Quarterly Business Magazine

Myanmar’s Telecommunications Revolution

Posted :
Wednesday, October 15, 2014
MPT's Old Office in Yangon

In the past two years, the legal framework governing the telecommunications sector in Myanmar has undergone a massive shift, with the pre-existing state monopoly system being replaced by a regulated market open to foreign investment following the passage of the new Telecommunications Law (2013) (the “Telecoms Law (2013)”). Among the key changes have been the opening of telecommunications operator licenses to foreign-owned entities and the adoption of a new, liberalized licensing scheme to streamline the process for foreign support services companies to enter the market. Additionally, the Telecoms Law (2013) sets out new rules and regulations to replace a patchwork of acts, including the Telegraph Act (1885) and the Wireless Telegraphy Act (1934), among others, that had previously controlled the sector.

Until these recent changes, Myanmar Posts and Telecommunications (“MPT”) and Yatanarpon Teleport Pte. Ltd. (“YTP”) were operated as state-owned monopolies and acted as the primary providers of telecommunications services in Myanmar. After a compe-titive bidding process concluded in June 2013, two new foreign operators, Telenor of Norway and Ooredoo of Qatar have been added to the mix. As of August 2014, Ooredoo has begun a test phase of its mobile services and unconfirmed reports indicate that Telenor expects to begin mobile services as soon as September 2014.

In July 2014, Japanese-based KDDI Corporation and Sumitomo Corporation have also cemented a business arrangement with MPT, which will result in the modernization of MPT’s existing telecommunications network. The arrangement involves a significant capital commitment from the Japanese-based entities, which will allow MPT to benefit from updated equipment, wider network coverage and cutting-edge training for its existing employees.

While the Telecoms Law (2013) has been in force for nearly a year, its implementing rules and regulations remain in draft form (the “Draft Tele-coms Rules”), and are awaiting the final approval of the President. The Draft Telecoms Rules are expected to be formally issued by the end of 2014 and are, in fact, already being implemented to a limited degree by the Posts and Telecommunications Department (the “PTD”), the Myanmar telecommunications regulatory authority, in an effort to speed up the new telecommunications network roll-out.

Four Varieties of Telecommuni-cations Licenses
The Telecoms Law (2013) provides for four categories of licenses available to companies that desire to provide telecommunications services (the “Telecommunications Licenses”) in Myanmar. These Telecommunications Licenses are:
(a) Network Facilities Service License (Individual) (the “NFS-I License”);
(b) Network Facilities Service License (Class) (the “NFS-C License”);
(c) Network Service License (the “NS License”); and
(d) Application Service License (the “AS Service License”).

The NFS-I License is the general operator’s license awarded to those foreign companies selected under the telecommunications bidding process - Telenor and Ooredoo - as well as to the existing state-owned entities already operating in Myanmar, namely, MPT and YTP. The NFS-I License allows for the construction, maintenance and operation of a telecommunications network and associated facilities and infrastructure, and is considered an “all of the above” license that allows a licensee to engage in any telecommu-nications-related activity otherwise allowed under Myanmar law.

Equally important under the revamped licensing scheme is the NFS-C License that allows for the construction, deployment, maintenance and lease of passive telecommunications network infra-structure. In contrast to the NFS-I License, the NFS-C License does not allow for actual operation of a tele-communications network outside of the self-provision of telecommunications services. Still, the NFS-C License is highly sought after by foreign companies entering Myanmar’s telecommunications market, as it is necessary for the provision of most telecommunications infrastructure related services, such as the construction of telecommunications towers and the laying of fiber-optic cable.

Meanwhile, the NS License and AS License have a more limited scope of coverage, and generally allow the grantee to lease services from an entity operating under an NFS-I License or an NFS-C License. The NS License allows a licensee to lease transmission capacity from an NFS-I licensee for the purposes of providing national or international telecommuni-cation services. Similarly, the AS License allows for lease of capacity from an operator, but only allows for the provision of domestic telecommunications services.

Telecommunications Licensing Procedures
While there are four distinct Telecommunications Licenses under the Telecoms Law (2013), there are only two distinct licensing procedures under the Draft Telecoms Rules: one for NFS-I Licenses and NS Licenses and the other for NFS-C Licenses and AS Licenses. The primary differences between these application procedures are in the depth of information sought and the subjectivity of the proposed approval processes. Generally, the NFS-I License/NS License application procedures request a greater amount of information and the Ministry of Communications and Information Technology (the “MCIT”) is expected to have greater discretion in determining whether an applicant is sufficiently experienced to be licensed. In contrast, the NFS-C License/AS License application is actually referred to as a “Registration Form,” and is expected to be subject only to review to determine if minimum requirements are met. As one would expect, the information required by the Registration Form is also less in-depth than that required by the NFS-I License/NS License application, although both procedures request similar kinds of information about the incorporating entity such as its directors, shareholders and the like.

In addition to applying to the MCIT for a Telecommunications License, a foreign investor in Myanmar’s telecommuni-cations sector must also apply to the Myanmar Investment Commission (the “MIC”) for an investment permit (the “MIC Permit”) under the Myanmar Foreign Investment Law (2012). During the course of reviewing an application for the MIC Permit, the MIC will coordinate with the MCIT to seek the latter’s further approval. If approved, the foreign investor will gain a number of benefits from the MIC Permit including tax incentives, the ability to apply for an export/import license, and the ability to lease land for terms extending beyond one year. As of the date of writing, we are aware of 8 companies that have obtained MIC Permits for telecommunications related services, including at least 3 communi-cations infrastructure companies.

General Provisions of Myanmar’s Telecommunications Regulatory Framework
As mentioned above, the PTD and its ministry-level parent, the MCIT, regulate and manage the telecommunications sector in Myanmar. Generally, the MCIT is responsible for overall sectoral policy, management of spectrum, as well as granting final approval to the PTD to proceed on matters of licensing and enforcement of administrative penalties. The PTD, meanwhile, is responsible for matters directly affecting Telecoms License applicants and licensees, including the issuance of licenses, spectrum allocation, setting technical standards and interconnection regulations, and other more general administrative matters. The PTD is also responsible for taking administrative action and may issue warnings, suspend Telecoms Licenses for limited periods, or ultimately cancel a Telecoms License for violations of the terms and conditions of such license.

Among the more notable portions of the Telecoms Law (2013) and the Draft Telecoms Rules are provisions on infrastructure sharing and competition. Section 11(b) of the Telecoms Law (2013) states that a holder of a Telecommunications License may enter into a contractual agreement with another Telecoms License holder to share the use of “Network Equipment,” which includes “any part of the physical infrastructure or combination thereof employed in the Network-provider Businesses.” The Draft Telecoms Rules go further by approving the lease of infrastructure by a grantee of an NFS-C to multiple entities on a shared basis while also fixing requirements for licensees to share “Essential Services” at “cost-oriented prices and on non-discriminatory terms and conditions,” subject to certain conditions.

What these “Essential Services” cover is provided in Schedule 2 of Part 5 of the Draft Telecoms Rules (the “Competition Rules”), and are presently drafted to include (a) in-building wiring, (b) lead-in ducts and associated manholes, (c) subsea cable landing stations, (d) poles, and (e) radio towers, excluding those used for the operation of a broadcast service. The Competition Rules leave open the possibility for amendment of the included Essential Services by the PTD “from time to time.”

The Telecoms Law (2013) also contains additional regulations prohibiting anti-competitive behavior and also includes a specific prohibition on licensees “entering into understandings, agree-ments, arrangements or contracts with any person, department or organization concerning…(a) the arbitrary revision of rates, (b) obtaining a market share with the objective of reducing competition, (c) endeavoring to prevent purchases from a telecommunications device supplier or seller, or (d) employing unjust methods against a competitor.” Additionally, licensees may not attempt to restrict a user or consumer from acquiring a device or service from said licensee.

The PTD is tasked with the investigation of potential anti-competitive acts and may do so at the behest of an aggrieved party or on its own volition if it has reason to believe such acts are occurring. Among the factors the PTD will consider during the course of an investigation are the overall composition of the market, the impact of the alleged anti-competitive act on consumers and competitors, the impact of the alleged anti-competitive act on future market entry, and the degree of interference resulting in identifiable injury to competitors or consumers. Market power and capacity of the licensees under investigation will also to be taken into account. PTD also has the power to review specific types of agreements, including horizontal and vertical agreements between licensees, or licensees and third parties, when those agreements could work to prevent, restrict or distort competition.

If the PTD determines that a violation of the Competition Rules has occurred, it will demand that the violation cease and may also impose a financial penalty or require other steps that it believes are appropriate under the circumstances. Financial penalties are capped at 10% of the revenue obtained by a licensee during the period in which the violation occurred; however, failure to comply with the PTD’s decision may result in additional penalties, suspension of the Telecoms License, or ultimately, the termination of the Telecoms License.

The Road Ahead
Despite the impressive gains made in the past two years, Myanmar is still at the outset of its journey towards an open and fully functioning telecommunications market. Much additional investment is needed, especially with regards to infrastructure installation and upgrading. The Telecoms Law (2013) and Draft Telecoms Rules, when fully implemented, are expected to provide stability and comfort to investors that might otherwise be hesitant to enter a relatively unknown frontier market.

Already, we have seen a rush of investment as firms line up to support the growth of Telenor and Ooredoo’s markets, as well as the revival and improvement of MPT’s pre-existing networks through its groundbreaking business arrangement with KDDI Corporation and Sumitomo Corpora-tion.  Additional investors are waiting in the wings while the MCIT finalizes the Draft Telecoms Rules and prepares to handle an influx of application materials. While there will surely be bumps along the way as the new networks are expanded and old networks are modernized, the outlook for tele-communications in Myanmar is strong. Indeed, it is seen as one of the keys to Myanmar’s future growth and stability, and all indications thus far suggest the MCIT, the PTD and other relevant authorities are expending considerable effort to ensure that progress continues apace.

Kelvin Chia Yangon Ltd. (“KCY”) is the largest international commercial law firm in Myanmar with close to 40 experienced lawyers, paralegals and business researchers based in Yangon and Mandalay, and an additional team of lawyers dedicated to Myanmar practice based in Singapore. KCY has been at the forefront of Myanmar telecommunications law, where it has advised both local and international clients in various significant telecommunications deals, including the ground-breaking business arrangement between an existing local telecommunications licensee and a foreign consortium for the provision of telecommunications infrastructure and services in Myanmar.

Pedro Jose F. Bernardo

Principal Foreign Attorney
Kelvin Chia Yangon, Ltd

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