No Myanmar licence for SingTel, hooray! Myanmar has awarded the two coveted foreign operator licences to Telenor of Norway and Ooredoo (formerly Qatar Telecom) with the France Telecom/Marubeni JV picked as backup. SingTel did not get a licence. In a way, this is not a bad outcome as a win would have meant billions of dollars of investment, an opaque regulatory environment and short term losses. Instead, it can now focus on getting opportunities to clinch subcontracts from the winners who will be under great pressure to deliver active services in 9 months’ time, 25% mobile coverage in a year and 80% coverage within 5 years. Raise from SELL to HOLD. TP SGD3.50.

Potential is there but it’s a long term story. Despite great potential however, Myanmar is literally the last frontier and potholes should be expected. For one thing, the population is largely rural with low incomes. The low mobile penetration of 6-7% is the key draw, but the reality is only 13% (<8m people) lives in cities and they are the most likely to subscribe. Average monthly incomes are also reported at USD80-150, while smartphones such as Samsung S4 retail at USD600 with the most popular being Huawei handsets at USD125.

Regulatory environment is very very opaque. Myanmar does not even have legal protection for operators yet as a telecoms bill is still in the works and the timing of it being passed into law is in doubt. A huge concern would have been an uneven playing field, including the possibility of more licences beyond the initial two. The incumbents with networks (Yatanarpon and Myanmar Economic Corporation) are politically well-connected, while the current regulator, MPT, will become a rival when it is converted into a state-owned enterprise in 2015.

Time to turn disappointment into opportunity. What’s clear however is that the winners will need to invest billions of dollars for infrastructure such as towers and underground cables. Despite not winning, SingTel is unlikely to exit Myanmar. Instead, we believe this is a better outcome for SingTel as it will not have to spend billions for a long-dated result, but now have the opportunity to work with the winners to help them build out the necessary infrastructure, thus ensuring positive returns almost immediately.

Source: Maybank Kim Eng Research - 28 Jun 2013