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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 -- Wireless carrier KDDI and trading house Sumitomo Corp. have set up a joint venture to enter Myanmar's nascent mobile communications market.

     The Japanese companies announced July 16 plans to invest some 200 billion yen ($1.97 billion) and work with Myanmar 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, said at a news conference the same day that the 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 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 July 16 in the capital, Naypyitaw, Myat Hein, Myanmar's minister for communications and information technology, said he is convinced 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.

     President Thein Sein's government has set a goal of raising the share 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 the new competitors. The 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 markets 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, the companies 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 since lost some of that ground, but 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 putting the number of new mobile subscribers at 47.5 million over 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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