BURMA'S IT SECTOR LOSES ITS CHAMPION

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000076

SIPDIS

STATE FOR EAP/BCLTV, EB/CIP
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA
USPACOM FOR FPA

E.O. 12958: DECL: 01/18/2015
TAGS: ECPS TSPL PGOV SCUL ECON BM
SUBJECT: BURMA'S IT SECTOR LOSES ITS CHAMPION

REF: 04 RANGOON 1470 AND PREVIOUS

Classified By: DCM Ron McMullen for Reasons 1.4 (B,D)


1. (C) Summary: Since former PM, and IT champion, Khin Nyunt
was ousted in October 2004, the computer industry has faced a
rapid decline in government support. It is also coming to
terms with the reality of Burma's human resources
shortcomings. The situation is in flux at the moment, but
ultimately we believe the GOB won't actively dismantle the IT
and telecom sectors. The removal of government subsidies
will cause pain, but it is a logical move and hopefully will
force the industry to become more efficient if it wants to
survive. End summary.

IT Sector Loses its Champion


2. (C) After much optimistic talk about expanding information
technology throughout Burma and developing a software
development sector to rival India's (reftel),a leader of
Burma's IT sector admitted that these objectives are likely
unreachable in the short term now that Burma's IT "champion"
(former Prime Minister Khin Nyunt) is gone. The ex-PM,
arrested in October along with hundreds of associated
Military Intelligence officials, had been pushing an overly
ambitious IT agenda for the last several years that has led
to a rapid expansion of (monitored and censored) Internet
service, computer and software companies, and IT education in
Burma. It has come, though, at the expense of more
productive economic development priorities.


3. (C) According to our contact, 2005 will be a "make or
break" year for IT companies, as the new Prime Minister (Lt.
Gen. Soe Win) has made it clear that the GOB expects the
sector to "go it alone." The SPDC top leadership will not
likely actively oppose or try to slow the sector's progress.
However, it will probably not provide much financial or
political assistance. The contact said the sector is now in
the hands of the relevant ministries (particularly the
Ministry of Communications, Posts, and Telegraphs),who are
relatively powerless. There is no longer a decisionmaker on
whom the industry can rely to cut red tape.


4. (C) The source told us that the GOB had made few arrests
of senior IT executives, despite their close ties to Khin
Nyunt. The large exception is the former head of Bagan
Cybertech, Burma's leading Internet Service Provider (ISP),
Khin Nyunt's son. Three other members of Bagan Cybertech top
management have been arrested or have fled the country.

Worse Than We Thought


5. (C) Another key problem, the source admitted, is that
Burma's human resources are in worse shape than the GOB and
the Computer Federation realize. He said that few graduates
of Burma's 27 government IT schools and universities are
international caliber. Contrary to expectations, it has been
difficult to find many applicants for international
certification exams, and of those that sit, few pass. The
dream of challenging India or other regional countries for
software development contracts is much further from reality
than any previously thought, and most choose to admit. The
GOB, despite evidence from the private sector, refuses to
alter its rote-learning IT curriculum and many private IT
companies continue to deny reality, the source asserted.

The Future of Internet is Questionable


6. (C) Though Burma's parastatal Myanmar Post and
Telecommunications (MPT) also offers Internet service, Bagan
Cybertech will remain the dominant player, and the future of
Internet in Burma tied to its fate. After losing its founder
in the Khin Nyunt purge, Bagan Cybertech is now in the hands
of other, more junior, managers while the GOB forms an
unofficial oversight committee made up of various ministers
and the Army and seeks a new -- more politically reliable --
owner. In the meantime, the GOB has told Bagan Cybertech it
can no longer offer new services or import any new equipment.
It is only allowed to maintain existing infrastructure and
clients. However, even maintaining Internet service and
equipment is difficult due to the import restrictions and the
fact that the GOB has cut the bandwidth it is purchasing to
16 Mbs (the Myanmar Computer Federation tells us it needs at
least 45 Mbs to offer T-1 access).


7. (C) Depending on the outcome of Bagan's transfer, and the
GOB's policy on imports and bandwidth, whatever progress
there's been in Internet service in Burma could erode
rapidly. By all accounts Bagan Cybertech, formed at the
direction of Khin Nyunt, is not close to profitable and has
significant outstanding debt from its prestige-driven
expansion and investment. One computer industry source told
us the ISP needed at least 100,000 subscribers to turn a
profit. It now has 30,000 and has plateaued due to
government-mandated Internet censorship, low income levels,
still sparse access to computers, and chronic electricity
shortages countrywide. With this kind of business climate,
it's hard to imagine any profit-driven business taking over
Bagan Cybertech. However, it would not be surprising to see
the regime force one of its cronies to take over the ailing,
but prestigious, firm or semi-nationalize it by having one of
the military's two "private" firms (MEHL and MEC) assume
control.

Telecom OK


8. (SBU) Though the future of Internet and the IT sector is
uncertain, Burma's telecom industry seems in reasonable
shape. One industry source told us that because the GOB is
keen to have a respectable telecom system in place when Burma
assumes the ASEAN chair in 2006, it would push ahead with
expanding fiber optic linking of major cities and building a
wider cellular network. There are now roughly 400,000 cell
phones in Burma (not including an unknown number of phones
along the Chinese and Thai borders that are tied into those
countries' networks) and the GOB's objective is to have
600,000 by 2006, and 1 million by 2007. Indian and Chinese
companies are, with supplier's credit from their own
governments, expanding the network and supplying handsets.
MPT is pushing to sell as many sim cards as it is allowed (at
around $1,000 to $1,500 a pop) in order to raise needed cash.

Comment: A Realistic Policy?


9. (C) Whatever the reason for the GOB's more cautious
approach to the Internet, the policy could, ironically, be
the right one. As we concluded in reftel, Khin Nyunt's blind
ambition to establish an international-standard IT sector was
having results but was premature and a poor allocation of GOB
and foreign assistance resources. Though we don't believe
the GOB will allow the IT sector to totally collapse (if for
no other reason than its plans to host an international IT
ministers conference in 2006),its decision to allow the
industry to fend for itself will hopefully force companies to
be more realistic and efficient. End comment.
Martinez