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Japan's KDDI, Sumitomo set out to develop Myanmar's wireless frontier

Myanmar is Southeast Asia's last big mobile telecom market that remains largely undeveloped.

TOKYO/YANGON -- Major wireless carrier KDDI and trading house Sumitomo Corp. have established a joint venture to enter Myanmar's nascent mobile service market.

     The Japanese companies on Wednesday announced they will invest some 200 billion yen ($1.95 billion) and work with Myanma Posts and Telecommunications to offer wireless services in the country. KDDI and Sumitomo hope to repeat their success in Mongolia, where they corralled the largest share of a growing mobile market.

     KDDI's international expansion strategy of focusing on developing countries stands in contrast with Japanese rival SoftBank's penchant for large-scale acquisitions in more mature markets. 

     Yuzo Ishikawa, KDDI's senior vice president, on Wednesday told a news conference that his company's goal is to lead the development of Myanmar's telecommunications infrastructure. The 200 billion yen will be spent over 10 years to build base stations and other facilities needed for quality mobile services. 

Second chance

KDDI, the company behind Japan's au mobile brand, and Sumitomo began eyeing Myanmar's wireless market in 2010. Last summer, they bid for a license, only to lose to Ooredoo of Qatar and Telenor Group of Norway.

     Then came a second chance: MPT invited major foreign telecom companies to form a partnership to compete with Telenor and Ooredoo in one of the world's least connected countries. Orange of France, formerly France Telecom, and Singapore Telecommunications, known as SingTel, also showed an interest, but KDDI and Sumitomo apparently offered the better deal.

     Under the arrangement, KDDI cannot use its own brand and must share profits with MPT. But because MPT already has a customer base of 6.83 million, the Japanese companies expect to start making money from the business quickly. Partnering with the state-run provider will also give KDDI an advantage when it comes to frequency allocations and other regulatory matters.

     A senior KDDI executive said the deal enables a quick start and minimizes risks.

     Myanmar's government welcomed the agreement. At a ceremony held Wednesday in the capital Naypyitaw, Myat Hein, the minister of communications and information technology, said he is convinced that KDDI's and Sumitomo's global experience and fundraising expertise will help boost MPT's competitiveness.

     Due in part to MPT's limited funds, Myanmar's telecom infrastructure is underdeveloped. Only around 10% of the population currently subscribes to the state-run company's wireless service. 

     The government led by President Thein Sein has set a goal of raising the ratio of mobile subscribers to 80% of the population in 2016 by opening the market to foreign players. One local agent predicted that without improvements to its antiquated network, more than 90% of MPT's customers would flee to its new competitors. The planned investment by the Japanese consortium could be MPT's ticket to retaining and adding subscribers.

Mongolia model

The Japanese market's limited growth potential has forced telecom providers to look abroad. SoftBank has raised its international profile with a series of moves, including last year's $21.6 billion acquisition of Sprint Nextel of the U.S. But KDDI came to the conclusion early on that emerging nations were its best bet.

     KDDI and Sumitomo started a wireless business in Mongolia in 1996, when there was not much of a cellphone market there. Not only did they build up the necessary infrastructure, KDDI also launched other services such as online gaming and digital content distribution.

     KDDI's share of the Mongolian market hit 80% at one point. It has lost some of that ground, but it remains in a strong position with 50%. 

     Will KDDI's strategy work as well in Myanmar? Both Telenor and Ooredoo plan to roll out services this summer, aiming to take customers away from MPT. KDDI will need to act fast to capitalize on the market's growth, with one estimate projecting that 47.5 million people will sign up for mobile services in the next three years.

     Ross Cormack, CEO of Ooredoo Myanmar, has said the company's service will reach 97% of the population within five years.

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