Polastri Wint & Partners on the site acquisition challenges in Myanmar

TowerXchange had a unique opportunity to chat with one of the leading law firms in Myanmar, Polastri Wint & Partners, who are currently acting for one of Myanmar’s towercos as they acquire sites for 1,500 towers across the country. For an insight into the realities of site acquisition in Myanmar, TowerXchange spoke to Senior Partner Wint Thandar Oo and Partner Karina Peng.

TowerXchange: Please introduce Polastri Wint & Partners with a particular emphasis on your work in telecoms in Myanmar.

Polastri Wint & Partners is a leading law firm, based in Yangon, Myanmar comprising twenty lawyers and four partners. We represent various players in the telecommunications sector including a tower company, telecommunications equipment vendors, and telecommunications service providers.  We also provide the full range of legal services across sectors including corporate, tax, major infrastructure, energy and natural resources.

In respect of the on-going nationwide site acquisition exercise, we work with our affiliates in various States and Regions of Myanmar to undertake land due diligence on proposed sites, both greenfield and rooftop. This is achieved through investigation of title based on review of title documentation and checks conducted physically at the Land Title Registry, followed by “on the ground” investigations with among others, the neighbourhood community.  We have also advised on the provisions of lease agreements to be entered into between land holders and our towerco client from a Myanmar law compliance perspective.  Additionally, we also assist our client with lease execution formalities and registration of leases.

TowerXchange: What process have the operators used to engage towercos in Myanmar?

From our experience, the operators have used a very thorough and exacting process to select towerco partners, over numerous (intense) negotiation sessions, making sure risks are shared or passed on as much as possible to towercos.

Not surprisingly, as the selection process went by, it seemed that many interested towercos walked away. Hence, the towerco field narrowed considerably, so much so that the operators were obliged to take a more reasonable approach in contract negotiations.

Early this year, telecommunications licenses were issued to Telenor and Ooredoo, the two international operators (about a year after the Union Government called for expressions of interest for the same), triggering their respective telecommunications infrastructure rollout obligations. The operators have chosen towerco partners for the first tranches of sites.

TowerXchange: Please sum up the risks facing towercos and their suppliers in Myanmar.

The Telecommunications Law having just come into force and effect on 8 October 2013, is subject to on-going interpretation and refinement in respect of its practical effect. With the delay in the enactment of rules implementing the Telecommunications Law, and also the lack of any concrete policy applying to towercos - perhaps the biggest risk for towercos is commencing site acquisition activities prior to being granted the relevant licenses.  Be that as it may, there is no choice but to commence work now if the aggressive roll-out deadlines are to be met.

There is also a fair amount of political risk to stomach, with elections scheduled for 2015 and lack of closure of a nationwide peace treaty among various ethnic groups. Geographically, mountainous terrains particularly in Upper Myanmar coupled with lack of proper transport infrastructure, reduces access to these areas, increasing time and financial costs for delivery of sites.

With little grid power available beyond the more densely populated areas, alternative sources of energy supply will have to be considered.  The low electrification rate also presents a barrier to investments in and/or an increase in existing investments in the manufacturing sector.  Consequently, towercos would be hard pressed to obtain locally sourced industrial output such as building materials (including appropriate quality cement) and steel frames.

This all makes investment in tower infrastructure risky, but the potential rewards, considering Myanmar’s market of 60 million people may mean that pioneers are persevering!

TowerXchange: Do the towercos also take on responsibility for power in Myanmar, or is that ‘passed through’ to the operator tenants?

From our experience, power solutions are required to be offered by towercos as part of the entire site delivery package – sites must be duly installed with passive infrastructure and power solutions, so that all that a carrier needs to do is to mount their antennas.

TowerXchange: Are operators asking towercos just to build the sites or do the towercos own the structures and lease space to the operators?   

Towercos will build and own the structures, with space on the structures to be leased or licensed to operators.

TowerXchange: In your experience, does there seem to be a commitment to sharing towers among the operators?

From our experience, the operators will look to share towers. As a matter of fact, the Telecommunications Law specifically permits the sharing of network facilities between licensees. Logically, the towerco business model will not make sense with one tenant per tower, and operators will be forced to share because of high capital and operating expenditure, particularly at the many hard to access areas and off-grid sites.

TowerXchange: What are the most salient points of real estate law in Myanmar that affect the telecom tower industry?

Under the Myanmar Constitution, all lands belong to the Union Government; citizens can only lease land, with long term leases being renewed without much ado.

For a foreign registered company or a company registered in Myanmar, whose shares are wholly or partially owned by non-Myanmar citizens or foreign registered companies, the single most restrictive provision can be found in the Transfer of Immoveable Property Restriction Act 1987, which prohibits their entry into leases of immoveable property of more than a year.  Notwithstanding, foreign investors may apply for grant of an investment permit under the Foreign Investment Law 2012, under which regime, foreign investors may be allowed to enter into long term leases of up to fifty years, with two ten year term extensions.  With an investment permit, the foreign investor would also be entitled to certain tax exemptions and reliefs.

There is no single piece of land legislation defining real estate law in Myanmar; with various categories of land being subject to separate laws and regulations. There is also a multitude of land title documentation for different categories of land, not to mention different procedures and practices applying to transfers of interests in land and registration of such transfers at various levels of administration.

Given the above, the processes involved in conducting due diligence, to be able to get through to final lease execution and registration is needless to say, time-consuming. Short-cuts are never recommended when it comes to leasing immoveable property in Myanmar, considering that locals still have the practice of (purportedly) transferring land over a handshake.  Also, very often, transfers of interests in land are not registered (when they ought to be) for avoidance of stamp duty payment or otherwise.

One particular provision that has raised a lot of concern of late among operators and towercos alike is a provision in the Foreign Investment Law 2012 which states that religious lands cannot be leased for “operating any business”. In a region such as Mandalay, where there are many temples, strict adherence to this provision would have an adverse affect on network coverage in Myanmar’s second most populous city! The towercos are lobbying to make this point to the Government, and to push for amendments to this and other parts of the legal framework, not conducive to site acquisition.

TowerXchange: What kind of a license will a towerco need in Myanmar?

Foreign held towercos will require an investment permit under the Foreign Investment Law, and like every company in Myanmar they will need a commercial registration under the Myanmar Companies Act. As rolling out telecoms infrastructure is very capital intensive, towercos will also need an import permit to bring in equipment.

Under the Telecommunications Law, a towerco would also be required to obtain a license to provide Network Facilities Services, defined therein as “service of leasing any element or combination of elements of physical infrastructure which is used for the provision of (telecommunications) network services”. While Network Facilities Service license is defined in the new Telecommunications Law, detailed requirements and procedures for application and grant of such license (as provided in the draft Rules for the Telecommunications Sector issued for public consultation in December 2013) are yet to be formalised.

Pressure is mounting on the Union Parliament to pass the said rules quickly to enable operators to meet the roll-out timetable set out in the terms of their respective licenses.

TowerXchange: Will Competition Law in Myanmar affect the conduct and lease pricing of towercos?

There is no single Competition Law in Myanmar. Be that as it may, the Telecommunications Law 2013 contains provisions which prohibits anti-competitive practices amongst telecommunications licensees; but their exact impact on lease pricing is yet to be known.

However, taking into account all the risks, and demand for tenancies not just from Telenor and Ooredoo but also local operators Myanmar Posts and Telecommunication (MPT) and Yatanarpon Teleport (YTP), we feel lease pricing will be determined by the market.

We think there is less risk of interference with lease pricing, and greater risk of word spreading among private leaseholders, driving up rental rates.

TowerXchange: What do companies need to know about importing telecoms equipment into Myanmar?

Until recently, private telecommunications operators and contractors were not permitted in Myanmar. Only Government-owned enterprises had the right to import telecommunications equipment – the market has only just liberalised.

With an investment permit issued by the Myanmar Investment Commission and an import permit, issued by the Ministry of Commerce, foreign towercos and their suppliers can import telecommunications equipment, with the recommendation of the Ministry of Communications and Information Technology, and where relevant, with the issuance of a telecommunications equipment license issued by the Posts and Telecommunications Department (which list of equipment will be formalised once the Telecommunications Rules have been enacted). Importers will be required to provide detailed information on the equipment proposed to be imported including the volume and specifications of such equipment, as part of the application for an investment permit.

TowerXchange: How would you summarise your view of the telecom tower market in Myanmar.

The telecom sector is very dynamic in Myanmar – things change day by day. Plans and schedules are revised time and time again.

With no single law or regulation covering and connecting land use, build permits, registration of telecommunications tower sites and the right to take security over tower assets or land lease rights (not to mention the lack of implementing rules under the Telecommunications Law), it is safe to say that investors willing to invest in Myanmar should most certainly be practical, patient and persistent. As sites have been acquired and telecommunications infrastructure have been successfully rolled out even in war-torn areas of the African continent, we do not see any reason why it cannot be done here in Myanmar.

Towercos are now on the ground in Myanmar. Everyone is geared up, the site hunters are out, and sites are being acquired. The legal processes we have set up are going smoothly; we will start with due diligence on the ground soon, and expect the first leases to be signed within the next one to two months, targeting having all 1,500 leases completed over the next few months.

The Ministry of Communications and Information Technology are happy to support the installation of towers in Myanmar – the Government would like a swift, seamless progression to extend telecommunications access across Myanmar, with the help of local operators, the new international operators and their towerco partners.