The road to hell...

... is paved, as Dr. Johnson didn't ever say, with good intentions.

One such intention was set out here in the most recent DTW post, namely that this blog would review some of the predictions made in the Industry Outlook report that is made available for free downloading by Informa Telecoms & Media. The plan was to zero in on any predictions relating specifically to emerging markets and developing countries.


Two months have passed since that rash promise was made and not a peep has been heard from this once prolific blog - no fewer than 147 posts saw were published here in 2009.

Apologies, then, to anyone who has found DevelopingTelecomsWatch to be a useful source of news, commentary and speculation and who now wonders whether the blog has fizzled out of existence. Happily, for anyone that cares, this is not the case. That said, I do not expect to be writing anything like as often in 2010 than was the case last year. My commercial activities are, I am pleased to report, taking up far more time now, suggesting that this year will be more profitable than the one we have left behind us. I do hope that regular readers are facing this first year of a new decade with similar optimism.

Failure to deliver on good intentions notwithstanding, then, perhaps DTW and its writer are not on that proverbial road to hell.

What of our industry and its interests across emerging markets? Hellbound? Or good times ahead?

Belatedly, then, with two months of the new year having already passed, let's attempt to answer those questions by taking a look at a couple of the predictions made by the crystal ball gazers at Informa:

'So-called emerging markets will transition into a new phase of competition based on services and bring into question the validity of the term "emerging market" as it is understood in the telecoms sector today.'

Informa's report notes that "Until now, the term 'emerging market' in the context of the mobile sector has been used as a catch-all phrase to describe markets characterised by low penetration rates, a proliferation of mobile network operators, steep drops in the price of basic communications and resulting explosive mobile subscription growth."

This is familiar territory here at DTW. Numerous times, reference has been made to markets in which the price of mobile services has been squeezed down to a level that makes life very hard for some of the competing cellcos. In July last year, for example, this blog covered the decision of Millicom International Cellular to withdraw from all the Asian markets in which it once did business - Sri Lanka, Laos and Cambodia. The latter country certainly matches the Informa's report's reference to "a proliferation" of MNOs. No fewer than nine (!!) cellcos are currently fighting for business in a country with just 14.8 million inhabitants. Here they all are, with market share figures from Informa's WCIS product:

1. Cellcard (GSM, 42.12% market share - the operator in which Millicom had a stake)
2. Metfone (GSM, 18.86%, owned by Viettel of Vietnam)
3. Mfone (GSM/W-CDMA, 15.52%)
4. Hello (GSM, 13.38%, controlled by Axiata)
5. Star-Cell (GSM, 3.56%, part of the TeliaSonera group)
6. Beeline Cambodia (GSM, 2.90%, owned by Russia's Vimpelcom)
7. qb (W-CDMA, 1.95%)
8. Latelz (GSM, 1.32%)
9. GT-TELL/Excell (CDMA, 0.39%)

Regular readers may have spotted that from time to time I like to share video clips of telecoms operators' TV advertisments from around the world. Latelz (AKA Smart Mobile), as the list above suggests, is one player that may need some pretty compelling advertising if it is to become a more significant player. You decide how powerfully the Smart Mobile case is made by these:





Cambodia is a pretty extreme case, perhaps, but DTW has also examined a number of African markets which seem to be ripe for mobile market consolidation. I daresay there are many more around the world in much the same state.

While I am insinctively in favour of competitive environments which offer value and choice to consumers of mobile services, I do also sympathise when I speak with employees of operators that are struggling to improve shareholder value in the context of dramatically slashed prices. These guys, it sometmes seems to me, can feel as if they are on that proverbial inferno-bound round. If Informa's prediction is on the money, however, perhaps that fiery destination need not be reached this year.

On to the next prediction with an emerging markets/developing countries angle...

'Mobile banking efforts will continue to proliferate in emerging markets, but in the short-term these will be more important as a customer acquisition and retention tool than as a genuine driver of significant new operator revenue streams.'

The efforts made to date in this area got some coverage here last year. In May we noted that giant cellco Bharti Airtel was looking to tap into the big opportunity presented by the fact that 85% of the citizens of its Indian home market do not have bank accounts. By August, readers were invited to consider whether mobile operators would necessarily dominate the market for mobile banking services aimed at turning a profit while going some way to alleviating the poverty of subscribers in developing countries. An alternative that we discussed was the possibility of operator-neutral solutions gaining traction.

The chaps at Informa were have not been alone in keeping discussions of this sort on the agenda for 2010. Indeed, mobile banking in emerging markets got a mention during the plenary session of last month's Mobile World Congress. Simon Rockman of the Register noted, however, with some distaste, "that transforming the lives of millions of people by giving them bank accounts – something that can make the difference between eating and starving - didn't garner the same round of applause" as that received by the GSMA project aimed at making every mobile phone use the same charger."

Writing up his notes from the Congress the following week, Rockman also wondered at some of the number crunching around the scale of the m-banking opportunity. He noted that day four of event saw an assembly of the mobile money working group that has received USD 12.5m from the Bill and Melinda Gates Foundation and is working towards the GSMA's target of getting 20 million of the billion people who have a mobile phone but do not have a bank account onto the first rung of the financial ladder.

Ignacio Mas, writes Rockman, gave a detailed account of what the Bill and Melinda Gates Foundation wants to achieve: "They wanted the very poor and insecure to be able to save", targeting people living on less than USD 2 per day. "As much as they have low subsistence incomes", reports Rockman, "the real problem is stability - they might only find work occasionally and have to eke out money until they next find work. Or if they are farmers they get paid seasonally at harvest time."

Without access to banks, continues Rockman, such people are very vulnerable: "They will often give the money to people they trust for safekeeping but these are people in a similar situation to themselves. Lack of stability means people get multiple jobs. They can't concentrate on what will get the best return and pull themselves out of poverty because they have to opt for stability."

This, and other challenges, blight the lives of so many people around the world that it does seem reasonable to suppose that a huge opportunity does exist for the telecoms industry to provide what the retail banking sector cannot in underdeveloped countries.

Well, I enjoyed finally finding the time to write something here after such a long hiatus - but will refrain from making rash promises about when the next article will appear. More soon, I hope, though.

The road to hell...

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?

Sri Lanka: Etisalat entry to drive even fiercer price competition?

Etisalat: set to make life hard for Sri Lanka's cellcos?

This blog has recently taken an interest in the fate of the three Asian mobile operations put up for sale by Millicom International Cellular.

Late last month, as noted here, the global emerging markets player sold its 78% stake in Tigo Laos to Russia's Vimpelcom. Prior to that, DevelopingTelecomsWatch had noticed the sale of Millicom's stake in Cambodian cellco Cellcard to the Royal Group, a fellow shareholder in that operation.

This just left Tigo Sri Lanka unsold.

The Sri Lankan mobile market is currently contested by that operation and four other MNOs. In terms of the operators' shares of the country's estimated 13.6 million subscribers (according to WCIS), the competitors are ranked as follows:

1. Dialog Telkom - 46.33%
2. Mobitel - 24.14%
3. Tigo Sri Lanka - 17.44%
4. Bharti Airtel Sri Lanka - 9.46%
5. Hutch Sri Lanka - 2.63%

The last time DTW offered an opinion about how this competitive landscape might change, perhaps too much was made of the likelihood of the number of operators consolidating down to four. No very sophisticated analysis was made, nor any inside information sought. It was simply the case that the prospective purchasers of Tigo Sri Lanka getting the most media coverage at the time were companies already active in the island nation. I had noted, for example, that Bharti Airtel was rumoured to be interested in snapping up Millicom's operation there, having read an article by R. Jai Krishna of the Wall Street Journal which reported comments from an unnamed person close to the development. Suggesting that any deal would be worth USD 100-120 million, that mystery source had 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.

This has came to nought, however. The happy new owner of Tigo Sri Lanka is none other than Etisalat of the UAE.

Commenting on this latest purchase, Etisalat Chairman, Mohammed Hassan Omran said: "This new acquisition is a clear example of Etisalat’s international investments strategy of seizing distinctive growth opportunities and maximizing value to shareholders."

He added: "Entering the Sri Lankan telecom market is a logical addition to our interests in the Asia continent. The acquisition promises attractive returns as the Sri Lankan Government is increasing its effort to promote foreign investment in all sectors. The acquisition is of a mature operator with a strong reputation for its good network and quality of service. It also offers great opportunities for synergy with our other operations in the region, particularly in the UAE, Saudi Arabia and India. We also plan to invest in this company to ensure that it has the dynamism to take the leading position in the market in the next few years and that it continues its effective role in the development and growth of the telecommunications sector in Sri Lanka."

How far, then, will this transaction affect the Sri Lankan mobile market? Shortly after it was announced, Fitch Ratings reacted with a gloomy prediction, stating that the entry of Etisalat into Sri Lanka could further delay any prospects for recovery in the country's operators' profitability.

The ratings agency's statement notes that price competition in Sri Lanka has led to a rapid deterioration of tariffs over the last four years, weakening the profitability of the operators, especially in the wake of the licensing of the Bharti Airtel-owned fifth entrant in 2007.

Fitch notes that Etisalat has tended to enter other new markets late in the race and has generally pursued a course of aggressively challenging established operators. "If Etisalat's track record is anything to go by, it is possible that it may invest heavily to acquire more market share in Sri Lanka, which will intensify the challenges facing other operators," says Buddhika Piyasena, Director of Fitch's Asia-Pacific Corporates team. Certainly, I recall a conversation a few months ago with the marketing director of one of Afghanistan's cellcos. He spoke about how the arrival of the the Etisalat-owned operator in that market had caused the price of a voice minute to tumble, with the country's nascent regulatory regime offering little by way of protection for the longer-established players.

Fitch contends that something similar could easily unfold in Sri Lanka, where "apart from lax regulation, a major reason for the heavy price-based competition... is the absence of a framework that requires mobile operators to pay other networks for interconnection." The ratings agency argues that this allowed Bharti Airtel, which has "limited coverage", to challenge other operators to the point where a full scale price war resulted. As Fitch notes, a revision to the interconnection framework is currently on the telecom regulator's agenda. When implemented in 2010, Fitch expects this to ease further pressure on tariffs.

According to Fitch, however, operators may see subscriber acquisition and retention costs - including handset subsidies, and subsidised starter packs - increasing with competition intensifying for market share.

Fitch is also of the view that a higher level of regulatory oversight over the competitive practices of operators and some intervention on tariffs is required to ensure the financial health of the industry.

Etisalat has made this latest acquisition against a background of mostly positive coverage about the group's prospects. While Q3 revenue fell slightly vs. the same quarter last year, the company posted a 5% improvement in net profit.

Also encouraging is the performance of Mobily, the Saudi MNO in which Etisalat has a 27% stake. Q3 profits were up 49.7%, vs. Q3 2008, beating the most optimistic forecasts by about 10%.

Etisalat, then, is well-placed to compete extremely aggressively in Sri Lanka. Industry watchers will doubtless be interested to observe how seriously this affects the profitability of its competitors there.

Sri Lanka: Etisalat entry to drive even fiercer price competition?

Millicom's Asian sell-off: two down, one to go

Vimpelcom's Beeline brand: next stop Laos

Back in late July, global emerging markets mobile group Millicom International Cellular announced that its Asian assets were up for sale. Since then, this blog has tracked other telecoms groups' interest in these operations.

The first confirmed transaction was the sale of Millicom's majority stake in Cambodian mobile operator Cellcard to another of the existing shareholders, the Royal Group. When Millicom first announced its intention to quit Cambodia, Mikael Grahne, the company's CEO, explained that this was partly due to the negative effect on profitability caused by the disruptive market-entrance strategies of the new players that have recently flocked to the Southeast Asian country's crowded mobile arena.

When DTW first covered this story, we saw that the Royal Group's CFO Mark Hanna was quick to dismiss any such concerns about profitability. We have also seen here, however, that in the months which have followed, Mr Hanna has himself felt the need to attack a new entrant for allegedly selling services below the cost of delivery. The apparently disruptive player in question is Beeline Cambodia, controlled by giant Russian mobile firm Vimpelcom.

As the dispute between mobile operators in Cambodia rumbles on acrimoniously, then, perhaps it is legitimate to wonder if a similar set of circumstances will unfold in neighbouring Laos, another country from which Millicom has been seeking to extract itself.

With a mobile penetration rate of just 27.14% (end of June, according to WCIS), Laos would appear to be quite attractive in terms of growth potential. WCIS estimates that Millicom's Tigo-branded operation has built a 17.01% share of current subscriptions since its own market debut back in 2003, when it became the third entrant.

The longest-established mobile offering in Laos is that of the country's incumbent fixed-line operator, Lao Telecom, in which the the Government of the Lao People’s Democratic Republic holds a 51% stake. Via a company named Shenington Investments, the other stakeholders are Thai communications satellite operator Thaicom, ST Telemedia, and Qatari telecoms group Qtel.

While the later entrants have, of course, eroded Lao Telecom's share of the mobile market, this share has only fallen as far as the 60% mark - still a dominant position. I will not pretend to know a lot about the telecoms market of Laos, but I note that the country profile available from Australian research firm Buddecomm mentions that "the rate of regulatory reform continues to lag well behind industry development and has the potential to derail the progress already made if the reform is not speeded up." This, perhaps, explains the qualified success of those challenging the national incumbent telco in the mobile space and might be part of why Millicom preferred to focus its efforts elsewhere.

Undeterred by such challenges, however, is the purchaser of the 78% stake that Millicom International Cellular held in Tigo Laos. That purchaser, as I learned yesterday from TeleGeography, is none other than Russia's Vimpelcom, whose Cambodian Beeline-branded operation has been offering aggressively priced services and arousing the anger of its competitors in the process. If Vimpelcom is planning something similar in Laos, perhaps the arrival of Beeline's low-price offerings will accelerate the growth of the country's modest mobile penetration rate. It's also possible that any such strategy would cause the same friction as seen in Cambodia. Beeline comes to Laos and grows its SE Asia cluster. Let's see if there's a sting in the tale.

Regarding Millicom's plan to quit Asian markets and sharpen its focus on Africa and Latin America, just one task remains - the disposal of its asset in Sri Lanka. DTW has noted in previous articles that interest seems to be strong. The last I read about it, both India's BSNL and the UAE's Etisalat remain in what some are describing now as a "race" to buy Millicom's Sri Lankan operation.

Millicom's Asian sell-off: two down, one to go

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?