Boosting International Connectivity Unlocks New Opportunities

BMI View: In BMI's recently-published Myanmar Special Report, we observe that insufficient network infrastructure will be a key obstacle to the nation's plan for 75% mobile penetration rate by 2016. The government is keen to overcome this infrastructure deficit and has announced several projects to boost its international telecommunications capacity. BMI conjectures how raising international connectivity can positively affect mobile operators' internet revenue growth. Handset manufacturers should also benefit as a result.

The Internet Opportunity For Operators

Myanmar currently has an internet penetration of only 1.15%. This is largely a result of bandwidth limitations caused by underinvestment in cable networks. Currently, there is only one international submarine cable - the SEA-ME-WE 3 cable - landing in Myanmar together with cross-border terrestrial fibre cables linking Myanmar to China, India, Laos and Thailand. To alleviate this problem, the government is actively seeking to develop its international telecoms connectivity with multiple projects including the recent awarding of contract to Indonesia's PT Telkom to manage key international cable facilities.

BMI View: In BMI's recently-published Myanmar Special Report, we observe that insufficient network infrastructure will be a key obstacle to the nation's plan for 75% mobile penetration rate by 2016. The government is keen to overcome this infrastructure deficit and has announced several projects to boost its international telecommunications capacity. BMI conjectures how raising international connectivity can positively affect mobile operators' internet revenue growth. Handset manufacturers should also benefit as a result.

The Internet Opportunity For Operators

Myanmar currently has an internet penetration of only 1.15%. This is largely a result of bandwidth limitations caused by underinvestment in cable networks. Currently, there is only one international submarine cable - the SEA-ME-WE 3 cable - landing in Myanmar together with cross-border terrestrial fibre cables linking Myanmar to China, India, Laos and Thailand. To alleviate this problem, the government is actively seeking to develop its international telecoms connectivity with multiple projects including the recent awarding of contract to Indonesia's PT Telkom to manage key international cable facilities.

Key International Connectivity Expansion Projects in 2013
Date Project Description Cable Network
Source: BMI
May 2013 Hutchison Global Communications establish point-of-presence in Myanmar Overland Cable
July 2013 Myanmar Posts and Telecommunications joint venture with China Unicom to develop optical fibre cable SEA-ME-WE 5 Submarine Cable
July 2013 PT Telkom wins tender to manage Myanmar's international network connectivity na

In particular, BMI believes this represents an opportunity for mobile operators in Myanmar. A wider pool of bandwidth suppliers increases the bargaining power of buyers, in this case the telecom operators, so data wholesale prices will fall and this will be passed on to consumers. At the same time, expansion in bandwidth capacity boosts internet speed and fosters greater interest in internet access among consumers and businesses. Together, these factors will drive internet usage and broaden internet revenue contribution to operators. That said, we predict a large proportion of these data revenues to come from mobile data rather than fixed line internet.

Feature Phone Lifespan To Be Shortened

Due to low GDP per capita, low-cost feature phones below US$50 are widely expected to be the mainstream models in Myanmar for the next five years. These are likely to come from neighbouring China as well as India and Indonesia, where there are thriving local handset manufacturing industries. BMI posits that a boost in internet adoption could have the unexpected effect of shortening the life span of feature phones in Myanmar. In emerging markets, consumers have lower spending power, so they tend to access the internet using mobile phones rather than purchase an additional fixed internet package. In key markets such as India, Indonesia and Thailand, demand for advanced messaging and social media services drove adoption of low-cost 'smart-enough phones' despite the lack of 3G infrastructure. Once 3G became available, there was an uptick in demand for more advanced devices, services and applications. We are unlikely to observe widespread adoption of fixed line in every household given the popularity of cheaper internet cafes in the developing countries.

Because mobile phones are the preferred medium to access basic internet services, we conjecture low-cost smartphones will quickly penetrate the Myanmar market. In keeping with other developing markets, smartphone penetration in Myanmar will be highly correlated with the selling price of handsets and data package, both of which will hinge on lower bandwidth costs incurred by operators. That said, the ceiling of total cost of handset ownership (TCO) will likely be much lower in Myanmar than in other markets, so mass adoption of smartphones and data plans will only be reached long after our current five-year forecast window through to 2017. We point to Vietnam, where smartphone penetration remains under 20% four years after the nation's first 3G services were launched. BMI expects Myanmar to follow a similar adoption curve given the same infrastructural deficit seen in Vietnam.

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This article is tagged to:
Sector: Telecommunications
Geography: Myanmar, Myanmar, Myanmar, Myanmar, Myanmar, Myanmar, Myanmar, Myanmar
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