Cambodia's mobile price war: peace in sight?

Beeline Cambodia: late entrant doing battle in a fierce tariffs war

DevelopingTelecomsWatch depends on the indispensable Phnom Penh Post for news of all things Cambodian, quoting that organ quite liberally, for example, when donning a flak jacket to report on the mobile price war which has been gripping the southeast Asian country for months.

It was also via that esteemed news outlet that DTW learned this week that the Cambodian Government has tired of waiting for the country's numerous cellcos to end to their damaging tariffs battle. A long-awaited edict setting minimum tariffs was signed by the Government last Friday, telecoms Minister So Khun is quoted as saying.

"We offered free-market principles, but operators kept having conflicts with one another, so the government needs to have a hand in it," So Khun said. The government will suspend the licence of any operators that violate the minimum tariff set by the edict, he added.

The Cambodian mobile market is currently contested by no less than nine MNOs. If there is another country with a population under 15 million whose cellular sector is split so many ways, it does not spring immediately to mind. Of that crowd of cellcos, one, so far, has reacted positively to the imposition of a minimum tariff regime. The Phnom Penh Post quotes Simon Perkins, CEO of Axiata-controlled Hello, who says he supports the initiative "to bring some structure to the telecom tariffs, in the absence of the usual competition guidelines and rules that exist in a lot of markets".

This decision, of course, comes too late for Millicom International Cellular, which announced in July that its three Asian operations (in Sri Lanka and Laos as well as in Cambodia) were to be reclassified as assets held for sale. The Luxembourg-headquartered mobile group cited problems around ongoing profitability in these Asian markets as a key reason for selling up and focusing its efforts on its African and Latin American properties. As DTW reported in the summer, Millicom CEO Mikael Grahne appeared to attribute much of the blame for deteriorating profits at Cellcard, the Cambodian cellco in which Millicom has a 58.4% stake, to the disruptive market-entry strategies of latecomers to the country's mobile arena. The same DTW piece, however, noted that another major shareholder in Cellcard does not agree with Millicom's assertion that this is negatively impacting profitability: "[There are] no concerns on profitability from our side," said Mark Hanna, CFO of Royal Group, which owns a 38.5% stake in the cellco, denying in July that margins had become tighter.

Such was the confidence of the Royal Group in this assertion that the local Cambodian conglomerate agreed to acquire Millicom's stake in Cellcard. This confidence also seems to be shared now by the Royal Group's bankers. According to a Bloomberg article earlier this month, Royal Group has hired Standard Bank Group Ltd. and Australia & New Zealand Banking Group Ltd. to arrange an 18-month bridging loan to help with the purchase of Millicom's share of the MNO.

The appetite of the Cambodian authorities for intervention in the mobile market does not end with tariff control.

Again, we are indebted to the Phnom Penh Post, this time for coverage of a debate around mobile network sharing in Cambodia.

Last month, the newspaper carried news of Minister So Khun calling for the country's MNOs to share infrastructure. So Khun said the initiative would avoid duplication of infrastructure, thereby reducing costs across the sector, as well as moderating the effect that mobile base stations are having on their surroundings.

"We do not want to see too many antennas dotted along roads in the future," said the Minister. Perhaps it would be too sarcastic to respond by asking "So why did you license nine mobile operators in a country of that size?"

Given that some of these nine are well-established players feeling the effects of the later entry of certain rivals, it seems reasonable to suggest that the response to any mandatory network infrastructure sharing might be rather mixed. As the Phnom Penh Post points out, the operators with an established presence in the market have spent many millions of dollars on infrastructure as part of their efforts to gain competitive advantage.

The Government has shared a draft of a proposed telecoms law one of whose provisions would be to make infrastructure sharing obligatory. The private sector response has been to agree that while there do exist benefits around cost reduction and environmental impact, market forces in Cambodia have not been given sufficient time to work.

"Mandatory facilities sharing will reduce the incentive on operators to build such infrastructure," said these recommendations. "This may result in less than the optimal number of towers being constructed such that when the operators commence infilling their networks to improve coverage and provide better service, they are unable to do so as all tower capacity has been filled."

DevelopingTelecomsWatch finds the mobile market of this particular Asian country to be fascinating. We'll keep watching.

Cambodia's mobile price war: peace in sight?

Quick march! Military men storm the telecoms sector

Iran's Mohammad Ali Jafari: Guardian of the Revolution... and telecoms tycoon?

Last week, Nugon Sovan of the Phnom Penh Post reported that the Cambodian Government is set to list three state-owned companies on the country's planned stock exchange. The three enterprises for which IPO preparations are underway are the Phnom Penh Water Supply Authority, Sihanoukville Autonomous Port and Telecom Cambodia, the country's incumbent fixed-line operator. Attracting investment to the latter company is certainly a pressing matter if the Hun Sen Government is serious about improving what I understand to be very underdeveloped wireline infrastructure.

The southeast Asian country has certainly enjoyed something of a cellular boom, with mobile penetration currently standing at 34.23%, according to WCIS. This is up from 23.54% in September 2008 and 14.86% a year before that. In contrast, fixed-line services have not been developed with anything like as much enthusiasm. The 2008 country profile from industry watchers Buddecomm has this to say: "fixed-line services [have] flattened out at around 42,000 [lines] with no sign of any revival in interest in this segment of the market." The report also contends that Internet penetration has remained particularly low, one of the biggest inhibitors to Internet growth in the country being the high cost of online access in comparison to other countries in the region.

One intention for the telco's IPO, then, must be to extend the reach of the Telecom Cambodia network and broaden the range of services available in the country. That will not happen right away, however, because a September 2009 target for launching the new Cambodian bourse has passed without construction of the planned stock market building getting underway.

Jason Szep of Reuters, writing on Sunday, reports that the global financial crisis intervened to delay the Cambodian Government's plans, ending an unprecedented boom which had seen the country's economy expand 10% annually in the five years up to 2008. Foreign investment collapsed, writes Szep, with tourist arrivals falling by double digits and garment exports, a mainstay of the economy, shrinking by 15%. Now, officials seem confident that these difficulties will soon have abated sufficiently for the bourse construction project to get back on track. "We want to do it next year," Mey Vann, director of the financial industry department at Cambodia's Ministry of Economy and Finance, said in an interview. "It'll be good timing for us with the economic recovery."

Plans for the new stock exchange seem to be quite modest. As Szep reports, the exchange expects to start small with just four or five companies issuing about USD 10 million worth of shares each. Contrast this with the experience of neighbouring Vietnam, whose first stock market launched in 2000 with an initial market capitalisation of USD 43 million, according to Szep. From tiny acorns, reasonably large oaks can grow, however. Perhaps the Cambodian Government will take some encouragement from the fact that today, Vietnam's market is worth USD 27 billion.

Yet, writes Szep, there are risks to Cambodian investors - "in Vietnam, most of the investors were local, often unaware of the risks, and many were burned as the market steered a rollercoaster course. Meanwhile, foreign investors largely sought to dip into the potential high returns of an emerging frontier market while hedging their bets with a highly diversified portfolio."

As in Vietnam, Szep continues, Cambodia is giving state companies priority with a place to sell stock. However, the reaction from inside the companies set to be privatised is not universally positive.

"We don't have any financial constraints. I don't understand the reasons we are going to be listed," said Ek Sonn Chan, who runs the Phnom Penh Water Supply Authority, which employs about 600 people, has about USD 200 million in assets and generates about USD 25 million in annual revenue. He said the company is profitable."If we become a public company, maybe we are more responsible, more transparent and maybe we can help the government allocate financial support to our company. But in the meantime, we don't know much about how it happens. It's very new to Cambodia, very new to me," he said.

I am not aware of any views - positive or negative - being expressed by the current management of Telecom Cambodia about next year's IPO. As Jason Szep writes, though, there does exist the view that the timing of the planned launch of the country's bourse may not be right for some time. Foreign direct investment nearly halved to an estimated USD 490 million from USD 815 million in 2008, writes Szep, who also reports that the International Monetary Fund expects Cambodia's economy to shrink nearly 3% this year before growing about 4% next year.

It seems that it will be in 2010, then, that we should watch for signs of Cambodia's fixed telephony and Internet segments beginning to enjoy the early stages of new growth. Whether this will ever be anything like as impressive as the growth of mobile services remains to be seen. I certainly doubt that the wireline space will, in the near future, be contested by anything like as many players as the mobile market, which, as I've stated here numerous times, has no fewer than nine cellcos jockeying for position. Again, let me take the opportunity to opine that while a good number of MNOs competing on price and innovation are needed to drive the growth of any cellular market, Cambodia seems to be a place were the level of competition may actually be excessive. I've repeated here (almost ad nauseum for regular readers, perhaps) that the aggressive pricing by the likes of Metfone and Vimpelcom-backed Beeline Cambodia has been cited as the reason for global emerging markets player Millicom International Cellular quitting the country.

Another matter given a fair amount of space here has been the fact that the first of those two disruptive later market entrants is backed by a company owned by the military establishment of Vietnam. At risk of excessive repetition, I'll say again that an army-owned cellco from a communist, centrally planned economy is surely not under the same kind of obligations to return profits for shareholders as is the case for its competitors. This affords the operator the possibility of building a mission around extending the availability of services to more remote regions and less affluent people, as Viettel-owned Metfone seems to have done in Cambodia.

Perhaps encouraged by how successful this has been, Viettel is now reportedly keen to buy a stake in Teletalk, a state-ownd GSM operator in Bangladesh, according to a recent Cellular News article.

Teletalk has not carved out a significant chunk of the Bangladesh mobile market. According to WCIS, it is currently estimated to own just 2.31% of the country's 48.7 million subscriptions. However, with mobile penetration at under 30% in the densely populated south Asian country, a nice growth opportunity may exist for any company acquiring the public sector MNO and somehow improving its performance. If Viettel prevails in its bid and is similarly successful in growing the customer base through the application of the same low-price approach used in Cambodia, perhaps a major shake up will affect the Bangladeshi market, where change of some kind has seemingly been on the cards for a while.

Back in July, in an article which was mainly focused on Millicom's exit from Cambodia and two other Asian Markets, I also mentioned that Aktel (an Axiata/NTT DoCoMo joint venture) was rumoured to be in merger talks with Orascom Telecom-backed Banglalink, whose CEO Ahmed Abou Doma had explained in a statement that apart from market-leading Grameenphone "others are continually posting losses" and that "in order to sustain in this fiercely competitive market, and in line with [Orascom's] growth ambitions", his company was "considering many strategies of which consolidation is an option."

Here, then, we have another market in which the room for growth implied by quite low mobile penetration (29.58% in Bangladesh) does not necessarily mean that a licence to operate a mobile network is also the proverbial licence to print money. If Viettel's bid is successful and if the Cambodian example is instructive, perhaps the likes of Mr Doma at Banglalink are about to find that things are about to get even tougher.

So, the Vietnamese army may be set to march into another market and inflict damage on more private sector telecoms operators.

This meandering article will conclude with the observation that Southeast Asia is not the only battle zone for military men with an eye on the telecoms market.

Another is at the western edge of Asia, where, in Iran, the state-owned incumbent fixed-line telecoms operator, TCI has been the subject of a fairly exotic form of 'privatisation'. A 51% stake in the company has been acquired by a consortium controlled by the Islamic Republic's Revolutionary Guards, a move which, according to the Guardian newspaper, is "fuelling suspicions that the organisation is quietly staging a military takeover." The Guardian article also mentions claims that a rival enterprise had been unfairly excluded from the bidding process because it lacked appropriate "security qualifications".

Also reported are warnings from critics who worry that the deal "exposes ordinary people, especially political activists, to intensified spying and electronic surveillance." The article goes on to report that this news came days after the governor of Iran's central bank, Mahmoud Bahmani, announced that a finance company owned by the Revolutionary Guards, the Ansar Institute, had been cleared to become a fully fledged bank.

The Revolutionary Guards, formed in 1979 to safeguard the Islamic revolution, writes the Guardian's Robert Tait, have built a financial empire with interests including oil and gas fields, airports and eye and dental clinics during the presidency of Mahmoud Ahmadinejad, himself a former member. Tait writes that this "empire" has been awarded lucrative building and engineering contracts "and is thought to control the smuggling of contraband into Iran."

The telecoms takeover, reports Tait, has provoked accusations that the Government's privatisation programme – required under Iran's constitution – is a sham designed to sell state assets to the Revolutionary Guards.

Journalist Mohammad Nourizad has warned that the Guards' control of TCI would be used to step up monitoring of the Government's opponents, Tait reports.

"Getting access to telecommunications management has always been vital for the security requirements of the Revolutionary Guards and the iron men behind the scenes," Nourizad wrote in a blog. "It means control over the country's entire telecommunications system, including landline telephones, mobiles, text messages, the internet and any other stuff linked to telecommunications. After that, it's a piece of cake … to trace people."

Scary stuff, if true.

At ease. Dis-MISS.

Quick march! Military men storm the telecoms sector

M&A mystery tour: Zain, Tigo Sri Lanka, Vivendi's foray into Brazil

Zain Group: all operations up for grabs?

Over the (northern hemisphere) summer months, this blog became very preoccupied with whispers about a 'for sale' sign supposedly being slapped onto the African assets of Kuwait-headquartered mobile group Zain. So much so that an inelegant title (Zain Africa Speculation Watch) was cobbled together for what quickly became a series of articles. That series ran to no less than thirteen episodes, such was the number of conflicting rumours doing the rounds from June to August. Of late, though, this long-running tale has meandered in a new direction - towards the idea that a significant stake in the whole Zain group may be sold, not merely its operations in Africa.

A reading of media reports coming out this week suggests this is looking increasingly likely. One such comes from Tom Gara, writing for the UAE's English language newspaper, the National. Gara reports that the Kuwaiti group leading the sale has announced that it will sell its stake in Zain to a consortium of Indian and Malaysian investors. The Kharafi Group - whose other activities include construction, civil engineering and the manufacturing of consumer goods - officially owns about 10% of Zain, writes Gara, but is believed by analysts to control up to 25% of the telecoms firm through subsidiaries and associates.

Gara reports that on Tuesday this week, a Kharafi subsidiary ran an advertisement in Kuwaiti newspapers, inviting investors owning fewer than 300,000 Zain shares to participate in the sale. "We hope that this preserves the rights and interests of small shareholders and gives them priority," the advertisement said.

What of the prospective purchasers? Gara describes them as a consortium led by India’s Vavasi Group and backed by Malaysian billionaire Syed al Bukhary. This consortium has apparently indicated that a purchase price has yet to be confirmed.

Gara also states that "two large Indian state-owned telecommunications companies that were originally listed as members of the consortium have since denied making any decision on the deal." Regular readers will surely know that this refers to MTNL and BSNL. The latter, says Shauvik Ghosh of Indian business newspaper Mint, writing earlier this week, may not want to pick up a stake in Zain because of an urgent need to hold on to its cash to maintain interest earnings, to pay for 3G spectrum and to fund an ongoing restructuring programme critical for long-term profitability. The last point certainly chimes with the critical analyses of BSNL's performance reported here at DTW.

The Mint article also quotes analysts who are similarly critical of the state of BSNL. One of these, who remains anonymous, warns that the public sector telco would be advised to stay away from the Zain stake purchase. "BSNL has a lot of cash on its books but it lacks the ability to execute," he says. "Africa is not a market for an operator to just add some revenue to its balance sheet. They have to first show that they can execute in India with the opportunities already in front of them like broadband and 3G before they can venture into bigger game like Zain."

One foreign adventure which certainly seems not to be on the cards for BSNL is its mooted purchase of the Millicom International Cellular operation in Sri Lanka. On Wednesday, India's Economic Times carried the news that the state-owned firm had bid for the Tigo-branded cellco. By Friday, the Business Standard was reporting that this bid had been rejected. "They have not considered our bid", BSNL Chairman Kuldeep Goyal told a reporter. "We had quoted a value [that] we thought was appropriate but it has fallen short of their expectations."

This blog recently opined about the likely consolidation of the fiercely competitive Sri Lankan mobile market, with one possibility being that Bharti Airtel could purchase the Tigo-branded MNO - the giant Indian operator already has an operation in Sri Lanka. The recent Business Standard article also mentions rumours of Bharti Airtel's interest in the transaction - as well as interest from another prospective purchaser already present in the Sri Lankan market, Malaysia's Axiata. The only seemingly interested party still being mentioned whose presence in Sri Lanka would not lead to market consolidation is the UAE's Etisalat, which is also mentioned in the Business Standard story. Total Telecom reported on Monday that the Emirati firm has indeed submitted a bid.

Plenty of interest in Tigo Sri Lanka, then. Let's see who prevails.

What news, though, of erstwhile protagonists from the early episodes of the now-fizzled out Zain Africa Speculation Watch mini-series here at DTW? Regular readers may recall that the whole hoo-ha was initially set off by rumours of interest from French telecoms and media conglomerate Vivendi. Having heard nothing since about that the company's plans, I was interested this week to read a report from my former colleague at Informa Telecoms & Media, Mr James Middleton. While the Zain Africa business came to nothing, James writes that the French group seems to remain keen on increasing its footprint in emerging markets beyond Morocco, where it controls Maroc Telecom. Vivendi, perhaps best known by telecoms watchers for its controlling stake in French cellco and broadband player SFR, has now launched a EUR 2 billion offer for 100% of Brazilian fixed line carrier GVT, which offers VoIP telephony, corporate data, broadband, internet services and pay TV, writes James.

As of June 30, 2009, GVT had approximately 2.3 million customer lines in service, including voice, broadband, data and VoIP services. It is one of the smaller players competing against giants like Oi, América Móvil and Telefónica.

So, after wandering across Africa, South Asia and South America, here concludes another whistle-stop tour of telecoms M&A stories from emerging markets. Let's see which of these has further to run.

M&A mystery tour: Zain, Tigo Sri Lanka, Vivendi's foray into Brazil

Sri Lankan mobile market: one way or another, consolidation looks likely

Sri Lankans queue to get their hands on Airtel 's low price offers earlier this year

When Bharti Airtel's Sri Lanka operation Airtel Lanka launched its cut price services in January this year, the new cellco became the fifth operator competing for a share of the country's mobile market. The number of mobile service providers in the island nation, however, may soon be set to fall back to four. This will depend, though, on which party comes forward to snap up one operator currently sporting a 'for sale' sign.

Up for grabs is Tigo Sri Lanka, one of the Asian operations that Millicom International Cellular is keen to sell. When this blog first commented on Millicom's planned withdrawal the three Asian markets in which it has done business, Axiata (formerly Telekom Malaysia International) was mentioned as a possible purchaser of two of these operations - Tigo Sri Lanka and Cambodia's Cellcard. In both cases this would lead to market consolidation - in Sri Lanka, Axiata has a controlling stake in market-leading cellco Dialog Telekom; Cambodian MNO Hello is a wholly owned subsidiary of the Malaysian group. As discussed in the most recent DTW article, however, it was another existing shareholder in the Cambodian cellco (the Royal Group) which eventually relieved Millicom of its stake in Cellcard. Given that other organisations have been more recently and more regularly touted as potential purchasers of Tigo Sri Lanka, Malaysia's Axiata also seems to be out of the running with regard to that opportunity.

One potential suitor mentioned very recently is state-owned Indian operator BSNL, whose management committee approved a proposal to submit a bid to acquire the Sri Lankan operator company last week, according to Manoj Gairola of the Hindustan Times.

The public sector telco seems to have attracted considerable criticism of late, some of which has been reported here. Quite striking was the August 12th article written by Kunal Kumar Kundu, who feels that BSNL is crippled by political interference, poor demand forecasting, lack of effective budgetary control and a bloated payroll. This blog has also reported the very modest take-up of BSNL's wireless broadband offerings and negative feedback about the company's preferred franchisee business model for the development of both 3G mobile and WiMAX services. Almost as often, however, the state-owned operator has been linked here with possible overseas investments. Perhaps the competitive pressure from India's numerous private sector mobile players is felt so keenly by BSNL's management that foreign opportunities are seen as a much better bet in terms of realistic growth opportunities. This may explain the fact that in the few months since the inception of this blog, the Indian operator has been mentioned in connection with a stake in pan-MEA mobile group Zain and with a new telecoms licence in Tunisia. BSNL's interest in Tigo Sri Lanka, then, is perhaps not very surprising.

Also connected in media reports with the sale of Tigo Sri Lanka is the UAE's Etisalat, which in August was reported to be considering an investment in the country now that the long civil war seems to have finally reached a conclusion. Priyantha Kariyapperuma, Director General of Sri Lanka's telecoms regulator, reportedly met with a visiting official from Etisalat last month and told journalists that "with the war over in May, there is ample scope for investments into telecom services and infrastructure facilities, especially in the north and east," referring to the area of the island that was most affected by the conflict. Few of the reports on Etisalat's possible interest in Sri Lanka have stated explicitly that the UAE company's route into the country's market would be via the acquisition of the Tigo-branded MNO. All of these reports, however, mention the availability of Millicom's Sri Lankan operation, so perhaps it's not unreasonable to infer that the Emirati company might have had Tigo Sri Lanka in its sights.

The most recent name floated in connection with the opportunity, however, is one from India rather than from the Middle East. As with an Axiata purchase, this move would also lead to market consolidation - because the company concerned is Bharti Airtel, already present in the Sri Lanka market since January, as we noted at the top of this article.

It seems, then, that the management of the giant Indian telecoms firm is not completely absorbed by the ongoing negotiations about the proposed mega-merger with South Africa's MTN. That saga has been notable for the repeatedly-extended deadline for concluding the talks and for various parties weighing in with opinions about the desirability of the mooted deal. One recently expressed opion comes from South Africa's Communications Minister, Siphiwe Nyanda, who voiced caution over the proposed tie-up in an interview yesterday. The Minister told the Sunday Times that any deal should take into account that MTN was a "South African company with a footprint in Africa." I take this to mean that there exists concern over MTN potentially losing its identity as a telecoms group with its roots - and the bulk of its business - in Africa. The Minister's comments are certainly of relevance given that South Africa's Government-owned Public Investment Corporation holds a 21% stake in MTN.

Bharti Airtel's interest in Tigo Sri Lanka came to my attention earlier this week, when R. Jai Krishna of the Wall Street Journal reported comments from an unnamed person close to the development. Suggesting that any deal would be worth USD 100-120 million, the mystery source said "in Sri Lanka, if you need to be a significant player in the market, you need to do an acquisition... greenfield, you will not be successful," by way of explaining the rationale behind Bharti Airtel's rumoured move.

A strengthened presence in Sri Lanka on the part of the Indian cellco could be welcomed by consumers - certainly if the company continues to compete aggressively on price, a strategy that has yielded impressive subscriber growth. Since going to market in January, the new entrant had 900,000 subs by the end of June, according to WCIS market intelligence. Another Informa Telecoms & Media service, Global Mobile Daily, reported in late July that Airtel Lanka claimed to have reached the one million subs mark.

The Bharti-owned cellco, however, has seen some of its competitors crying foul over its tariffs. Late last month, for example, Duruthu Edirimuni Chandrasekera of Sri Lanka's Sunday Times, reported that some operators have threatened to cut their interconnection with Airtel Lanka to retaliate for the the Indian-owned company failling to withdraw tariffs not approved by the country's telecoms regulator.

This sounds oddly familiar - the most recent article here covered a very similar wrangle over tariffs and interconnect agreements in Cambodia. Competition in Asia's mobile markets, then, certainly seems to be brutally fierce right now. Again I find myself voicing the view that there may well be casualties when the going gets this tough.

What price on mobile market consolidation in Sri Lanka then?

Sri Lankan mobile market: one way or another, consolidation looks likely

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

Millicom's withdrawal from Asia to prompt (much-needed?) market consolidations?

Russia's Beeline brand comes to Cambodia - and set to drive consolidation in the wake of Millicom's withdrawl? Picture (C) Roger Barlow.

Millicom International Cellular, the Luxembourg-based company which provides cellular telephony services to more than 30 million customers in across Latin America, Africa and Asia recently announced that its assets in the latter of these three regions are up for sale. The company's announcement mentioned that during Q1 2009, these Asian operations and joint ventures generated UDS 68 million in revenues and USD 4 million net profit for the group.

Even more recently - on Tuesday last week - the company announced its 2Q 2009 results, encouraging highlights of which were:

• mobile subscribers up 25% vs. 2Q 2008 - bringing total subscribers up to 30.8 million
• reported revenues up 5% to USD 814 million (2Q 2008: USD 774 million)
• EBIDTA up 14% to USD 371 million (2Q 2008: USD 326 million) - this beat the USD 361 million forecast in a Reuters poll of twelve analysts
• EBIDTA margin of 45.6% (+340 basis points vs. 2Q 2008)
  

These results excluded "discontinued operations" - this means Tigo Sierra Leone and the three Asian operators. This, then, certainly leaves little doubt that the group is committed to its exit from Asia. The three Asian operations concerned are in Cambodia, Laos and Sri Lanka.

Why is Millicom looking to get out of these markets? Zacks Investment Research offers the following explanation: "The major concerns in these markets for Millicom are increased competition and an extremely tight credit market." According to Zacks, the Asian region contributed just 8% of the company’s total revenue and its EBITDA contribution was even lower at 6% of the total. The Zacks commentary also notes that overall ARPU in Asia was just USD 6.2 in the first quarter of 2009, compared to USD 6.6 in the previous quarter and "a massive" USD 8.7 in 1Q 2008.

According to Millicom CEO Mikael Grahne, increased competition certainly does seem to have affected the profitability of Cellcard, the Cambodian cellco in which Millicom has a 58.4% stake. Steve Finch, writing on Friday in the Phnom Penh Post, observed that Millicom's Grahne appears very critical of the "disruptive market-entry strategies" of new entrants into Cambodia's increasingly crowded mobile sector. On the other hand, Finch also observes that another major shareholder in Cellcard does not agree with Millicom's assertion that this is negatively impacting profitability: "[There are] no concerns on profitability from our side," said Mark Hanna, CFO of Royal Group, which owns a 38.5% stake in the cellco, denying that margins had become tighter. As well as investments in property development and the media sector, Royal Group is very active in Cambodia's telecoms sector. In addition to its stake in Cellcard, the group has shares in Royal Telecam International (the second licenced international gateway in the Kingdom; also a joint venture with Millicom) and teleSurf, a broadband service provider.

Whichever side of this argument is the more valid, it seems undeniable to me that Cambodia is currently supporting an incredibly large number of cellcos. Millicom-backed Cellcard, which is by some margin the market leader (43.65% of subs according to WCIS) is one of three well-established players, the others being Hello (an Axiata company with 13.28% of subs) and Mfone (19.84% of subs). From 2007 onwards, a number of further entrants have piled into the market. The most recent of these is Beeline Cambodia, owned by Vimpelcom, one of Russia's big three cellcos. The arrival of this new operator, whose services were launched very recently and whose subs are not yet recorded by WCIS, brings the grand total to nine MNOs vying for business in a country of just 14.2 million people.

To me, this feels like a vastly excessive number, particularly in light of the fact that mobile market consolidation has been a recurrent theme here at DevelopingTelecomsWatch this year - we've discussed whether even a relatively large African market such as Tanzania can possibly sustain the numbers of licensed mobile operators currently competing there - and have asked the same question about much smaller markets such as Burundi and Gabon. Moreover, we have discussed this issue in broader terms, i.e. whether/when we should expect a wave of market consolidations across Africa, prompted to do so by the stated belief of MTN CEO Phuthuma Nhleko that this is set to happen.

Mobile penetration in Cambodia currently stands at 34.41%, according to WCIS. So there is room for growth. How many of this large number of cellcos, though, will be equipped to take full advantage of that opportunity? I suppose that will partly depend on their resources and the quality of their management teams - but even very solid companies could struggle if there is any truth in the Millicom allegation about the effects of new players' disruptive market entry strategies. As Steve Finch of the Phnom Penh Post explained, these strategies involve the distribution of free SIM cards and airtime - very nice for quickly building a subscriber base, but taken to its logical conclusion this can seriously erode overall market value for all players.

Has this kind of strategy worked for any of the new players in terms of rapidly building market share? The answer seems to be a resounding 'yes' in the case of one particular new entrant, Metfone, which is the Cambodian subsidiary of Vietnamese MNO Viettel. According to WCIS, Metfone has quickly carved out an incredible 17.47% of the market since its launch late last year. The current WCIS estimate for Metfone subsriber numbers is 900,000. There may be precedents elsewhere in the world for an operator arriving in an already fragmented market and amassing subscribers at something like that rate - but none spring immediately to mind for me.

How is Viettel able to do this? The answer might be that the company is simply not working to the same commercial logic as its rivals in the Cambodian mobile market. Viettel itself is owned by the army of Vietnam, a state officially committed to the creed of socialism and where all organs of government are controlled by the country's Communist Party. In a March essay here on the global links between the telecoms organisations of countries with left-leaning regimes, Metfone got a mention. That piece referenced a Saigon Times article on Viettel's foray into neighbouring Cambodia, which indicated that the new cellco would target low-income subscribers with a wide range of low-priced services and packages. Viettel Deputy General Director Nguyen Manh Hung was quoted as saying that this approach is not only about customer acquisition but is also intended to "contribute to society". Perhaps we should take that to imply a quite different interpretation of the for-profit motive than the one most of us in market economies have to live with in our jobs and lives.

Have any of Metfone's fellow recent market entrants been able to build a subscriber base at anything like the same speed? There answer here appears to be a resounding 'no'.

In terms of market share and subs, the other newcomers have fared as follows:

• Star-Cell (GSM) - 3.27%, 168,400 subs; part of the TeliaSonera group; commercial launch in 2007
• qb (W-CDMA) - 1.20%, 62,000 subs; commercial launch in 2008
• Latelz (GSM) -0.97% 50,000 subs; launched in 2009; owned by Time Turns Telecom, which is also an investor in telecoms operators in Burundi, Tanzania, Nepal and Sierra Leone
• Excell (CDMA) - 0.31%, 16,000 subs; launched in 2009
  

In September last year, Morten Eriksen, the CEO of the second operator in the above list was interviewed by AsiaLife Guide Phnom Penh, a monthly lifestyle magazine for expatriates living in Cambodia. Eriksen, who also explained that qb is funded by international venture capitalists and local Cambodian partners, expressed the belief that there is a good opportunity created by the country's very limited fixed line telecom infrastructure and the eagerness of its people of "to experience new technologies." He also asserted that rather than focusing on competing, the company is focusing on the people of Cambodia and how it can provide the best benefit to them. Specifically, Eriksen expressed his company's commitment to serving the youth segment with "packages and services to help students in the pursuit of education as they are Cambodia’s future." In an earlier interview - with the Bangkok Post in June 2008 - Eriksen reported that when he was first invited to get involved a 3G project in Cambodia, his initial reaction was that "they must be crazy". He explained that only after reluctantly travelling to Cambodia did he see the potential in a market with three incumbents providing bad, expensive service and where a 256Kbps ADSL line cost over USD 600 a month. The article indicates that the project formally started in 2004, with the company getting a licence in 2006 and then signing a turnkey network agreement with Ericsson in June 2007. Groundwork started in October 2007 and the first test call was made a month later. Finally on March 15 2008, qb was launched "with over 57,000 subscribers signing up on launch day courtesy of a huge concert and free SIM packages."

If that figure of 57,000 initial subs is accurate (and WCIS does reflect this), then further growth has certainly been very slow indeed.

Of the late entrant mobile operators, it would seem, then, that only Viettel's Metfone operation has really made a major impact on the Cambodian market.

So, if Millicom, as market leader, is going to withdraw from this market, which telecoms groups have looked at this seemingly very challenging competitive environment and expressed an interest in acquiring Cellcard? Two names which have surfaced in recent weeks are ones already competing in Cambodia. Consolidation, then, would appear to be on the cards already, even ahead of any of the smaller players potentially having to withdraw.

The first interested party, according to a TeleGeography article earlier this month, is Axiata, the Malaysian-owned mobile group formerly known as TM International. Axiata is said to be considering offering a total of USD 700 million for both Cellcard of Cambodia and Millicom's Sri Lankan operation. Were this bid to be made and accepted, Sri Lanka would also see market consolidation - Axiata owns the island's market-leading cellco Dialog Telekom. According to the TeleGeography article, Axiata has declined to confirm or deny the talks, but said "in-country consolidation is of strategic importance in some of our markets." This does seem to be something of a trend in Asia - and for Axiata - of late. Cellular News reported last month that Aktel, the Axiata/NTT DoCoMo joint venture in Bangladesh is rumoured to be in merger talks with rival Banglalink, which is owned by Egypt's Orascom Telecom. Banglalink CEO Ahmed Abou Doma explained in a statement that apart from the market leader (Grameenphone), "others are continually posting losses" and that "in order to sustain in this fiercely competitive market, and in line with [Orascom's] growth ambitions", his company is "considering many strategies of which consolidation is an option."

In Cambodia, the other potential bidder for Millicom's Cellcard operation seems to be Russia's Vimpelcom. Again, this is another existing competitor, albeit one whose Cambodian launch was very recent. According to a Reuters report earlier this month, Vimpelcom spokeswoman Yelena Prokrova was conceded that potentially the Asian assets of Millicom could be interesting for for the Russian telco because they are located in the region which the company views as strategic in its international expansion. The report notes that Vimpelcom would also be interested in Millicom's operation in Laos.

My sense is that, as we have seen here, Cambodia is one of a number of Asian markets in which mobile sector consolidation seems very likely. I am wary of the notion that low penetration rates alone mean that any given emerging market or developing country offers telecoms groups a licence to print easy money. The low ARPU inherent in serving relatively poor people and the challenges of rolling out infrastructure to under-developed regions, often in challenging physical environments, can make for unattractively thin margins. If destructive levels of price competition are thrown into the mix, it surely becomes difficult for large numbers of competing operators to survive in all but the largest markets. The withdrawal of Millicom International Cellualar from Asia, then, may stimulate much-needed market consolidations in at least two of its three existing Asian territories. Rumours from Bangladesh also suggest that similar developments may be in the offing elsewhere across the continent.

Millicom's withdrawal from Asia to prompt (much-needed?) market consolidations?