THE only surprise related to TeliaSonera’s Monday announcement of a US$100 million writedown at Star-Cell was that the Swedish mobile firm announced its lack of goodwill in Cambodia at all.
Within the sector as a whole, this has been obvious for some time. The high level of competition in the Kingdom and extremely low level of income per user – reported to be as low as $3.5 per month – means that smaller players like TeliaSonera’s Star-Cell have struggled to hold value. At a time when the sector should be looking to consolidate, given that nine players is simply too many, this situation promises dire consequences for investors looking to get their money back.
Few of the current operators as they stand offer the opportunity for long-term profits, meaning they are, in a sense, worth the value of their assets at most – TeliaSonera is effectively admitting that the Star-Cell brand and all of the intangibles that go with it are absolutely worthless.
For any theoretical buyer of the smaller players in Cambodia’s mobile market, it is difficult to see where potential value for money lies.
A buyer already in the market would effectively be purchasing two main assets – infrastructure and the brand name – which, given the huge overlap of towers in Cambodia and the headache of accommodating old brands into new ones (especially when they are essentially worthless anyway), means the strategic reasons for an acquisition evaporate.
No doubt that is the precise reason why consolidation has not happened – no one wants to buy. Excell, the smallest operator by subscribers in Cambodia, has explicitly been seeking a “strategic investor” since around mid-2009. How many other operators in the Kingdom would sell up tomorrow if they were offered a price that reflected the value of their assets? Probably half the sector, but then there doesn’t appear to be anyone willing to buy.
That TeliaSonera publicly acknowledged its lack of goodwill is surprising because many in the sector would be afraid to admit just how little their companies are actually worth to potential buyers.
On the flip side, TeliaSonera’s announcement of a write-down is refreshing for investors given the move offers greater insight into the real value of Star-Cell.
Accounting rules FAS 141 and FAS 142, which relate to the allocation of goodwill and therefore company value, are by their very nature open to artful interpretation. How exactly do you assign monetary value to a commercial intangible? Companies can assign any value they like and in reality most usually avoid the truth.
By issuing a large number of licences, the government has effectively created a race to the bottom. Whoever has the deepest pockets will last the longest. We are still in the wait-and-see stage, but the end result is not in doubt.
Many of the remaining companies in the sector may not have been as transparent as TeliaSonera yet, but they are only kidding themselves.