After ten years and an investment of more than $20 million, the Australian

telecommunications company Telstra Corp will hand over its long-distance and

pay-phone service contract in Cambodia to the Ministry of Posts and

Telecommunications (MPTC) on October 10.

But the Government won't have a

monopoly on long-distance for long. On November 1 a start-up called TELE2,

formed by Millicom International and Royal Group, will begin service.

The

move will give users a choice of long-distance carriers for the first time.

However the MPTC will also be a partner in TELE2 and the lion's share of its

revenues will go to the Government.

Analysts who follow the industry are

welcoming the competition in the market because they say it will probably result

in better long-distance service and quality and lower rates. The MPTC has

slashed Cambodia's long distance rates by nearly 50 percent in the past few

years, but rates remain high.

The tariff for a call to most countries in

Asia is now $1.82 a minute. However the cuts in tariffs have been significant.

For example the tariff for a five-minute call to the United States or France was

$19 in 1997. Today a five-minute call costs $10.15.

But the entry of a

second long-distance carrier won't do anything to solve the bigger problem with

telephone service in Cambodia: the lack of adequate fixed line service in many

provinces and the high cost of local phone use that has resulted from the

proliferation of mobile phones at the expense of much cheaper land

lines.

While there is no shortage of foreign investors who want to

operate gateways and mobile service in Cambodia, no private investors are

stepping in to build a fixed-line phone infrastructure covering the

country.

The government of Germany has recently installed fiber-optic

cable from the border of Thailand through Battambang and over to Vietnam. But in

much of Cambodia fixed-line service is very limited and the gap has created a

situation where Cambodia has nearly five times more mobile users than land-line

users, according to analysts.

So far the MPTC has not indicated what its

long-distance marketing strategy will be. Officials of TELE2 also said they

don't know what kind of rates they will be allowed to charge because they are

waiting for word from regulators.

Despite that, most people, including an

MPTC official, said long distance rates should go down soon after the Millicom

start-up enters the market.

"Because of the competition we expect the

rates to go down," said Koy Kim Sea, Undersecretary of State for the

MPTC.

"The Government expects more usage of the telephone, lower rates

and the same revenue to the Government as in the past, if not more," he

said.

Telstra is expected to continue to work with MPTC under a six-month

consulting contract. But the ministry intends to operate the service itself,

said Sea. Although the technical staff have been trained by Telstra, the MPTC

doesn't have a billing and marketing center yet.

"Telstra did a good job

for the contract we had. The rates are high but Telstra had no say in that,"

said Sea. "However Telstra didn't help us do any marketing, which is essential

in the coming months as we face competition. The MPTC will have to do it," he

said.

The new company, which is a partnership of Millicom International

of Sweden, (the parent company of MobiTel), Royal Group International, and the

MPTC, will begin limited operations on November 1, said Ronny Melander, general

manager of Royal Telecom International Co Ltd.

Royal Group is involved in

a variety of businesses in Cambodia. It is the distributor for Canon, Motorola

and Bell Helicopters, said its Chairman and CEO Meng Kith.

TELE2 was

granted a gateway license in 1997 and is in the process of investing $10 million

in the first phase of its plan. It has built an earth station in Prek Ho in

Takmau, said Melander. The facilities include a large office and switching

center as well as a 100-meter-high communications tower and satellite dishes

providing the links to other countries.

The company has been licensed to

operate for 15 years with a five-year extension. Melander said a total of $30

million can be invested, depending upon growth. He said revenues from calls will

be split with the MPTC, with the ministry getting "a majority of

revenues".

Under the Telstra contract, the Australian company received 49

percent of the revenues from inbound calls and 12 percent of the revenues from

outbound calls.

The theory behind the split was that Cambodia would get

the majority of revenues from calls generated inside the country. But in reality

the costs of making calls from Cambodia to the rest of the world was so high in

the early years that most people avoided spending much time on the phone by

sending faxes instead.

Andrew Hankins, Telstra's general manager in

Cambodia, said the contract was profitable overall and became more so in the

later years. He declined to say how many calls are now being made or how much

Telstra took in from the contract last year.

One analyst said that with a

monopoly contract, "Every minute the phone is on, they're printing money. All of

the calls in and out of the country must go through that gateway. Every mobile

operator would like to get that."

Hankins defended Telstra's performance

under the contract, saying Telstra came to Cambodia at a time when the business

climate was "fairly risky". During its tenure Telstra invested $20 million in

infrastructure and $10 million more in indirect services such as

training.

He said Telstra built an earth station linking Cambodia to Asia

and Europe and an Intelsat satellite station linking Cambodia to North America.

It provided the international gateway exchange as well as 1,000 international

lines, a 5,200 line local exchange and about 170 public pay phones.

In

1990 when Telstra began work Cambodia had eight international lines, all

connected by operator to Moscow and Hanoi. The domestic phone network had been

cut up by the Khmer Rouge but there were about 5,000 lines working in Phnom

Penh.

Hankins said Telstra will continue to operate its Big Pond

commercial Internet service, which began it 1997 under a separate open-ended

license. Big Pond is the largest Internet service provider in Cambodia. It

competes with the Government's Camnet.

Hankins said Telstra is waiting

for the MPTC to complete a review of its plans before it can say whether it will

have a future role in Cambodia beyond Big Pond. Telstra, based in Sydney, is

struggling to increase profits under intense competition at home and

regionally.

The company recently announced a joint venture in Hong Kong

with a company called Pacific Century CyberWorks to establish a mobile-wireless

company and an Internet Protocol network.

Telstra's contracts in Laos and

Vietnam also end on October 10.

Although Cambodia's phone penetration

remains low, with a ratio of 0.3 land line phones per 100 people overall, the

MPTC has a master plan to connect the rest of Cambodia by the year

2010.

A Japan International Cooperation Agency advisor working with the

ministry says the implementation of the plan depends on both private investment

and donors.

"In the rural areas the business is not so profitable and no

one wants to invest," said Shiro Tamura.

He said the government of Japan,

which has made considerable contributions in phone infrastructure, including

16,000 lines, is considering whether to fund an expansion of service in

Cambodia.

Phone Charge Chart

Cambodia's long distance rates dropped 30% this

year

Rates for 2000

• To Vietnam, Laos, Thailand: Peak $1.68 per minute. Sat-Sun off peak:

  $1.35

• To the rest of Asia: Peak $1.82 per minute. Sat-Sun off peak: $1.46
• To the rest of the world: Peak $2.03 per minute. Sat-Sun off peak $1.63

Rates for 1999

• To Vietnam, Laos, Thailand: Peak $2.40 Sat-Sun off-peak $1.90
• To the rest of Asia: Peak $2.60 Sat-Sun off-peak $2.00
• To the rest of the world: Peak $2.90 Sat Sun off-peak $2.30

Source: MPTC tariffs as of March 2000