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Cambodia's hard cell

Telcos are finally learning to collaborate. Steve Finch reports.


A YEAR ago, cooperation seemed unlikely. On September 3, 2009, when Mobitel signed a letter to the government again accusing the newest market entrant, Beeline, of price-dumping, much of the rest of the sector also signed, including qb and Hello.

Cambodia’s mobile-phone sector was not just competitive – that the government had to step in to mediate on numerous occasions last year showed the industry was on the brink of war. But in a market where average revenue per user has dropped to less than US$5 a month – compared with roughly $10 in China and $7 in India – basic economics has left operators in the Kingdom few options but to start collaborating on infrastructure in a bid to reduce climbing investment costs and falling revenues.

Hello CEO Simon Perkins says Beeline may use up to 81 of its mobile phone towers following recent discussions, and the Moscow-based operator already shares infrastructure with qb.

“You’ve got like-minded people coming together now,” said Perkins.

Hello reported revenues fell 8 percent in the first quarter compared to the previous period, and Mfone lost more than $2 million in the second quarter of this year. Hello’s Kuala Lumpur-based parent company Axiata said in its first-quarter financial report that it had overseen a period of “continued cost control” in a bid to stem the effects of sustained overcompetition. Since then the firm has offered infrastructure for rent to bring in revenues while also seeking towers owned by other operators with which to expand at lower cost, says Perkins.

This new era of cooperation has coincided with a massive reduction in infrastructure investment in the Cambodian mobile-phone sector. Mfone, qb and Hello all say they cut new spending on towers back to almost nil in the first half of this year. Further tie-ups, therefore, look likely.

Excell, the smallest operator in the Kingdom by market share, started using Hello’s infrastructure in Kampong Cham, Sihanoukville and Siem Reap in June, said CEO Biloliddin Salakhiddin uulu, and is in discussions to share towers with two other undisclosed companies.

“It’s to cut costs, to cut [capital expenditure] ... and it’s less time-consuming,” he said of the recent rollout, which took just six weeks to complete.

Alan Sinfield, CEO of qb, says he is planning an aggressive expansion over the next 12 to 18 months in a bid to cover most of the country, and is also in discussions with two other operators to share infrastructure, without naming those involved.

“We have an outline plan that stems on what level of cooperation we can get or what alliances we can achieve with the other operators,” he said.

So, to what extent will mobile firms in Cambodia try to make the most of mobile infrastructure rather than use towers as a competitive advantage, as was the case before?

The two biggest operators in the Kingdom by market share – Mobitel and Viettel – have thus far remained outside the new network of cooperation and have suggested they are unlikely to join in.

“We have no specific plans at the moment,” said Mobitel CEO David Spriggs.

The market leader has been granted a $200 million soft loan from China in March that will see Chinese technology firm Huawei roll out infrastructure. Meanwhile, Viettel has already conducted an aggressive expansion policy since launching in March last year using mostly low-cost towers, many of which can only support its own antennas.

For the other, smaller, operators, cost-effective expansion into rural areas now means greater cooperation. Although all infrastructure collaboration in the sector thus far has been passive – doubling up on towers rather than antennas – Perkins says Hello is in negotiations with an unnamed operator that could result in signal-sharing on the company’s 3G network, a tie-up that would further cuts costs. “That’s a much better use of assets,” he said.

Other markets have for years circumvented the problem of overlapping infrastructure through a variety of tower-sharing schemes, the most radical being one in which infrastructure and services are separated in the market. It was a recommendation that telecommunications consultant David Butcher said he made to the Cambodian government back in 2001, and a model used successfully in other developing countries, notably India.
“If you’ve got a perfectly good road, you don’t need to build another one,” he said.

Yet the government has made few moves to address the overlapping infrastructure problem in Cambodia, analysts say, leaving the Kingdom with enough towers to cover the country twice over, while remote rural areas remain unconnected to any network.

The long-awaited telecoms law – a draft has remained with the Council of Ministers for close to two and a half years – does specify tower-sharing, but the private sector has argued that its provisions are vague. In a formal response to the government’s draft, mobile-phone companies at the end of last year argued that “mandatory facilities sharing will reduce the incentive on operators to build such infrastructure”.

In November a Malaysian-Cambodian joint-venture firm, Tower Master Cambodia Co Ltd, received a government licence to build towers in the country for multiple users, but it remains unclear whether any such infrastructure has been erected. General Manager Ung Veasna repeatedly declined to respond to questions on Tuesday, saying he was too busy.

Still, most involved in the sector say something must change if Cambodia’s landscape is not to be lined with rows of mobile-phone towers – as is increasingly the case, especially in Phnom Penh – and the government seems to agree. Perkins says Hello received ministry permission for what could be the first active infrastructure-sharing on its 3G network amid signals the government has started to welcome the practice.

“I encourage tower-sharing,” said Minister of Posts and Telecommunications So Khun. “There is enough already.”

What remains unclear is to what extent the government will intervene, how far companies will go in cooperating while the sector remains so competitive, and whether collaboration could lead to eventual mergers and acquisitions in a market in which everyone agrees there are far too many operators (most say five would be the absolute limit).

“If there is no reduction in the number of operators, most of us will be out of business,” said Mfone CEO Adisai Soonthornratanarak. “So, certainly there will be some cooperation. But to what degree is another thing.”

So far, only Excell has put itself up for sale.

Despite a nearly 10 percent rise in users in the second quarter compared with the previous period, the firm’s market share remains just 0.5 percent. CEO Salakhiddin uulu said Tuesday: “We’re looking for a strategic partner.”

The question is: How much of an appetite does Cambodia’s mobile phone market have?

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