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Executives

Meera Bhatia – Communications Manager

Jon Fredrik Baksaas – President and Chief Executive Officer

Petter Furberg – Chief Executive Officer-Telenor Myanmar

Analysts

Espen Torgersen – Carnegie Investment Bank AB

Christer Roth – DNB Markets

Nick Lyall – UBS Ltd.

Thomas Heath – Handelsbanken Capital Markets

Jakob Bluestone – Credit Suisse

Peter Kurt Nielsen – Kepler Cheuvreux

Ranjan Sharma – JPMorgan

Barry Zeitoune – Berenberg

Richard E. Barker – Credit Suisse

Telenor ASA (OTCPK:TELNY) Presentation of Telenor in Myanmar Conference Call February 10, 2014 7:00 AM ET

Operator

Meera Bhatia

Good afternoon, and welcome to Telenor’s Presentation on Myanmar, whether you’re present here at Fornebu, listening on the phone or watching this via webcast. My name is Meera Bhatia and I have the pleasure of guiding you through the presentation today.

I would like to point out that we will present our fourth quarter results on February the 12th on Wednesday and hence all comments today will be focused on Myanmar’s operation and so I’d kindly ask you to focus your questions on that operation as well.

I hope you all have a copy of our presentation, the material is available on our website. There will be a Q&A session directly after the presentation, firstly from the audience and then from our phone participants. I would kindly ask you to limit yourself to one question and a few follow-up questions, if needed. We aim to end today’s session at about 2’oclock and after the Q&A, there will also be the opportunity to speak to your executives. To present the update today, we have our Group CEO, Jon Fredrik Baksaas; and Telenor Myanmar CEO, Petter Furberg.

First, I would like to leave the floor to Mr. Baksaas.

Jon Fredrik Baksaas

Yes, thank you, Meera and also good afternoon from me. This is a presentation which we have been looking forward to, for quite a period of time really to be here and to say that yes, we’re taking another step in Asia. And we’re ready to go, I have to say that after a long period of preparation and formal work and now we are ready to go. And that is what we are going to talk about today. And Petter Furberg, who is with us on this presentation here in this studio this morning, this afternoon. He is also eager to get started and he has a team of 200 plus people in Myanmar, which is ready to go on this new project for us in Asia.

But let we then take a little look on the history first. Telenor is a long standing operator in Asia I mean for many years. We started as many of you will know in Bangladesh as a long back as 1996. And Grameenphone has developed in what one can say a pretty similar market set up as the one in Myanmar from zero in 1996 to a very visible and number one operator in Bangladesh. Offering modern telecommunication services to the whole of the country and engaging soon 50 million customers all around in Bangladesh. And it has also grown to become one of the most visible companies in Bangladesh as a country.

But beyond that it’s what telecoms bring that is the important question here. Because Grameenphone is probably the most important and most visible example on what connectivity brings to the society and what kind of development that comes with it. And from zero in 1996 we are in Grameenphone, the number one contributor on many aspects in the Bangladeshi society. And in a way this industry has the power, the strength, the possibility to develop accordingly also in Myanmar when we now start on this new project.

In addition to Bangladesh of course the other operations that came some years later. Firstly, Malaysia in 1999 and Thailand the year thereafter. All these operations have developed into competitive, profitable, strong companies in their competitive environment.

And then we enter into Pakistan in 2004, after a pretty similar license competitive sequence as we have now in Myanmar. And in Pakistan since 2004, we have developed into the number two position with also 30 million plus customers. Also, serving the market with other services that comes with telecoms most prominent and most visible, the financial service set up that we have in Pakistan.

And now time has come to Myanmar. Myanmar is a country of very similar social setting, economic development as we’ve had in neighboring countries. And with these kind of feature and experiences that we have earned in the Group of through the years, we believe that we are fit for also the development of the telecom sectors in Myanmar. And this is what is all about. It’s to build a digital future for the people and the customers that we will engage with in Myanmar this picture from Bangladesh this will also happen in Myanmar.

And what is this digital future. It is the ability to take part in the future. The world goes digital and while that is happening, Myanmar has been standing still on this aspect on modern society to build up. Now it’s – the time has come to Myanmar in order to also participate and pursue the journey to a digital society, their way we know it in our countries today.

And here we are talking about opportunities of getting access to education, information, whatever there is that the net brings with you. And also in simple terms what we are coming from namely that of people doing regular communication either by voice itself or by SMS or by other social media.

So, here we are embarking on what we take for granted in our societies. This is going to be built from scratch in Myanmar. And 60 million plus people is actually waiting for this. And one can also say that the industry is now mature much more mature than when we started in Bangladesh in 1996, concepts have moved into – becoming much more industrialized, vendors and vendor technologies have built capacities over the years, so in a way there will be the most modern, most efficient network operation that we’ve probably have built, the way we’re going to do it in Myanmar.

It’s an opportunity? Yes, but these opportunity is also of course associated with a lot of risks, which I will come back to. It’s probably one of the last Greenfield’s that we can envisage for ourselves and it’s a sizable market. And the GDP per capita is at par with India, Pakistan, Bangladesh. So, we are working in an environment that we are used to.

And we are also claiming that over the years we have both one and established competences in the Group from this 15 years kind of journey in Asia, different from many other telcos from other parts of the world that also try to go for Asia in the ‘90s. We are now as a Telenor Group when we get Myanmar on board covering a population of more than 1 billion people. And in this set up of course they are some scale effects that comes from having been there for quite a while that will be utilized now in Myanmar.

So, we believe that we can leverage these competences, we believe we have the capacities on board to handle this new market. And to start the rollout immediately now when the license formalities is confirmed. This was a competition also getting to where we are today. More than 90 interested parties took part in the initial listing for this process, 11 companies were short listed to the final round and there were two winners, two licensors available in that process. The government was drawing up a pretty tight timeline for this process and they managed to run the process according to that timeline. We got a couple of months sliding now in the closing part of this on formalities on license.

However, we cannot say that the process as such have been delayed. And they have stick to the process in a very transparent and level playing field set up. The criteria were a combination of rollout criteria. What kind of services will you deliver? And that we deliver them at affordable prices? Again being able to deliver these kind of services to the whole of population. In the same way as we do in other markets. Then we need efficient operation and we need affordable prices. This will be a low priced prepaid market that’s for sure. And we have operated in that kind of market environment for many years already.

The final license award happened just some few days ago and here we see Telecom minister, Myat Hein delivering the license, I should say proof to Petter Furberg, who is then the CEO of the Operation. It’s a 900 MHz and 2.1 MHz spectrum set up. It’s a technology neutral definition on it, and it has a 15 years duration, but with something which is a new feature for many licenses, it is renewable for another 15 years after the first 15 years. And the spectrum fee for the renewable period will be dependent on the market size in the last three years of the first 15 years period.

In the Telenor Group we look at this as a peak funding project of $1 billion including the $500 million license fee of financial license fee that we have put into our bid, which is a combination of 50% upfront and the other 50% payable after three years. So the peak funding here is $1 billion and we will base our rollout up on deep cooperation with tower companies and other suppliers that will deliver both IT services and rental services as much as we can. This way of operation will then also give us the ability of get the very price efficient operation, cost efficient operation, which will give us affordable prices to the market. This is a 100% owned Telenor Group initiative.

We don’t rely for the time being on local partnership. It’s our experience that in such a startup we feel that we are better off starting with one interested party around the table. There are many risks associated to entering new country and in particular for Myanmar is that the institutional capacity in the country given its history is quite week.

So in parallel with moving on with this roll out, there has also been a strong long period on institutional building which is not finished. This will be ongoing. And both we and other operators and players in the industry as well as is in international institutions are working in cooperation with Myanmar authorities in order to build these institutions over time.

The legal framework the same, where telecom law also just launched last year, and all regulations attached to the law is not necessarily finished at this point in time. And again there will be dialog between industry and authorities to formulate and deliver these kind of things.

Telenor has a very strong platform for codes of conduct, where anticorruption attitudes have been clearly spelled out for as long as I can remember because we formed it as early as 2002-2003, of course with necessary revisions. And given the license process of high degree of transparency and dedicated willingness to take decisions upon what was given in the license process where we are now fully meets with these standards.

More domestic issues that has been mentioned as risk factors are the land issues. The land registry in Myanmar is very weak. The question on ownership to land is something that really people are concerned about. We will do our utmost to understand both what is available of land registry from history as well as work with local authorities in order to find where the base stations are to be set up.

And in this set up we must also remember that we bring a kind of market as well with us because there will be activities indirectly coming in addition to our being direct in our investments in the market. There will be a lot of indirect effects where we will create markets for people to serve. That goes both for constructing the towers themselves as well as in the logistics of getting it done as well as bringing energy to the space stations over time, which is a pretty important logistic exercise.

Knowing that, the grid from a traditional point of view is not available. Only 25% of the population is considered to have regular access to electricity. And this is again something that we are used to, to the extent that you can say that we have been through this both in Pakistan and Bangladesh and India for that better. However, we are working also with other operators over the issue because the problem is similar to them. So tower sharing and sharing of necessary resources in this will be part of the picture.

Health and safety comes then as a natural factor for us to address. So that also we can develop over time and understanding for these elements also amongst suppliers. And with this history that we have in Telenor in these aspects from before, I think we are as prepared as anyone for this also in this country. That doesn’t mean that everything will be 100% from scratch, here we also probably have to learn underway.

There is also a peace process ongoing in Myanmar. The President has been working very, very consistently on a plan to achieve permanent peace among the different areas and the regions in the country. And this concluded in a long process, this autumn, which also concluded a final product. All pieces are not in place on that, so there are still areas that will have certain conflicts embedded. Here we have to work with local government and central government in order to address also these kind of issues. And I am pretty sure that there will be some events going forward in this or that format. But again I think we are in the Telenor Group reasonably both through active and reactive when things are potentially happening.

Overall, high engagement with our people underground in Myanmar ready to go, ready to start up a mass market approach where everyone is going to get the potential offer after a while, remember to start today doesn’t necessarily mean that 100% of the population will have connectivity tomorrow. It will take some years and I expect we will tell you afterwards. We have a breakeven ambition on EBITDA, after three years, he will tell you more about these details.

Distribution plays a very important role. This is a prepaid market, communication is both where people are. We need to be present at street level where people do other things. And last but not least the lowest cost operation is a necessity in order to create the affordable rates for connectivity for voice SMS and internet access. But the potential to go in, in a new country with 60 million people in an area of the world where we have been working extensively from before and to participate in making connection happen to 60 million people, this is really something we have a high degree of engagement for and really want to pursue.

Actually I and Petter, who is going to do this as his main responsibility for the coming years. So Petter, the floor is yours.

Petter Furberg

Thank you Fredrik and good afternoon everyone. My name is Petter Furberg and I have been given this fantastic job in Myanmar to lead our development of Telenor in Myanmar. So let me start with the country. Myanmar is one of the largest countries in Southeast Asia, it’s actually almost twice the size of Norway and for those of you who love geography it’s actually 200 kilometers longer than Norway from south to north. The population is estimated to 60 million, but there are a number of different estimates, so there is no precise number as of today and the government is running a census which we expect will come out this year.

The country has a fairly young population, so 45% of the population is younger than 25 years and a majority of the population is living in rural areas. 40% of GDP is estimated to come from agriculture and forestry and the sector has a huge potential for efficiency improvements.

By normal GDP measures, Myanmar is a very poor country and Fredrik mentioned it too, the GDP is at around $800 per capita to $1000 per capita, which puts it close to Bangladesh. However Myanmar is very rich on natural resources and has a huge potential for efficiency improvements, which creates the opportunities and the optimism by many international investors.

However, the biggest challenge for most international investors moving into Myanmar is the under investments over many years in infrastructure. The basic infrastructure for instance related to transport is quite massive. We see that poor connectivity beyond the 20 cities, we also see that in the monsoon or rainy season, approximately 50% of the roads are expected to be unusable for normal purpose.

So if you look at the range from Yangon up to Mandalay we will find pretty good roads but beyond that infrastructure is very poor. Electricity is a second area which is also underdeveloped, roughly 25% of the population is estimated to be connected to the grid and the production capacity is very weak. As of today, the World Bank has estimated that the demand is exceeding their production capacity by 100%, which is leading to frequent outages and also rationing of electricity.

In addition to these more physical infrastructure problems we are also as Federick mentioned, observing a problem or lack of capacity in the government to process normal, approval processes which we will face for instance in the building permits. This is something that the government is addressing sector by sector and we’ve seen that particularly in telecom where we over the last year have gone through the licensing process and also development of new telecom law and new regulations.

The economic and political process that is ongoing is expected to drive a fairly strong GDP growth over the coming years, up to the new elections in 2015. The political reform process is encouraged by the international community and as a result of it most of the international sanctions have now been removed.

In parallel, the government has encouraged foreign investments through new foreign investment laws and sector specific initiatives like the one we have seen in telecom happening over the last year. In addition, we are now seeing that the financial sector is being reformed last year and new central bank law was passed and this year we are expecting the government to pass a new financial institution law.

The mobile market is by all standards underdeveloped. As of today we estimated roughly 10% of the population or 10% penetration, which has been limited primarily for two reasons, one is investments that have happened through the state-owned enterprise, MPT, has happened on multiple technologies. As a result of that, GSM today only covers roughly 60% of the customers in the market. The second reason is that SIM supply has also been limited which has driven up the prices of SIMs to a level of $150 to $200 per SIM card.

So what happens in the market today is that we are moving from a monopoly to a competitive environment where the two new foreign players, Ooredoo and Telenor, plus a potential fourth license will drive competition in the sector. The ARPU levels that we are observing today, which are again estimated based on the current operator in the market are therefore artificially high. We believe that as competition and penetration is growing, ARPU levels in Myanmar will be at a similar level to what we are observing in other Asian markets of the same GDP level.

A little bit about the regulatory process that we have gone through and the state of it. The process and the regulatory framework has been developed with help of foreign consultants and with support of the World Bank. The license and the license award and the negotiation process was run in cooperation with a well-known international consultancy firm.

Well, the World Bank has supported the development of the telecom law and the telecom rules. The telecom law was passed by the Parliament and signed by the President in October last year. And the telecom rules, which are built on the law, was sent on a public hearing in November, December last year, are currently being reviewed by the Attorney General in Myanmar and are expected to come out shortly.

We do not expect any material effects or any material changes to the rules as the drafts we have seen due to the Attorney General process. And the telecom rules are covering very important areas like competition regulation; interconnect regulations as well as licensing of infrastructure companies like the tower companies and fibre companies. Finally, Telenor also, as part of this process, in addition to our telecom license we received an foreign investment license, which allows us to be 100% foreign entity in Myanmar.

Mobile market is expected to grow rapidly based on the reforms that I’ve talked about and based on the competition. So it will be stimulated by us, reducing prices on SIM cards and services. It will be stimulated by the increased competition and it will be stimulated by the fact that we are increasing the coverage and also widening the distribution reach of people.

Since Myanmar is starting this mobile race slightly later than most other markets in the world, we believe that development of Internet and Internet-based services will happen in parallel with the uptake of more normal basic voice services. And we believe that data such represents a significant upside in our business case.

Then quickly back to what also Fredrik mentioned, as our strategy to become the market leader in this market and it’s built very much on the experience that we have from working in Asia for the last 17 to 18 years. We have focused on a very simple mass market offering. This is, as Fredrik said, a prepaid market and our offering will focus on attracting the mass prepaid market. We know that distribution is crucial in terms of reaching the customers and we are building a strong distribution machine based on the experiences from other Asian markets. And to maintain a long-term sustainable business model in a market which will experience fairly low ARPU levels we are focusing on building low-cost operation.

We have committed to launching our services within eight months from receiving the license and we will reach the mass market through offering affordable voice and data services. We will use 2G and 3G to offer these services. 3G will mainly be focused on the heavy data traffic centric areas, which is typically the cities and villages. While we will use 2G to give us mass coverage in more sparsely populated areas.

One of the most important factors for driving the uptake of mobile service in Myanmar faster than what we have seen in previous rollouts is the fact that handset prices have come down significantly. We are expecting the handset prices in this market to be around $10 for basic feature phones and down to $35 for basic smartphones and this is not including any subsidies.

As I said, distribution is crucial. To reach to mass market we believe that distribution through independent retailers is the way to do it. Independent retailers means mom-and-pop stores and it’s crucial for Telenor to be the preferred partner for the mom-and-pop stores and the small shops across Myanmar. We will at launch reach around 25,000 points of sales and this will grow through the rollout of our network to around 100,000 top-up points, out of which 70,000 roughly will be selling SIM cards as well.

We have a so-called single layer distribution model, which we have developed in our Asian markets and is proven through those markets. It includes a direct relationship with the retailer to ensure that we are paying them on time and we are paying them correctly and it’s based on systems and technologies which we have developed among the Asian companies over the last few years.

Low-cost operation is critical for us to be able to sustain a profitable business model in Myanmar and we are trying to focus our services mainly on what we think is what we are best at, which is sales and marketing. And we’re outsourcing as much as we can beyond that. We will outsource IT. IT model is based on the same as we have in Uninor. We will outsource towers including energy to tower companies. We will outsource managed services and will outsource call centers. And because of this we believe we will be able to keep a CapEx light model and still a long-term OpEx to sales ratio, similar to what we see in other Asian operations. But because we are using tower companies you can also see that tower lease becomes a significant part of our OpEx in this operation.

The regulator and the government has encouraged passive infrastructure sharing. Under the license it’s also permitted with active sharing, but that’s requiring additional approvals. So as of now, passive sharing is allowed and is encouraged and Telenor is supporting it. We believe that in Myanmar we can do – avoid making the same mistakes that we have done in many other markets where we have been building multiple towers to cover one particular village. It will be good for the country because it will secure a faster rollout, it will secure lower cost overall and of course it is significantly better for the environment.

We have signed up as of today two tower companies. We have network vendors, Huawei and Ericsson, and with their support we are expecting to cover 90% of the population within the five-year period. As I mentioned earlier, rollout will be based on both 2G and 3G technologies where 2G and 3G will be used in the heavy traffic dense areas with a high probability of smartphones and then 2G will be used in more remote areas. The backhaul in Myanmar will be based on a combination of microwaves and fibre. There is a limited built out capacity today in fibre. So in the beginning a significant portion of the backhaul will be based on microwave.

To support their overall thinking of a lean operating model, we are also having a very lean organization, because a lot of functions are outsourced. We have picked a management team, which has a broad and long experience in Asia and we are already around 200 plus people employed in the organization. Long-term, we expect to be around 1,000 directly employed under Telenor Myanmar whereas we will have around 2,000 indirectly employed through our outsourced partners.

Myanmar is a challenging market with respect to competency as the university system has been undeveloped for many, many years. We’re still receiving a very high number of applicants. Up until now we’ve received more than 10,000 applicants for the positions we have posted. And we are using expats actively for the first two years to teach and train our Myanmar colleagues so that over time we can go down to a number of expats in Myanmar, similar to what we have in other markets in Telenor.

Our financial ambitions, we will be EBITDA break even three years after the license award. We have talked about the CapEx light model based on tower sharing and outsourcing and the peak funding will be around $1 billion including the license fee. Long-term cash flow margin is estimated to be around 30%.

As we have pointed out, investment in Myanmar represent a solid business opportunity for Telenor, but it’s not without risks and I’ll touch on some of these risks. Key risks are among others, the development on the political front towards the elections in 2015, including also the peace process that Fredrik mentioned. There are also more normal market assumptions risks related to the ARPU, the currency and the competition. But maybe more specifically to the Myanmar market is the network rollout risks, particularly because we are basing the whole model on tower sharing and heavy reliance on tower companies’ ability to deliver in a market where there is limited sub-suppliers today.

The two specific risks that I would like to point out when it comes to the tower companies’ ability to rollout is the fact that they are requiring a tower license, which will be regulated by the rules as well as the fact that once we start rolling out we are dependent on the government, local governments across the country to be able to process building permits at a very high speed.

Those two factors are factors, which potentially could slow down the rollout. If it does slow down it could affect performance bond, which is covering up our license in Myanmar. It’s a $200 million performance bond, which is related to coverage requirements as well as quality requirements under the license. The performance bond will be stepped down year-by-year as we meet the rollout requirements and will therefore be smaller and smaller.

If for certain reasons Telenor is unable to meet its rollout requirements the government can draw on it, but there is also a close in the performance bond, which gives us the opportunity to the extent that it’s outside the Telenor’s control to claim that we have made best effort in achieving the rollout requirements and as such can avoid a drawdown under the performance bond.

In summary, Myanmar represents a unique opportunity in a core Telenor region. We are leveraging Telenor’s experience across Asia and reusing concepts in Myanmar. We have a very clear mass market strategy and we are building a low-cost operation.

In summary, it’s a solid business case with a limited financial exposure. Thank you.

Meera Bhatia

Thank you, Petter. I could now invite Fredrik back to the stage please and we will now be opening up to the Q&A session. We will start with the audience present and a microphone will be handed out to you. In the middle…

Question-and-Answer Session

Espen Torgersen – Carnegie Investment Bank AB

Hi. It’s Espen Torgersen, Carnegie. I have two questions. First question is on pricing. Price strategy, obviously I know you are not going to tell us exactly how you’re going to go to market, but we’ve seen – in the past we’ve seen different strategies and I’m just wondering, since mobile data is fairly new in a Greenfield, how – and there is a lot of focus on mobile data monetization. If you could give us some thoughts relating to that. And the second question relates to the rollout requirements. Is it correct to assume that you will not, under any circumstances, invest in towers?

Jon Fredrik Baksaas

Let me begin on that Espen and Petter can fill in. I think you pick on that pretty important aspect because here data will be more visible in the first or in the initial stages of this rollout. In the previous Greenfields that we have done, then voice and SMS have been the first driver for services is being promoted, whereas this one, I think the Internet-based services have now matured to find its way also to the Myanmar market. Earlier and more in parallel with voice and SMS than sequential. That doesn’t mean that the market basically will be ready to go to 4G. The question also to why don’t take 4G in one in the first leap here.

We don’t believe that that the broader part of the market is ready for that, service level already now not to mention the fact that handsets in that category doesn’t play at this price level to find the affordability, so the data will definitely be part of the initial service offering more visible than what has been the case in other markets.

Number 2; and again top down of course, we will probably also own some towers ourselves, but the big majority of this will be a joint effort, and it’s only natural I think that the very first period from now on until launch will be done more on own infrastructure, and then you pool it at the latter stage, and you can elaborate Petter, your thought.

Petter Furberg

I probably won’t go too much into details on the pricing strategy as such, but I can since as Fredrik said, we are foreseeing that this will be a combined data and voice market growth, but where? A significant part of the population probably will still go for very basic phones. We will have to cater for both the smartphone market with type of bundles as well as the more classical basic phones, which will be much more voice and data and basic CPA-oriented services.

So I think you will see data pricing which will include bundles and voice and data bundling specifically for the smartphone market. You’ll also see a lot of byte size type of pricing for data concepts, which can be either on hourly basis or related to specific services, I think for data and voice services that’s the combination you will see.

Follow-up on the comments regarding the towers too, it is clearly our ambition to avoid putting up our own towers. Also, because it complicates the picture in the future when you are trying to then offload the balance sheet and give it away to the tower companies. And it seems like a competitor has fairly similar approach to it, so our hope is that this market with potentially now four players rolling out very rapidly in the next few years, then we will be able to avoid the mistakes as I said that we have done in the most of the markets for building multiple towers next to each other.

Meera Bhatia

Thank you, any further questions.

Christer Roth – DNB Markets

Thank you, Christer Roth from DNB. Just a few quick questions. When you say CapEx light, could please explain that in terms of for example, CapEx to sales over the next three to five years? Also, when you say that the long-term ambition with respect to operating free cash flow margin of 30%, does that entail sometime after you’ve reached the 90% population coverage five years from now.

Thirdly, in terms of the obvious population clusters, which are present in Myanmar, could you say something about how you to build up rollout of infrastructures really going to be in terms of population coverage overall, it’s probably not going to be linear, and fourthly and lastly, the connectivity or electrical connectivity of only 25% of the population does that entail that you will be selling solar charges with the handsets?

Jon Fredrik Baksaas

That was an old set of questions. CapEx to sales, I think it’s too early to say what CapEx to sales will be two to three years from now. I mean the first milestone here will be a break-even EBITDA break-even three years after, after we have received the licenses, so actually three years from now. I think that would be the first layer.

But on the other side, if you look at what’s goes on in India versus similar operating model where the sourcing from partners both on the IT side and on the tower side should probably give an indication on how these things might look like in a more material phase. But then also in three years time you will have a development on technologies, so things might change. And when you say 30% operating free cash flow yes, that is five year plus. This is a long-term ambition that is sort of when we are there, so to speak and but if you look at it when we were doing Pakistan in 2004, and we were thinking 10 year ahead, which were basically is 2014, we wouldn’t have been able to answer the profile of your question back then.

But now we see at after 10 year a mature market, four to five players there and an operation that have good financial metrics, so this is of course, something that we are looking to also for the coming 10 years knowing that 10 years seems like an awful lot of time, you can continue Petter.

Petter Furberg

Coverage strategy, yes, we of course going for the population first. The challenge in Myanmar is that there are generally very weak population maps, and they are counting the population now. But that is of course the main objectives in the first one to three years you will see and that it is really about covering a lot of populated areas. As we are moving out, there will be less and less populated areas of course covered under the requirements that we have from the government. The government also has very specific requirements under the license with respect to covering all the states for instance and certain road and economic zones as examples. There are city requirements et cetera too.

Electricity, I think the biggest challenge for us is actually electricity for our base stations and we will, to a very large extent have to use both solar and the diesel back up for the sites. I think for the general population they will find ways of charging their phones, if they can afford to buy a phone, and a very good quality solar panel for an household in Myanmar would cost around $300. So and they can go to the neighbor and charge as well if there will be a market developed I am quite sure.

Jon Fredrik Baksaas

But this will also be the market that we will probably have the highest factor of the solar base stations compared to both Pakistan and Bangladesh where we have some before [ph], and that kind of technology is also maturing. I have always challenged the vendors to come up with the first energy neutral base station, where as the base station takes care of it self. And why not? I mean it’s possible there is both wind and sun out there, and then suddenly electricity, is the backup not the diesel.

Meera Bhatia

Are there any – just one follow-up question, please?

Christer Roth – DNB Markets

I limit myself to the one follow-up. The financial services could you say something about what the future holds in Myanmar for that?

Jon Fredrik Baksaas

You love the question.

Christer Roth – DNB Markets

Yes.

Jon Fredrik Baksaas

I think that financial service is the way we know it both from Pakistan, Bangladesh and for all the cases around in the world financial services will be really in this one. However, there are no whatsoever banking facilities for customers of the country, so you can only think of the opportunity that comes with a similar concept of what we have in Easypaisa in Pakistan. There are different regulations on telecoms and banks in Myanmar compared to what is the case in Pakistan. So there would probably be a different entry mode for that, but yes, financial services in the form that we know it from Easypaisa will be part of our service offering early on not from day one but early on.

Meera Bhatia

Are there any further questions from the audience? If not then could have kindly ask the operator to open the phone line.

Operator

Thank you. (Operator Instructions) We will take our first question from Nick Lyall of UBS. Please go ahead. Your line is open.

Nick Lyall – UBS Ltd.

Good afternoon, it’s Nick Lyall from UBS. Could I ask two, please? Could you tell us initially what your agreements are on interconnect and roaming with the MPT please, just so we can try and work out some costs for calls off net? And then secondly, it's a slightly odd relationship with the Government still involved, so is there any plans for the MPT and the Government to exit that entity at any point, or how do you safeguard yourself against the Government making sure it maximizes its profits and minimizes yours in its Government entity? Thanks.

Petter Furberg

With regards to the interconnect regulations they are all covered by the rules, which are and then as I mentioned being reviewed as of now by the Attorney General. The principles that interconnect regime will be based on is a cost based interconnect regime, and negotiations are about to be started with MPT and their regulator in this respect. MPT will be forced to open up and as I said on the cost-base principle. The exact rates are not known as of today, they will be the result of the negotiations.

Jon Fredrik Baksaas

How can we avoid being ripped off that was the question, why too high interconnect rates or whatever. As we have known it from other markets, the Norwegians for that matter for that where all the – there are no guarantees on that. However, the consolidation practices and the process leading to the license conclusion, it has been put up in such a way that we feel that this platform for dialog is quite good. Does that mean that we are in a way, do we have a life insurance premium against what you pointed to? Not, we don’t have that, but two operators with new international licenses being the front runners on foreign direct investments to the country also have some leverage to play in that respect.

Petter Furberg

I think it’s also important to remember that MPT has a customer base of around 7 million today, so unlike many other markets where the incumbent was very dominant. They are not in Myanmar and as such, the power in such a situation else also significantly lower.

Jon Fredrik Baksaas

Yes.

Nick Lyall – UBS Ltd.

Okay. Thank you

Jon Fredrik Baksaas

Okay Nick, Thank you.

Meera Bhatia

Operator, next question please.

Operator

We will take our next question from Thomas Heath of Handelsbanken. Please go ahead, your line is open.

Thomas Heath – Handelsbanken Capital Markets

Thank you, Thomas Heath with Handelsbanken. Two questions, if I may? Firstly, you mentioned 1,000 base stations at launch and then 5,000 within a few years. It seems quite a lot, given you've got $500 million to spend on CapEx and OpEx altogether, and I just wanted to cross-check if you will be using delayed payment to circumvent the peak funding along the lines that you've done previously with the licensed costs in India. And then secondly, you compared to Bangladesh for price levels. Do you foresee a low entry point in the market or will we have a transgression? Because looking back at all the price levels in Bangladesh, they started out quite high as well. Thank you very much.

Petter Furberg

Okay, in terms of any tricks behind our peak funding, no, the BTSs are as I mentioned close to 8,000 by the end of rollout period. But it is a CapEx light model, because we are going with tower sharing for the entire number of sites. In terms of the prices, there we have committed to a certain maximum price for voice services et cetera. These prices are actually fairly high as of today relative to what you observe in countries like Bangladesh and India.

Meera Bhatia

Next question please.

Unidentified Analyst

Okay. Can I have a follow-up, if I may? Is it possible to say anything about what sort of share of the peak funding will be going for mobile infrastructure? Thank you.

Petter Furberg

I am not in a position where I can give you any more numbers than what I’ve given in the presentation earlier.

Unidentified Analyst

Okay, thank you. That’s clear.

Meera Bhatia

Next question please.

Operator

We’ll take our next question from Jakob Bluestone of Credit Suisse. Please go ahead your line is open.

Jakob Bluestone – Credit Suisse

Hi, I've got two questions as well. Firstly, just on the tower companies, can you talk a little bit about how your payments to the tower companies evolve? Presumably, they start low and there's a payment per site as they roll out or on what basis do they grow and how geared is it into your own revenue growth, the growth in your cost base? And then actually on the towers as well, you mentioned two tower companies. Is it sort of 50/50 between the two, or is one more important as a partner than the other?

Then secondly, just following on, on your comment on price caps just from before, just if you could share what they were with us. I think, over the summer, there were some press reports that it was 25 kyat, if I've pronounced that right, which is about $0.03. Is that still the price cap in the telecoms rules? Thank you.

Petter Furberg

The tower companies will be paid upon their ability to present a cluster of sites. So we have designed the network in such a way that they will deliver sites that can then be turned off and on and start generating revenue right way. So it doesn’t help them to deliver individual sites scattered around. We have as of today, signed agreements with two companies they have around 1,000 sites allocated to the first and 1,400 sites allocated to the second and we might have more tower companies, we might also use others in the long run that depends on their ability to perform. There is no specific price capped other than what we have actually committed in the price, say in our bid, which was as you mentioned 25 kyats which is what you also said, approximately $0.03.

Jakob Bluestone – Credit Suisse

That’s very clear. Thank you.

Meera Bhatia

Operator, the next question please.

Operator

We will take our next question from Peter Nielsen from Kepler Cheuvreux. Please go ahead your line is open.

Peter Kurt Nielsen – Kepler Cheuvreux

Thank you. Just one please, Fredrik, in your introductory comments you said you have no plans for a local partner for the time being. Does that mean that you will consider, or perhaps already planning to introduce a local partner at a later stage? Thank you.

Jon Fredrik Baksaas

I think you have to consider there for the time being as a kind of oral expression to fill a sentence, so no thoughts about that.

Peter Kurt Nielsen – Kepler Cheuvreux

Okay, thank you.

Meera Bhatia

Next question please.

Operator

We’ll take our next question from Ranjan Sharma of JPMorgan. Please go ahead your line is open.

Ranjan Sharma – JPMorgan

Hi good afternoon and thank you for the presentation. Just one question from my side, can you tell us if you have any royalty sharing agreement, royalty fees agreements, or profit sharing agreements with the Government? Thank you.

Petter Furberg

There is a license fee related to revenue which is 2%. Then there is also a user fee which at the earliest will kick-in from 2017, but potentially also delayed two more years.

Meera Bhatia

Next question please.

Operator

We’ll take our next question from Barry Zeitoune of Berenberg. Please go ahead your line is open.

Barry Zeitoune – Berenberg

Hi I'm just interested in your comments that you expect Myanmar to remain a force-5 player market. If we're looking at other CapEx-like markets, like India, it seems that the barriers to entry are often quite low, and you can end up with a high number of operators. As Myanmar develops its infrastructure, would you not expect there to be low barriers to entry and a far more competitive environment or do you have any kind of assurances that the number of operators will be limited? Thank you.

Jon Fredrik Baksaas

Assurances you will in a way never get guarantees for how things can evolve, but on the other hand look at how this round of frequencies have been distributed then there will not be space for the Indian number of player in the Myanmar market.

The Indian structure is as we all know very, very special and it stimulates high degree of competition in the cities. However it falls out when it comes to create a strong national coverage, there what suffers is the coverage really. And that is also why India comes out with a low penetration all-in-all comparing to the neighboring countries. And so guarantees are of course not there but this share structure makes it more difficult to think in the Indian way so to speak.

Barry Zeitoune – Berenberg

Thanks very much.

Meera Bhatia

Thank you. Next question please.

Operator

We will take our next question from [indiscernible] of Morgan Stanley. Please go ahead, your line is open.

Unidentified Analyst

Yes, hi, thank you. Just a couple of questions; firstly on ARPU levels. You said the current ARPU level is quite high, about $11. How fast would you expect them to fall to your expected level similar to, say, other neighboring countries, $2, $3? In how many years would you expect that to be the case?

Petter Furberg

I won’t be too specific but I can say that we believe it will happen very quickly and the reason for that…

Unidentified Analyst

Okay, thank you.

Petter Furberg

…basically is that we direct our services to the whole of population under the solid belief that the mobile phone is at the center of all individuals really. Now there are 7 billion handsets out there. And still 40% of the population of the planet still not have a regular use of mobile phone daily access and this is what we’re going to do something about in Myanmar. Bring as many people as possibly we can, bring them on board, give opportunities to participate in the modern world development and see the economic growth that comes with it at both at micro level and also at nation level going forward.

Unidentified Analyst

But just to follow up on that, given that you are going to start with data as well, and generally data adds to the ARPU, so wouldn't that be a factor in keeping the ARPU levels a bit, at higher levels compared to, say, at other regions?

Petter Furberg

Ideally yes, however here we need to find the balance between what’s affordable services and what kind of handsets are also affordable to the market place and it was only when the mobile phone in its, early days 2005, 2006 when it hit below $50, hit below $30 reached $25 that was when the whole thing exploded and we reached 7 billion users. Now the smartphone will say, take the same development. Smartphone has crossed below $100, below $80, $70 now we see smartphones in India all in the $20 already and then you can in a way start to think that you have the same kind of development curve on smartphones for the coming years to come.

Meera Bhatia

Thank you. We have time for two more questions.

Operator

Thank you. We’ll take our next question from Parin Shah of Espirito Santo. Please go ahead, your line is open.

Meera Bhatia

Any questions? Could the operator move on to the next question please.

Operator

Thank you. We will take our final question from Richard Barker of Credit Suisse. Please go ahead, your line is open.

Richard E. Barker – Credit Suisse

Thank you very much. Just a very quick one from me. I just wondered to what extent you gain an economic or commercial or a technical benefit from being present in Thailand, and I guess, to some extent in India as well? Does that give you some kind of advantage as regards to your business model compared to your competitors? Thank you.

Jon Fredrik Baksaas

Paul, we hope that the competitive edge that we are now putting into play in Myanmar, comes from the fact that we have been in bring markets for quite a number of years. So I hope that Petter is an example of that. You’ve been in Asia for 10 years already and he tried himself out the couple of years back here in Norway two years ago. But you didn’t spend much time to ask for getting back there. So that means that, the confidence is that is and he said and all the colleague said is what we going to put into play in Myanmar and to bring that into a competitive edge. And then it’s off to him and other guys to find out what kind of commercial offerings that could come from the fact that we also have an operation in Thailand for example.

Meera Bhatia

Thank you, Fredrick and Petter, sorry. One more follow-up question.

Unidentified Analyst

Just to follow-up, Fredrick, Okay. So just a follow-up really, in terms of sort of infrastructure advantages or perhaps ability to move equipment around the country or anything like that, you don't, see major benefits there?

Jon Fredrik Baksaas

No, then you’re back to local conditions. So I mean the telecoms is a local play, base stations stands locally, customers are locally, the service offering needs to have a local flavor and that local dimension comes into a kind of national framework. So that’s not were the scale effects are, the scale effects are from the fact that we have a lot of people which have had their first time experience on what is going to be done in the Myanmar right now, once more before and that’s what’s going to be replicated in a even smarter way I hope.

Meera Bhatia

Thank you, Fredrick and Petter. This concludes our session today. Thank you all for your participation, both are still available for some comments to the media and myself and my colleague Glen will take list for the interviews, a reminder we will not make any comments beyond Myanmar today, our fourth quarter results are on Wednesday. Thank you.

Jon Fredrik Baksaas

Thank you.

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