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

India Week continues at DTW

This is turning into 'India Week' here at DevelopingTelecomsWatch. Today's musings begin by revisiting yesterday's discussion here about the imposition of Mobile Number Portability (MNP) in the country. We will also consider - not for the first time - the ways in which the Indian Government's concerns about national security might lessen the appeal of this vast, growing market for foreign telecoms groups.

The reason we are returning to the MNP debate so quickly is that yesterday saw an open house discussion in Hyderabad on this theme. Hosted by the TRAI, India's telecoms regulatory body. This rejoiced in the snappy title 'Determination of Port Transaction Charge, dipping charge and porting charge for mobile number portability'. The surrounding media coverage provides more information on the range of concerns expressed by India's cellcos.

Speaking to an Economic Times reporter at the workshop was TRAI Chairman SJ Sharma, who said he expects MNP to go live on December 1st. While Sharma is confident that his agency will have its MNP regulations in place by the end of August, he expressed the belief that some of the operators do not seem to have ordered enabling equipment yet, meaning that a delay of 2-3 months is likely.

Yesterday, ahead of the Hyderabad discussions, we considered the estimated cost one operator had calculated for the implementation of MNP. State-owned BSNL had come up with a USD 250 million estimate, complaining about this cost in light of its contention that only 2% of "elite customers" are likely to use the facility.

Today, drawing on an article from K.V. Kurmanath of the Business Line, we can see how BSNL's numbers stack up against the estimates of some of its competitors in the mobile space.

Reliance Communications, and Tata Teleservices have indicated that they expected MNP-related expenditure to the tune of USD 20.6 million each. Vodafone India has come up with the much larger figure of USD 72.3 million. Much lower numbers than those mentioned by BSNL, then, but still pretty significant sums of money. I invite anyone with a view on this to offer an explanation for why this set of estimates varies so much.

"The regulator asked the service providers to send in their points on these issues by Tuesday," Mr T. R. Dua, Deputy Director-General of the Cellular Operators’ Association of India, told Business Line, whose article states that "keeping in mind the huge expenditure", the telecos want the TRAI to ensure that they are compensated for their "huge investments".

Let's see, then, if December 1st really is the date after which Indian mobile users can elect to switch their cellular providers while keeping their phone numbers.

In the meantime, I want to consider once again how the Indian authorities' concerns about national security are impacting on the telecoms sector.

In a recent piece here about worldwide developments across the footprint of Scandinavian telecoms group Telenor, I noted that the company had been facing difficulties around establishing a controlling interest in Unitech Wireless, the start-up Indian cellco in which it currently has a minority stake. For India's security agencies, the stumbling block was Telenor's presence in Pakistan and Bangladesh - apparently a cause for concern in light of strained relations with both of these neighbouring countries.

Telenor's immediate problem appears to have been resolved with the Indian Home Ministry's suggestion that security clearance for a bigger stake in Unitech Wireless up could be provided on the condition that none of the staff who have worked at the Norwegian firm's Pakistan operation are employed in India. Other security concerns affecting the telecoms sector more broadly, however, continue to be aired pretty regularly.

For example, all telecoms firms present in India may find themselves subject to further personnel restrictions. Late last week, Joji Thomas Philip of the Economic Times wrote that India's intelligence agencies now want all telcos to have a native Indian in the post of Chief Operating Officer. At present, only operators' CTOs need be a resident Indian citizens, while foreigners are allowed to hold all other key positions such as Chairman, MD, CEO and CFO, subject to clearance from the Home Ministry on a yearly basis.

If enforced soon, this proposed new regulation might not make a big impact right away because, as Philip notes, none of the existing telcos currently has a foreign COO.

This is not to say that such restrictions will have no impact, however. An article in today's Financial Times goes as far as stating that such stringent personnel requirements would lessen the appeal of India for foreign strategic investors and will restrict the freedom of companies already operating in India to make use of existing foreign expertise within their global organisations.

The article also contends that such restrictions on management positions could complicate corporate merger and acquisition activity such as Bharti Airtel's planned tie-up with MTN, the South African telecoms firm with interests across and beyond Africa. This would just add to the concerns of some analysts who are already sceptical about the wisdom of that proposed deal for Bharti Airtel shareholders. On Monday, India's Financial Express noted that day's 4.8% drop in the market-leading cellco's share price, which seems to have been triggered by worries that the company will increase by 5-10% its offer to buy a stake in MTN. The article quotes Sonam Udas, VP Research at BRICS Securities, who says: "we don't understand the logic for this deal at all. Why does Bharti want to change from a company with a net cash position of USD 1 billion to a debt-ridden firm? We do not buy the argument the deal is going to add value. There is nothing in the deal to highlight as adding strategic value."

Operators may not be the only telecoms value chain participants affected by the Indian Government's security concerns. Joji Thomas Philip writes that the Home Ministry fears that "suspect vendors may install back-door entries, remote logic facilities and also design Trojan horses in networks and hardware. This could be used to remotely bring down the network or to monitor it." Philip states that the agencies are particularly concerned about Chinese vendors.

One definite casualty of all this worry about national security is Swiss-registered firm ByCell. On Saturday, the Economic Times confirmed that after much wrangling, the company is to be prevented from entering the Indian mobile services market, with security concerns about the company and its shareholders being the deal-breaker.

A busy week for Indian market watchers so far, then. Let's see if the rest of the week has enough action in store to warrant another look here at DTW.

India Week continues at DTW

Telenor: good news from India; troubles continue in Russia/CIS

Telenor HQ: India, Pakistan and Russia issues on the agenda

A recent DevelopingTelecomsWatch article went into the likelihood of mobile market consolidation in Pakistan. I was prompted to write this by a rumour doing the rounds, according to which Telenor is considering selling its operation in Pakistan to China Mobile, which already has a presence in the market in the form of the MNO Zong. I noted that Telenor's presence in Pakistan was worrying the authorities in neighbouring India - worrying them to the extent that it could make it impossible for the Scandinavian telco to increase its stake in start-up Indian cellco Unitech Wireless. Such is the level of tension between the two countries, it seems.

I moved on to speculate (wildly, I admit) that Telenor's thinking might be along the following lines:

• We can't play in India and Pakistan...
• India (population 1.15 billion, mobile penetration 34.47%) presents massively richer opportunities than Pakistan (population 173 million, mobile penetration 55.58%)...
• so, if being in Pakistan prevents us from maximising the opportunity in India, let's get out of Pakistan...
  

Last week, however, came news of a possible way for Telenor to maintain a presence in both markets. An Economic Times article of 30th July indicates that India's Home Ministry is set to give security clearance for Telenor's hiking its stake in Unitech Wireless up to 74%, but on the condition that none of the staff who have worked at the Norwegian firm's Pakistan operation, are employed in India.

The Indian authorities are not only concerned about Telenor's Pakistan connections, it seems. Security agencies apparently also had reservations regarding the Norwegian company's presence in Bangladesh, where Telenor is the largest shareholder in market-leading cellco Grameenphone. The Economic Times article notes that both the neighbouring countries not only have a history of strained ties with India, "but have also served as a launchpad for various terror attacks". In the case of Bangladesh, investigations into serial terrorist blasts that killed 80 and injured 216 in the northern Indian tourist city of Jaipur last year pointed to the involvement of Bangladesh-based terrorist group Harkat-ul-Jihad-al-Islami, according to local reports.

The Economic Times piece notes that Indian authorities have had to take into account the concerns of the security agencies while also keeping in mind the reputation and stature of the Norwegian firm and how it has revolutionised rural telephony in Bangladesh via Grameenphone. The Bangladeshi MNO takes its brand name from that of Telenor's local partner Grameen Telecom, a non-profit sister concern of the internationally acclaimed microfinance organisation and community development bank Grameen Bank. A Grameenphone-Grameen Telecom partnership operates the national Village Phone programme, which puts mobile phones in the hands of very poor women who then operate a business, offering access to communications services to their neighbours.

This programme is not purely altruistic and has been an important component of an encouraging growth and profitability story for Grameenphone - and in a market where other cellcos have struggled to succeed. In this blog's most recent previous article, we heard from the CEO of rival Banglalink, which is owned by Egypt's Orascom Telecom. Ahmed Abou Doma explained in a recent statement that apart from the market leader (Grameenphone), "others are continually posting losses".

The Economic Times article also states that the Indian Government is keen not to send out the wrong message to foreign investors and has therefore "come around to the view that the Norwegian giant should not be held back from picking up up to [a] 74% stake in Unitech Wireless simply because it has a successful presence in Pakistan. " Keeping the human assets of the Indian and Pakistani arms of Telenor separate is expected to take care of risks such as spying and subversion, the article suggests.

For Telenor, good news from India comes at the same time as much less encouraging news from Russia. Within the last few hours, Reuters has reported that the Norwegian group has lost another round of its legal battle over its stake in Russian cellco Vimpelcom. The latest development in a long-running and acrimonious saga sees a Moscow appeals court rejecting Telenor's latest attempt to delay the enforcement of a USD 1.7 billion fine owed to Vimpelcom. Telenor faces the prospect of losing its stake in the Russian company after bailiffs ordered the sale of its shares to cover the fine that a Siberian court imposed for allegedly holding back Vimpelcom's expansion in Ukraine. Maria Kiselyova of Reuters writes that the case is being closely watched as a guide to the climate for foreign investors in Russia, coming after the shareholder battle last year that forced management and personnel changes at BP's Russian oil joint venture, TNK-BP. Kiselyova asserts that analysts watching the case, brought by Farimex, a small shareholder in Vimpelcom, say the forced sale of Telenor's stake in Russia's second-biggest mobile phone company by subscriptions "would further undermine confidence in the rule of law in Russia." She continues by saying that Telenor views the case as part of a protracted dispute with the powerful conglomerate of Russian billionaire Mikhail Fridman, Alfa Group, the other strategic investor in Vimpelcom. Alfa, as Kiselyova notes, has denied any links to Farimex.

These developments follow a Q2 performance which beat the expectations of analysts polled by Reuters. The Norwegian telco posted a bigger-than-expected 6.8% rise in Q2 core earnings and curbed investments to protect against a potential fall in mobile revenues amid global economic hardship. EBITDA rose to USD 1.24 billion.

Telenor also cut its CAPEX target, excluding investments in India, to 13-15% of its revenues from an earlier prediction of 15-17%. An impairment charge for its Serbian operation, linked to a poorer outlook for that country, hit its bottom line, driving earnings per share down from last year's figures.

It remains to be seen, though, how a bigger stake in India's Unitech Wireless and possibility of losing its foothold in Russia and the wide CIS (where Vimpelcom has numerous subsidiaries) will affect Telenor going forward.

Telenor: good news from India; troubles continue in Russia/CIS

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?

Nokia: Low TCO is key in emerging markets - but how to achieve it?

I recently made reference to an emerging markets-focused publication which I consider to be an excellent source of information and insights: Expanding Horizons magazine, which is offered to ICT decision-makers in the private and public sectors by Nokia and Nokia Siemens Networks. The latest issue is a special edition packed with interesting articles from the last 2-3 years. Expanding Horizons aims to explore the socio-economic benefits that mobile technologies offer as well as best practices from around the world in order to encourage affordable mobile communications and bring the Internet to the next billion consumers. Its editors also aim to demonstrate how to create favourable environments for market growth in developing countries.

One of the most recent articles opens with a challenging question: Why is TCO (Total Cost of Ownership) of USD 5 per month possible in India, Pakistan, Sri Lanka and Bangladesh but not in 76 other emerging markets covered in a study conducted by Nokia in 2007. For the purposes of the study, TCO was defined as a combination of the service fee, taxes and mobile device price. The study found that the average TCO for subscribers in these developing countries was USD 13 per month and its authors asserted that bringing this figure down to less than USD 5 would enable a majority of low-income prospective subscribers to use mobile services. Surely, then, all four South Asian countries with outstandingly low average TCO should have very high mobile penetration rates when compared to the broader selection of emerging markets. Let's look at mobile penetration in these four countries as of December 2008, according to the World Cellular Information Service.

• India: 28.31&
• Pakistan: 51.68%
• Sri Lanka: 49.48%
• Bangladesh: 28.95%

Of the 76 countries found to have higher average TCO, quite a large number have outperformed these South Asian markets in terms of mobile penetration. Let’s pick out some examples, choosing only countries with lower per capita GDP and/or ranking lower on the Human Development Index than India. Again, the figures are from the Informa Telecoms & Media World Cellular Information Service:

• Vietnam: 79.37%
• Yemen: 28.53%
• Kyrgyzstan: 65.83%
• Cameroon: 31.01%
• Nigeria: 44.50%

I wish I had time now for a detailed discussion about why some of the above countries, all of which have higher average mobile services TCO than the South Asian markets, have done better in terms of getting mobile devices into the hands of larger slices of their populations. In lieu of that discussion, for which I hope to find time another day, it does, at least seem fair to assert that while low average TCO is highly desirable, it is clearly not the single most important factor for mobile services to be taken up by the less affluent population segments in developing countries.

This is not to say, of course, that it is not worth trying to understand how TCO can be minimised. Nokia were interested enough to commission a follow-up study, executed by LIRNEasia, a regional ICT policy and regulation capacity-building organization active across the Asia Pacific.

So what explanations were found for the USD 5 TCO in the four South Asian countries? The Expanding Horizons article states that "surprisingly, the data led to the exclusion of such factors as per capita GDP, mobile penetration and growth rates, population size and density, and governance." In each instance, the article continues, other countries surveyed with more favourable values for any one of these characteristics also had monthly TCO levels substantially exceeding the crucial USD 5 per month. Instead, "our study told us that the two factors most common among the four countries that had the lowest TCO levels was superior market access and business model innovation," said Mr. Rohan Samarajiva, executive director of LIRNEasia. "In addition to the availability of low-cost handsets and modern wireless infrastructure equipment, a market requires a ‘disruptive competitor’... one who does not play by the established rules."

To summarise, the strategies of these 'disruptive competitors' have, according to the article, involved shifting the operator’s focus to lower income consumers and increasing network utilization. The article continues that this kind of strategy is built on the principle of widening the user base significantly, handling a greater volume of smaller transactions very efficiently, driving down customer acquisition costs and creating an efficient network architecture. All of this is done, continues the article, with the goal of allocating the network’s fixed cost structure over a broader user base while significantly raising more marginal revenue through higher numbers of previously under-served, low-income consumers.

In the case of Bangladesh, my guess is that the first-mover in terms of being a 'disruptive competitor' would have been Grameenphone, famous for its association with the Village Phone microfinance initiative, now replicated in African and other Asian markets, which puts mobile devices in the hands of low-income subscribers in rural areas and enables them to build sustainable businesses. In the case of the other three markets, the identities of the 'disruptive competitors' does not immediately spring to my mind. Perhaps some helpful reader has a view.

Nokia: Low TCO is key in emerging markets - but how to achieve it?

Emerging markets to get a deserved look in at a downturn-themed Mobile World Congress

An averagely busy life does not allow for blog entries as long as novellas. I also doubt that posts as long as that would be read from start to finish by equally busy readers. Some topics, though, are worth exploring at length, and I was conscious yesterday of having downed tools before getting close to sharing more than a tiny fraction of what I've learned about the theme I was discussing - how successfully the telecoms sector is reconciling its for-profit commercial imperatives with a desire to improve the lives of poor people in developing countries. What follows today, therefore, is a little more exploration of this broad topic.

A company which got a mention here yesterday was Grameenphone, the cellco which owns the largest share of the mobile market in Bangladesh - 46.75% by December 2008, according to Informa Telecoms & Media's World Cellular Information Service. We considered the idea that the MNO's owners, Telenor and Grameen Telecom, have been at odds, with Muhammad Yunus, the Nobel Laureate behind the Grameen family of companies apparently claiming that Telenor's need to build shareholder value has not always sat comfortably with the social and non-profit agenda of its Bangladeshi partners.

For many, I will be rehashing a very familiar story as I take a look at the form this agenda has taken. Some readers may know the story less well and not be fully aware of how cellcos elsewhere in the world have been inspired by Grameen Telecom/Grameenphone initiatives. The tale is one of my favourite examples of the telecoms industry changing lives for the better so I will indulge myself by repeating it, hoping that there is something new here for at least one reader of this blog.

The most famous Grameen Telecom/Grameenphone project must be Village Phone, an inititative which provides telecoms services to underprivileged people in rural Bangladesh. Prospective Village Phone subscribers must first become members of Grameen Bank and take out a small loan. This loan is then used to purchase a handset and SIM card. Once given a phone, the subscriber is encouraged to provide services to people in the adjoining area. In this way, the borrower repays the debt to the bank and earns a profit. In 2006, I welcomed a representative of Grameen Telecom to a conference I hosted in Dubai. Participants watched a moving video which showed how the Village Phone project was transforming the lives of poor Bangladeshi villages, mostly women.

This model has been replicated elsewhere in Asia and also in Africa. I think the most recent example is that of the Village Phone project launched in Indonesia by the Grameen Foundation, Qualcomm and Bakrie Telecom, a CDMA WLL operator that is seeking to establish a national presence with its Esia brand.

In July 2008, Global Mobile Daily reported on the project, whose name, 'Uber ESIA', means 'joint cooperation' in the Indonesian language, and which is aimed at delivering affordable access to remote rural areas using 3G CDMA technology. Similar to the original Bangladeshi model, the plan is to work with local Indonesian microfinance institutions to enable clients to borrow sums needed to purchase a Village Phone 'business in a box' consisting of a mobile 3G CDMA-based device and charger, marketing materials, tariff posters, business cards and training materials.

Earlier examples of the Village Phone model being exported are those of the Grameen Foundation's collaboration with MTN's Ugandan subsidiary (launched in 2003) and with MTN Rwanda (launched in 2006).

This clip (in Dutch, with English subtitles) tells the story of the Ugandan initiative:



Qualcomm's involvement in the Indonesian Village Phone project is further evidence to support a point made in yesterday's post - that telecoms operators are not the only communications services ecosystem participants which can support initiatives designed to improve the lives of poor people in emerging markets.

Another example of this is the 'Village Connection' system developed by Nokia Siemens Networks. I remember this being discussed in an email-only publication to which I was once a regular contributor, the weekly 'Telecoms Vision' newsletter associated with the Informa Telecoms & Media Com World Series. In February last year, this carried an article based on an interview with Rauno Granath, NSN's Head of New Growth Markets. Granath explained that the Village Connection solution, which is comprised of GSM access points located in villages, connected via IP links to regional access centres, was "carrying live traffic in many villages in India." The article stated that the system lends itself to new business models such as operators potentially franchising parts of their business to local village entrepreneurs.

Granath was keen, however, for NSN not to be prescriptive about business models, saying "the Village Connection solution enables new thinking in sharing the responsibilities as well as the business between the new stakeholders, but it doesn't mandate it. I would expect to see a whole variety of ways of working." The article suggested that as different business models emerge, so too could different operator approaches to charging, and went on to discuss other offerings in the NSN portfolio designed to make taking on new subscribers even more viable. An example given was that of improved radio performance and planning through which it becomes possible to allow a reduction in sites, saving money on hardware and, in isolated areas, on power. Also discussed were further ways of reducing power consumption, and thus the Total Cost of Ownership (TCO) for prospective new subscribers from among the poor of the developing world. These included base stations that can work without air conditioning and combined solar and wind power systems.

Another efficiency measure discussed by Granath concerned airtime distribution purely on an SMS basis rather than scratch cards. "It sounds trivial," said Granath, "but when we think about the tens or hundreds of millions of vouchers that operators need to distribute throughout their subscriber base every year, it starts to get big effects."

The article made the point that these are all admirable attempts to make supplying services to rural populations viable but asked the question of whether such potential subscriber additions are really worth the effort for operators. Granath was adamant that "there is still a lot of pure business sense for operators to reach the rural areas, particularly in markets like India where even the rural population is dense." Apart from which, it may be unavoidable if, as Granath pointed out, universal service obligations are imposed by governments.

For more on the Nokia Siemens Networks view on extending service availability in emerging markets, I would heartily recommend a look at the latest edition of the company's Expanding Horizons newsletter. With an editorial co-authored by Rauno Granath, this is a useful round up not only of NSN's activities in this field, but also related material such as an interview with Gabriel Solomon of the GSM Association, who worries that high taxes on mobile communications are threatening to suppress economic and social development in sub-Saharan Africa.

As I continue to tease former colleagues at Informa Telecoms & Media whose Facebook status updates suggest they are gearing up for a week of very hard work at the Mobile World Congress (while I head off for a family holiday in Florida), I was pleased to note that a senior figure at the company is predicting that the effects of the economic downturn notwithstanding, emerging markets will get a look in during the various conference sessions and workshops and in the countless discussions between individual participants.

Mark Newman, the business information and events firm's Chief Research Officer begins his preview of this year's Barcelona show by asking how how exhibiting vendors "can... showcase new mobile Internet devices, mobile applications and next generation mobile broadband network technology while at the same time satisfy[ing] operators' overriding single objective in 2009 - cutting costs as the mobile industry faces up to the global economic downturn."

All very austere. Almost as harsh as my wife returning from a lunch with friends today and sharing with me the news that several people present have either been made redundant or are expecting the axe to fall very soon.

My own view of the downturn, however, is to be grateful for the fact that however long or deep this recession proves to be, none of us living in the developed economies of Europe or North America will experience the levels of absolute poverty suffered by people in what we call emerging markets. I was therefore heartened by the final comment of Mark's MWC preview: "Growth potential in emerging markets has been a regular theme over the last few years and will remain so at this year's event". For me, that's exactly as it should be, especially if we take the view that telcos and vendors making a profit in developing economies is compatible with improved lives for the poor.

Emerging markets to get a deserved look in at a downturn-themed Mobile World Congress

Mobile price wars in the downturn: time to do battle?

Still reeling from the roaming bill I racked up on my last trip to the UAE in December, I was interested to see the Dubai Chronicle reporting a big cut in international calling prices on the part of Emirates Integrated Telecommunications Company, better known as Du.

For the first time, Du's prepaid customers can now use a AED 200 recharge card and receive AED 320 credit to towards international calling. Other Du recharge card denominations of AED 100, AED 50 and AED 20 will provide instant credits of AED 150, AED 70 and AED 26 respectively, to be used towards international calling.

Farid Faraidooni, EVP Commercial at Du says: "Every dirham counts, and more so in the case of the UAE, with a large expatriate population with the need to stay in touch with their loved ones back home."

This might make me think more seriously about getting myself a prepaid Du SIM for future trips to the Emirates. However, my situation is similar to that of Dean Bubley of Disruptive Wireless, who, in an amusing blog post this week, describes himself a frequent traveller, but to lots of different countries. Writing this Wednesday, Dean bemoaned the costs and complications of staying in touch with work contacts, friends and family while attending next week's Mobile World Congress. "One thing that's immediately apparent," writes Dean, "is that despite all the talk of VoIP, SIM-swapping and the like, I'm going to end up with a large bill for voice and SMS roaming. I've got dozens of meetings, loads of people I'll need to contact (or be contacted by), inevitable changes to schedules and venues, plus all the usual work and personal call traffic I'd normally get in the UK. I'll be paying for both inbound and outbound roaming calls."

"It's clearly not an option just to get a local SIM card - most of the people I need to contact will be outside Spain and there are too many people likely to contact me to inform everyone of a new number." Given that, as Dean says, keeping a Spanish SIM year-round would not work because it would expire after a few months without use, I had to sympathise when I read his remarks about WiFi not being an option due the likely (he says notorious!) congestion on the network provided at the Barcelona Fira (MWC venue). Dean also criticises VoWLAN service providers for having "haphazard support of SMS, which is absolutely mandatory at trade shows where you have back-to-back meetings."

Dean's suggested remedy for international travellers? "What would be good would be a way to get a local SIM or account/number - ideally without physically having to buy one - and for this to automatically propagated to all your contacts when you were in-country. Or for it to somehow be linked to your existing home account in the network."

That sounds useful. Let's see. In the meantime, after reading about Du's reduced international call charges, I noticed a couple more stories about operators slashing prices. Both relate to markets from where a large number of the UAE's expatriate workers originate.

According to an article last week on the Bangladesh news portal priyo.com, the CDMA operator CityCell is "struggling to remain in business... with operating losses escalating to almost double in the first quarter." The company, of which SingTel is the largest shareholder, has apparently suffered as a result of having to subsidise handsets. The article asserts that only market-leading
Grameenphone is profitable, "with other players bleeding for years."

While device subsidies are said to be hurting CityCell, greater pain is apparently being caused by an intense price war. Says Zia Uddin, an analyst with New York-based asset management company LR Global: "Intense competition has led to [an] unhealthy price war in [the] Bangladesh mobile phone market. Most of the companies have to subsidise handset prices to woo clients," he said. "In addition, the ARPU and [tariffs] in Bangladesh are possibly the lowest in the world".

CityCell, the country's first ever MNO, seems poorly positioned to grind it out in this kind of environment, having steadily lost market share to rival GSM operators since Grameenphone, Banglalink (then called Sheba Telecom) and AKTEL entered the market in 1997. The CDMA carrier now has just 4.03% of the subscriptions in Bangladesh.

Meanwhile in India, according to an story carried by Global Mobile Daily last month, the entry of CDMA operator Reliance Communications onto the GSM scene has already triggered rivals Airtel, Vodafone and Idea Cellular into price cutting mode.

This is not surprising if, as reported by the Economic Times yesterday, Reliance plans to slash its GSM rates by 50%. However, the same article cites a recent study by Lirneasia which deduces that such a move is not likely to make a significant dent in telcos' existing subscriber base.

Lirneasia, a not-for-profit ICT policy and regulation capacity building organisation working in nine South Asian countries, conducted a survey on mobile users at the bottom of the socioeconomic pyramid which shows that even the most cost sensitive subscriber segment has reached a stage where it is driven more by service offering, brand loyalty and number retention than by price discounts.

T.V. Ramachandran, head of India GSM operators' trade association the COAI supports the findings of the Lirneasia study. This seems like a sensible response from a body whose members could suffer badly if a price war is escalated and sustained.

It will be interesting to watch developed and emerging markets worldwide to see how many operators feel this economic downturn compels them to cut prices heavily and how many take the view outlined in the Lirneasia report - that it makes more sense to compete on quality and brand value.

Mobile price wars in the downturn: time to do battle?

Nordic telcos' emerging markets plans for 'challenging' 2009

In July 2007 I was pleased to provide meeting facilities for in Dhaka, Bangladesh for a gathering of the South Asian GSM Forum, whose Chairman Mehboob Chowdhury was a key supporter of the following day's Mobile South Asia conference of which I was co-organiser. Mr Chowdhury, a former Chief Commercial Officer of Orascom Telecom-backed Banglalink, had fellow Forum board member Stein Naevdal run the pre-conference meeting. Mr Naevdal, now CMO at Bakcell of Azerbaijan, was with Bangladeshi operator Grameenphone at the time, a company owned by Grameen Telecom and Telenor.

Having had the opportunity to meet members of Grameenphone's senior management team, and having had a quick look round a Grameenphone retail store on the busy streets of Dhaka, I have continued to take an interest in the performance of this and other MNOs across Telenor's collection of emerging markets operations.

An article carried yesterday by Telecompaper reported Telenor's cautious forecast for the "challenging" year ahead: stable organic revenues and an adjusted EBITDA margin around 34 percent, versus a reported 34.7 percent in 2008.

The article indicates that the Norwegian company's $US 1 billion purchase of a majority stake in Indian cellco Unitech Wireless is not expected to add significantly to revenue and will generate and EBITDA loss of of NOKA 2-2.5 billion ($US 295 million-369 million). Revenues are not expected to begin flowing from the greenfield operator, which has licences in all 22 of India's telecoms circles, until mid-2009.

The largest shareholder in Telenor, the 7th-ranked telecoms operator in the world in terms of subscriber numbers, is the Norwegian Government, which was apparently initially supportive when the business proposed a rights issue in order to fund the Unitech Wireless purchase while maintaining the company's credit rating.

While Telenor CEO Jon Fredrik Baksaas has continued to express great confidence in the long-term value of the move into the Indian market, investors have not responded well to news of the acquisition. The proposed rights issue has also attracted criticism, not least from Norway's Conservative opposition, which attempted to persude the Government to prevent Telenor from selling shares to fund the Indian adventure.

A Bloomberg TV interview with Baksaas on November 9th was prefaced with a reminder that Telenor's share price fell by as much as 20% on the trading day on which the Unitech deal was announced. Baksaas reponded by saying "The negative swing in the share price was greater than we had expected... but in order to build a long-term... mobile operation takes years." He reminded viewers that the company has been making such long term bets in Ukraine, in Russia, in Malaysia and in other countries for many years. "It is a period of investment that's needed in order to grow towards a sustainable, long-term position," Baksaas explained.

Baksaas told viewers about the criticism Telenor faced when entering Ukraine, then "one of the poorest countries in Europe" in 1997 and stated that Kyivstar now one of the best performing contributors to the Telenor business.

When interviewed by the same channel twelve days later, by which time the fall in Telenor's share price (since the Unitech announcement) was 26%, described by the interviewer as the largest in eight years, Baksaas was speaking about the good growth prospects afforded by India's low teledensity relative to other countries in the region. He sounded lukewarm about the prospect of Unitech getting involved in the Indian 3G licence auction, saying that the company would be intitially focused on "basic services". Baksaas was also keen to express the belief that the telecoms industry is likely to be more resilient than many sectors in a downturn.

Late last month, Telenor finally withdrew the proposed rights issue, electing instead to fund its investment in Unitech Wireless in India through a combination of cash flow and issuance of additional debt. A proposed immediate result of this will be to make no payment of dividend to shareholders for 2008 or 2009.

Yesterday, another Nordic telecoms giant was reporting a positive contribution from emerging markets business units. As reported by Telecompaper, TeliaSonera's Eurasian activities continued to show strong growth, with sales up 45 percent to SEK 4.2 billion and EBITDA rising 57 percent to SEK 2.1 billion. Consolidated since October 1, 2008, the operations in Nepal and Cambodia affected net sales positively by 5.8 percent. However, according to Total Telecom, TeliaSonera cautioned that it needs to "be prepared for a potentially drawn-out economic downturn that may affect consumer and corporate behavior."

Nordic telcos' emerging markets plans for 'challenging' 2009