovemberThe main military-backed party, the Union Solidarity and Development Party (USDP), claims a resounding victory in the first elections for 20years. Opposition groups allege widespread fraud and many Western countries condemn the vote as a sham. The junta says it marks thetransition from military rule to a civilian democracy. A week after the election, Aung San Suu Kyi - who had been prevented from taking part - is released from house arrest. 2011 January The government authorises internet connection for Aung San Suu Kyi.March Thein Sein is sworn in as president of a nominally civilian government and the transfer of powers to the new government is complete.May The new government frees thousands of prisoners under an amnesty, but few political prisoners are among them. August Aung San Suu Kyi is allowed to leave Rangoon on a political visit; days later she meets President Thein Sein in Nay Pyi Taw.September President Thein Sein suspends construction of controversial Chinese-funded Myitsone hydroelectric dam, in move seen as showing greater openness to public opinion.October More than 200 political prisoners are freed as part of a general amnesty. New labour laws allowing unions are passed.NovemberThe Association of Southeast Asian Nations (Asean) agrees that Burma will chair the grouping in 2014. Pro-democracy leader Aung San SuuKyi says she will stand for election to parliament, as her party rejoins the political process.DecemberUS Secretary of State Hillary Clinton visits, meets Aung San Suu Kyi and holds talks with President Thein Sein. The US offers to improverelations if democratic reforms continue.President Thein Sein signs a law allowing peaceful demonstrations for the first time. The NLD re-registers as a political party in advance of by-elections for parliament due to be held early in 2012.Burmese authorities agree a truce deal with rebels of Shan ethnic group and orders the military to stop operations against ethnic Kachinrebels. 2012 JanuaryThe government signs a ceasefire with rebels of Karen ethnic group. A day later, hundreds of prisoners are released - among them the country's most prominent political prisoners, including veterans of the1988 student protest movement, monks involved in the 2007 demonstrations and activists from many ethnic minority groups
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