US embassy cable - 05RANGOON76

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