A first look at the tower industry in Myanmar

The race is on to deliver coverage and capacity to the virgin territory of Myanmar. Multiple towercos are jostling for clusters of towers handed out by two international and two local operators. Local ICT experience is scarce; a lot of knowledge and equipment must be imported. Electricity and transport infrastructure are under-developed. Myanmar is not a tower market for the feint-hearted, but the opportunity may be as great as any in the global tower industry. TowerXchange takes a first look...

The attractiveness of Myanmar, one of the last green field mobile markets in the world, led to a fierce battle for two recently issued mobile licenses. And a similarly fierce battle is brewing among towercos.

91 parties registered interest in securing a mobile license in Myanmar. 11 operators were shortlisted, and the process eventually yielded 15-year mobile licenses for Telenor and Ooredoo, confirmed in early 2014. They will soon be joined by incumbent operator Myanmar Post & Telecommunication (MPT) and Wi-MAX operator Yandanarpon Teleport (YTP), which both intend to expand toward national coverage when they receive their license.

The attraction of Myanmar is obvious. With a population estimated at 60mn (a census this year should give a more accurate number), there is a lengthy runway for growth in a country estimated to have only 1,500 towers. Mobile penetration is currently less than 10%, largely due to the staggering cost of SIM cards before market liberalisation. A 2013 Analysys Mason study found SIM cards costing US$450, but surprisingly also high mobile penetration of 50% among adults in urban areas - an indication of pent-up demand.

With only 32.6%* of Myanmar’s population in urban areas, and 45.3%* aged under 25, it’s clear achievement of the government’s aggressive penetration targets will not be dependent on serving affluent adults in Yangon, Mandalay and Naypyidaw, but on improving coverage and affordability in rural areas.

The CIA Factbook describes Myanmar as a “resource-rich country,” but also as the “poorest country in Southeast Asia” where “corruption is prevalent.” GDP per capital was estimated as US$1,600* in 2012. (*Source: CIA Factbook)

Telenor expects to have 1,000 towers at launch, and close to 8,000 by the end of the rollout period in five years time. The majority of towers are expected to be owned and operated by towercos. Even with many towers shared, if Ooredoo’s rollout were of a similar scale, and with MPT and YTP sites also to be added, you can start to see why a target of 60% coverage within five years is considered by most commentators to be extremely aggressive.

3G services will mainly be focused on the heavy data traffic urban areas, while in villages 2G will provide mass coverage in more scarcely populated areas.

The capex burden of the rollout is expected to be eased by what Jon Fredrik Baksaas, CEO of Telenor Group called “deep cooperation with tower companies and other suppliers that will deliver both IT services and rental services.” Baksaas describes a “cost efficient operation which will give us affordable prices to the market,” having stated that Telenor’s peak funding in Myanmar would be around US$1bn.

“The regulator and the government has encouraged passive infrastructure sharing,” continued Petter Furberg, CEO of Telenor Myanmar. “We believe that in Myanmar we can avoid making the same mistakes that we’ve done in many other markets where we have been building multiple towers to cover one particular village. It will be good for the country because it will secure a faster rollout, it will secure lower cost overall and of course it is significantly better for the environment.”

“We will outsource energy to tower companies,” added Telenor Myanmar’s Furberg. “Because of this we believe we will be able to keep a capex light model and still a long term opex to sales ratio similar to what we see in other Asian operations, but because we are using tower companies you can also see that tower lease becomes a significant part of our opex in this operation.”

At least four towercos have already formed partnerships in Myanmar, with a fifth believed to be imminent. Operators are assigning clusters of around 1,000 to 1,500 sites at a time.

Telenor has formed partnerships with Apollo Towers and Golden Towers. Apollo’s management team and ownership has strong ties with Eaton Towers. Golden Towers is a joint venture between Alcazar Capital-backed Golden Towers and Viom Networks.

In February 2014, TMT Finance reported that investors with links to Tower Bersama were in discussion with MPT about fulfilling their requirement for a towerco to head up their rollout. YTP are also believed to be in negotiations with several towercos.

Having narrowly missed out on a mobile network operator license in, Digicel have accumulated three years of experience in Myanmar, and have built a substantial team on the ground. With an already-written radio plan and a relationship with Myanmar real estate leaders Yoma Strategic Holding, Digicel Myanmar Tower Company promises to be a formidable player. Digicel has partnered with Magellan, a proven Philippine contractor.

Five substantial risks await Myanmar’s towercos: a lack of proven partners; a weak land registry and slow permitting process; potential unrest; and an under developed transport and power infrastructure.

Given the immaturity of the ICT sector, there’s no proven ecosystem of tower product and service suppliers in Myanmar, so towercos are going to have to import a lot of goods and services.

The land registry is weak in Myanmar, so establishing ownership of real estate will be one challenge to acquiring cell sites, compounded by an apparent lack of capacity to process building permits in a timely manner, something the government is currently addressing.

While the CIA Factbook reports that in 2012 preliminary peace agreements with 10 of the 11 major armed ethnic groups were reached, simmering violence between Buddhists and the Muslim Rohingya erupted in 2013, emphasising that isolated instances of conflict could still be a challenge to tower operations in Myanmar.

Transport infrastructure is very poor beyond Myanmar’s major cities, with half the roads impassable during the rainy reason.

With just 25% of Myanmar’s population having access to electricity, the energy logistics challenges, and security risks, familiar from Africa will be another issue for towercos. The World Bank estimates that Myanmar needs to double its energy production capacity, so outages and rationing are commonplace. Telenor have already hinted that they expect Myanmar to have the highest proportion of solar powered base stations in their global portfolio.

To conclude, we’ll go back to the race analogy. Deploying thousands of towers in Myanmar will be a marathon not a sprint. A five year plus marathon, wading through a lot of literal mud and metaphorical bureaucratic mud. In five years time, we could be holding up Myanmar as an example of how to co-ordinate the accelerated rollout of a shared tower network into a very challenging environment. Now that TowerXchange has embarked upon our own Southeast Asian journey, we look forward to recording, and sharing, the evolution of the Myanmar tower market.

Karim Dakki is a Vice President at Alcazar Capital, currently serving as CFO of Golden Towers, one of Alcazar’s TowerCo investments. Alcazar was initially setup as the private equity arm of Agility Logistics, subsequently separated by an MBO, and was managing Agility’s telecom assets of over US$400mn in equity investment, with a market value of over US$2bn. Alcazar has active investments including Telkom Kenya - a privatisation done together with Orange; Korek Telecom - the third mobile license in Iraq, which subsequently became Orange Iraq; and Heliocentris - a provider of clean energy solutions for telecom and tower companies.

“We saw a play in telecom infrastructure very early on and have been focusing on this since 2008” said Alcazar’s Karim Dakki. “Having explored several opportunities in Africa, we decided to focus on Southeast Asia, given the growth prospects. Golden Towers is up and running in Vietnam where we recently secured our investment certificate and expect to own a portfolio of around 500 towers before the end of the year. Our strategy in Vietnam is mainly an acquisition and consolidation play. It’s an asset management business in Vietnam - the grid is fairly good so energy is not part of our service proposition there.”

Alcazar has also seeded and arranged the financing of the largest towerco in Myanmar, a joint venture between Golden Towers and an established Indian towerco, which has an understanding with one operator to build and operate 1,500 towers, including operating power infrastructure.

“We can’t say too much about our activity in Myanmar yet as our initial commitment is only phase one, and we hope to secure further allocations,” continues Dakki. “The Myanmar market is particularly attractive for towercos as from day one the network will be designed to maximise sharing, with all the towers built by towercos. Transport and energy infrastructure is not very developed in Myanmar, and not everyone is taking energy risk. However, we are able to leverage our knowledge of cell site energy through our investment in Heliocentris, an innovative hybrid and renewable energy solutions provider. This effectively gives us a proven in-house green power R&D team, invaluable expertise when it comes to dimensioning and optimising energy efficiency at cell sites. We anticipate that a large proportion of the towers in Myanmar will use energy efficient and renewable energy configurations,” concludes Alcazar Capital’s Kaim Dakki, who also serves at Golden Towers’ CFO.