Military coup puts Telenor’s future in Myanmar on the line

As one of the few Western companies to bet on the South East Asian country after it emerged from military dictatorship a decade ago, the return to army rule led to a $783 million write-off this week for Norway’s Telenor (TEL.OL).

The Norwegian state-controlled firm, one of the biggest foreign investors in Myanmar, must now decide whether to ride out the turmoil, or withdraw from a market which last year contributed 7% of its earnings.

“We are facing many dilemmas,” Telenor Chief Executive Sigve Brekke told Reuters this week, highlighting the stark problems facing international firms under increased scrutiny over their exposure in Myanmar, where hundreds have been killed in protests against the Feb. 1 coup.

While Telenor plans to stay for now, the future is uncertain, Brekke said in a video interview.

Although Telenor had won praise for supporting what at the time was a fledgling democracy, activist groups have long voiced concerns about business ties to the military, which have intensified since the army retook control of the country.

Chris Sidoti, a United Nations expert on Myanmar, said Telenor should avoid payments such as taxes or licence fees that could fund the military directly or indirectly, and that if it cannot be independently determined that Telenor is "doing more good than harm" in Myanmar, then it should withdraw.

However, Espen Barth Eide, who was Norway's foreign minister at the time Telenor gained a licence in Myanmar in 2013, told Reuters that Telenor should stay and use its position as a well-established foreign firm to be a vocal critic of the military.

A spokeswoman for Norway's Ministry of Trade, Industry and Fisheries, which represents the Norwegian government as a shareholder, said on Thursday that "under the current circumstances Telenor faces several dilemmas in Myanmar".

"From a corporate governance perspective the investment in Myanmar is a responsibility of the company's Board and Management. Within this framework the Ministry as a shareholder keep a good dialogue with Telenor regarding the situation," the spokeswoman added in an emailed response to Reuters.

The Myanmar junta, which has said it seized power because its repeated complaints of fraud in last year's election were ignored by the election commission, has blamed protesters and the former ruling party for instigating violence.

And it said on March 23 that it had no plans to lift network restrictions. It has not commented on the curbs since and did not answer Reuters calls on Thursday.

NEW MARKET

Telenor is no stranger to operating under military rule in both Pakistan and Thailand, where it challenged the Thai junta over what it said was an order to block social media access.

At around the same time, Telenor was signing up its first customers in Myanmar.

Its then-CEO, Jon Fredrik Baksaas, told Reuters that Telenor had thought "a lot" about the risk that Myanmar's experiment with democracy might not last.

"But we argued at that time that, when we get in a western company that delivers telecommunication in a country, we stand also with some responsibility, and a bit of a guarantee that things are done correctly," Baksaas said.

Its position had support internationally at the time after Barack Obama became the first U.S. President to visit Myanmar in 2012, the year after a military junta was officially dissolved and a quasi-civilian government installed.

For its part, the Norwegian government, which owns a majority of Telenor, had long supported democracy in Myanmar, hosting radio and TV stations reporting on it under military rule.

And in 1991, the Norwegian Nobel Committee gave the Nobel Peace Prize to Aung San Suu Kyi, who spent 15 years under house arrest in Myanmar before leading a civilian government which retained power in last year's election.

Suu Kyi was detained after the coup and charged with offences that her lawyers say are trumped up.

While Norway was supportive of Telenor's Myanmar venture, the government also warned of the risks, Barth Eide, Norway's foreign minister at the time, said.

"We told them that it's a complicated country which had a harsh military dictatorship. Telenor was very much aware of it ... It's not like they were novices," he added.

Telenor was one of two foreign operators granted licences in 2013, alongside Qatar's Ooredoo (ORDS.QA). The other operators in Myanmar are state-backed MPT and Mytel, which is part-owned by a military-linked company.

About 95% of Telenor's 187 million customers worldwide are in Asia and it has around 18 million customers in Myanmar, serving a third of its 54 million population.

'NO DIRECT LINKS'

For Telenor, doing business in Myanmar had its challenges, including trying to avoid commercial ties to the military.

Former CEO Baksaas said for the first couple of weeks after it began operations in Myanmar, staff had to sit on the office floor because Telenor refused to pay bribes to customs officials for furniture which it had imported.

He also said they had to navigate corruption risks when acquiring land to build mobile towers.

Then there was dealing with the military, whose economic interests range from land to firms involved in mining and banking. The military has faced allegations of human rights abuses including persecuting minorities and violently suppressing protests going back decades. It has repeatedly denied such allegations.

Activist group Justice for Myanmar said in a 2020 report that Telenor had shown "an alarming failure" in its human rights due diligence over a deal struck in 2015 to build mobile towers that involved a military contractor.

Another report by the United Nations in 2019 said Telenor was renting offices in a building built on military-owned land.

The report said firms in Myanmar should end all ties with the military due to human rights abuses.

A Telenor spokesperson said in an email on April 9 responding to Reuters questions that it had addressed the matter of the 2015 deal, without elaborating, and that its choice of office was "the only viable option" given factors like safety.

"Telenor Myanmar has been focused on having minimal exposure to the military and have no direct links to military-controlled entities," the spokesperson said.

Since the coup, Telenor has cut ties with three suppliers after finding links to the military, the spokesperson added.

BALANCING ACT

On the day of the coup, the military ordered Telenor and other operators to shut down networks. Telenor criticised the move but complied. Services were allowed to resume but there have been intermittent requests to close since, and the mobile internet has been shut since March 15.

Ooredoo has also said it "regretfully complied" with directives to restrict mobile and wireless broadband in Myanmar, which hit its first quarter earnings. It declined further comment on the outlook for its Myanmar business.

Like other operators, Telenor paid license fees to the now military-controlled government in March, which critics argue may help it finance repression of public protest.

Telenor said in the emailed response to Reuters that it made the payment "under strong protest against recent developments".

One of its major shareholders, Norway's KLP, said it had been in a dialogue with Telenor after the coup to ensure it was identifying the human rights risks.

"It is a challenging situation because Telenor cannot choose what it can and can't do. They get their directives from the authorities," said Kiran Aziz, senior analyst for responsible investments at KLP. "It is difficult to assess how positive Telenor's contribution can be in this context."

Weighing up human rights is just one of the dilemmas Telenor now faces, said CEO Brekke, alongside safely serving its customers and maintaining network access for them.

"We work on that balance every single day," he said.

And although that balance, for now, is tilted to Telenor staying in the country, it is not a given.

“We make a difference like we have done since we arrived. But with the situation being this unpredictable, it is impossible in many ways to speculate about the future and how this will develop,” Brekke added.