Big trouble in Indochina

Cambodia's mobile operators are in for some serious wrangling and the country's consumers are in for some serious savings - for now, at least.

A week ago, courtesy of Cellular News, I learned that the southeast Asian country's cellcos have been at odds, with one MNO accusing another of offering loss-leading tariffs. The alleged offender is Sotelco, which is backed by Vimpelcom and which operates under the same Beeline brand familiar to mobile users in the CIS markets of Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia and Armenia. Making the accusations, according to a TeleGeography article on the same story, is Mark Hanna, CFO of the Royal Group, a Cambodian investment and development company whose assets include a stake in Cellcard, the mobile operator whose large share of the country's cellular market (currently 48.41% according to WCIS) has been steadily eroded by newer entrants over the last couple of years.

The Cambodian mobile market is something of a paradox. One on hand we have boosters such as the Royal Group proclaiming that Cambodia has "a booming economy, second in Asia only to China in double-digit GDP growth" and that it "enjoys a stable political situation, together with the most welcoming and liberal business, investment and trade environment in ASEAN." All of this sounds very attractive. On the other hand, Millicom International Cellular, which owns a majority stake in Cellcard, has opted to quit the Cambodian market, having found the level of competition to be excessive in the country's very crowded mobile sector.

Having written back in July about Millicom's decision to exit this and other Asian markets (also Laos and Sri Lanka), the last I heard was that the company has agreed to sell its stake in Cellcard to the Royal Group. Interest in Millicom's Sri Lankan operation, meanwhile, has been expressed by Indian state owned telco BSNL, which, along with fellow public sector operator MTNL, is also said to be mulling over a 46% stake in pan-MEA giant Zain (of which more here later, no doubt).

Certainly, the intensely competitive battle between Cambodia's nine (!!!) cellcos does seem to be cited as the reason for operators' sliding revenues in the country. One example of this, as reported by Steve Finch of the Phnom Penh Post reported late last month, comes from Axiata-backed Hello. While the Malaysian parent company recorded a 44% rise in net profit overall for Q2 2009, its Cambodia operation suffered from a "challenging" business environment, a recent statement said. According to Axiata, "major operators are facing intense competition on pricing, and new operators are offering free SIM cards and free minutes to capture market share." This has affected Hello to the tune of a 17.4% slide in 2Q 2009 revenues.

While Vimpelcom's operation is just the latest disruptive new entrant, this blog has discussed similar tactics on the part of another latecomer, Metfone, a subsidiary of Viettel, an operator from neighbouring Vietnam. Since its launch late last year, the Vietnamese-backed cellco has carved out an impressive 11.66% share of the Cambodian mobile subs market according to WCIS. Last time I covered this, it was stated that Metfone's market share was 17.47% - so I think the good people at WCIS have revised some of their June 2009 figures for Cambodia, doubtless in line with more recently received market intelligence. The lower figure, though, is still very solid. So I stand by the remark I made back in July about there probably not being many precedents worldwide for an operator making such a strong impact so quickly in such an already-congested market.

As discussed here before, Metfone has rapidly built a customer base through the distribution of free SIM cards and airtime, as bemoned by the good folks at Axiata. Further, and as I discussed in a March article on the links between telcos in countries with left-of-centre government and/or centrally planned economies, Viettel Deputy General Director Nguyen Manh Hung has been quoted as saying that Metfone intends to extend services to Cambodia's lower income groups and thereby "contribute to society." I have taken this to mean that the Vietnamese company, with its roots in the military establishment of a socialist republic, is free to interpret the profit motive rather differently than those of us who are compelled to think of shareholder value when we go to work every day.

I don't know if Metfone's very aggressive pricing is now a thing of the past - but it is Beeline Cambodia's actions that have been making the headlines of late and arousing the ire of the Royal Group.

Last Wednesday, the Phnom Penh Post reported that the Vimpelcom-backed operator had been accused of reneging on a promise to avoid selling services "below the cost of connecting across networks". It seems that while Beeline has ceased to make its controvesial 'Boom' tariff plan available only to new subscribers. The Royal Group's Mark Hanna contends that this violates the agreement Beeline struck with the country's regulator. Beeline Cambodia General Director Gael Campan is unrepentant. The operator sent text messages to all users already signed up for the 'Boom' tariff that the rate would remain "forever". Campan has also argued that it is not selling below cost, and that its pricing policy is little different from a supermarket selling most products for a profit with a number of promotions added to entice customers and build loyalty.

Application forms for Beeline’s Boom tariff. Photo: Sovan Philong, Phnom Penh Post

Campan has made accusations of this own, claiming that Cellcard has limited interconnection between the two networks throughout the heated dispute.

Despite the continuing disagreement, stated last Wednesday's Phnom Penh Post article, Campan has neither threatened legal action nor received word of Cellcard planning a lawsuit. Both sides, however, continues the article, have made claims of legal infringement. While Beeline has accused Cellcard of violating an interconnection contract, interconnection standards and therefore Cambodian regulations by blocking its network, Cellcard accuses Beeline of illegally using its rival's prefixes to get around interconnectivity issues. Hanna said Beeline had "violated national security and the ITU guidelines on the use of mobile prefixes".

Undeterred by criticism from rivals, Beeline Cambodia announced this week that the über-cheap 'Boom' tariff is to be followed with another very aggressive offering. Ith Sothoeuth of the ever-indispensable Phnom Penh Post writes that customers will only be charged for the first minute of any calls they make of up to 15 minutes' duration within the Beeline network. Under the "Super Zero" plan, the per-minute charge will kick in again after 15 minutes, while calls across networks will be charged at USD 0.06 per minute, compared with USD 0.05 per minute at all times on all networks on the controversial "Boom" plan, Beeline Commercial Director Benoin Janin told a press conference last Friday. "Super Zero" SIM cards will cost just USD 0.50 under a promotion running until December 31, though the Super Zero tariff will continue for already-qualified users indefinitely, or until the company changes its pricing policy, reports Sothoeuth.

Beeline's Campan, writes Sothoeuth, also said on Friday that he hopes to resolve the dispute with Cellcard and added that the connectivity issue would not help the Royal Group-controlled MNO in the long run. "It is a very fragmented market right now, and nobody has the majority of subscribers," he said. Cellcard, he continued "is not the biggest part of the market; the majority of subscribers are with the other operators. We want to work with them as much as possible, and if [they do] not want to give their subscribers access to Beeline customers, it's their problem, not ours." Tough talk - although, as we have seen from the WCIS numbers, it's only just about true that Cellcard does not own a majority of subs.

Following earlier musings here about Metfone's pricing and its effects on market value in Cambodia, this latest wrangle strengthens my feeling that the country's mobile scene is surely bound to see some degree of consolidation soon. Observing from an admittedly long distance, I'm inclined to think a competitive war of attrition cannot continue unchecked for very much longer. I wonder what prices Cambodia's mobile users will be paying when the number of service providers shrinks.

Big trouble in Indochina