The government's decision in January to create a staterun telecommunications company could help separate the business side of the Ministry of Posts and Telecommunication (MPTC) from its regulatory functions, according to industry insiders.

Telecom Cambodia (TC) will take over the operation of fixed-phones, at least one international phone gateway and possibly other services, but a schedule for the transfer has not yet been determined.

Industry optimists said the move could force the state company to compete with private enterprise on a more level playing field, potentially improving efficiency and prices. But such positive outcomes hinge on the venture's actual autonomy and financial viability. Predictions are mixed.

"If the [company's] management reflects the structure of the government, productivity could be low," said Chea Samnang, a researcher at the Economic Institute of Cambodia. "If it doesn't, it can be competitive."

The Council of Ministers passed a sub-decree establishing TC on January 12. According to the document, the company will fall under the technical administration of the MPTC, and under financial administration of the Ministry of Economy and Finance. Following standard international practice, both ministries are intended to serve only a supervisory role, not interfering in the daily operations of the company.

Another law outlining the new framework for MPTC's regulatory arm has yet to be introduced.

Though the MPTC previously considered creating a state-owned company, pressure to meet WTO business standards served as the catalyst for the sub-decree's recent introduction, said Mey Phoeung, general vice-director of the ministry's general department.

For years, the ministry has served as both a regulator and operator, setting prices and patrolling the market while collecting revenues from services. As part of Cambodia's WTO commitment, officials agreed to separate the two functions, either by moving operations outside the ministry - hence, creating TC - or transferring regulatory authority into a non-ministerial body, said Nisha Agrawal, country manager for the World Bank.

"This will help with Cambodia's reform efforts," Phoeung said. "You shouldn't make regulations and business in the same body. It's a conflict of interest."

Industry watchers supported the move, but cautioned that it's too early to predict how much influence the oversight ministries will have on TC.

"There is a trend around the world of separating the government operator from the regulator," said David Spriggs, general manager of Mobitel. "In principal it will be good, as the operator will be free to focus on improving operations, making investments, while the regulator ... will act as a watchdog for everyone."

Such impartial monitoring has not existed under the MPTC, because the ministry protects its own economic interests, said a telecommunications insider who spoke on condition of anonymity.

For example, Internet provider Camnet, which is owned by the government, is often given special deals involving licensing and access to the country's fiber optic network, he said.

"Every time the ministry gave someone a license, they'd give one to Camnet too, even if it was for a service the company didn't provide," he said.

International calls, formerly the ministry's main source of revenue, have also spawned an uncomfortably close relationship between operation and regulation, said the source. Officials have worked - often with limited success - to block private development of this service. In addition to raiding businesses that offer cheap Voice Over Internet Protocol (VOIP) connections, the MPTC also sets artificially high prices for the country's three legal international gateways, he said.

"A lot of the regulations they made only make sense if you look at it from their perspective," he said. "Regulations were holding back telecommunications and being made with an eye to protect the MPTC's interests."

Chem Sangva, deputy director of inspections for telecommunications at the MPTC, insisted that the government offers the lowest prices possible, but said the ministry's revenue from international calls has declined every year.

"Before 2000, the ministry made 80 percent of its revenue from international calls," Phoeung agreed. "Now there is more technology and we can't compete."

Aside from the WTO regulations, Phoeung said she hopes TC's creation will lead to more efficient and fiscally sound operations. Because the body will be run like a private company, staffers will have to think competitively.

Partly, this will involve coming up with marketable services. Phoeung said she sees the most potential in the government-owned fixed-line network.

"It needs a lot of investment, but Cambodians don't know that fixed lines can offer better service and prices than mobiles," she said. "We have to be different from mobile operators to compete, and in this area we can have a monopoly."

Mobile phone connections are often poor because - even though the MPTC no longer requires them to - operators often interconnect through the ministry, she said. The volume of calls is too great for the system.

Establishing a more extensive fixed-line network would help relieve the congestion, she said. The ministry is currently looking for foreign investors.

Though TC's strategy will play a key role in determining success, its structure will also be a decisive factor. As of now, the separation of TC and the MPTC exists "only in paper", Phoeung said. The ministry has not yet transferred assets and human resources.

"With Telecom, we have only the head now, not the body," said Sangva, referring to the company's recently-appointed board of directors.

At least in the beginning, regulatory functions will stay in the ministry, as operational ones move to the new company, Phoeung said. Later, the government may form a separate body to oversee regulations.

A similar framework currently exists in the electricity sector, where Electricité du Cambodge, a state-owned company, is the operator, Electrical Authority of Cambodia issues regulations, and the Ministry of Industry, Mines and Energy sets policy.

But there is already talk about whether TC will remain wholly state-owned.

Spriggs said the operations arm in such divisions often becomes a joint venture between government and private interests. The Cambodian government may be creating a clear corporate structure first, and will next merge with private interests, he said.

"I would expect that the government will seek an operational partner to provide expertise and funding," he said. The company's success "will depend on who this partner is and what level of investment they will make in developing fixed and other services."

Phoeung said the government has not yet decided whether it will partner with outside interests in creating TC.

A ministry official, who asked not to be named, had a different theory.

"I think we are entering the market too late to compete," he said. "How can we win the race when [the private operators] are at 60 kms and we're at 1km?"

The official said he felt the business would fail to generate greater revenues, and when it did, the government would sell it to private buyers.

But TC has some potential advantages. In addition to operating all of the country's fixed-line networks and at least one international phone gateway, the company will probably obtain licenses easily, according to the industry insider.

"State-owned companies usually have better connections and bargaining power," Samnang said.

Obtaining skilled workers might pose more of a challenge, Phoeung said.

"Some people will move over from the MPTC, but they'll be used to administration, not competition," she said. "We may have to look to hire outside."

Whatever the changes to cost and efficiency, Sangva said he worries that, in some sectors, Cambodians don't want to pay for legal services. Legitimate companies always have higher prices because they must adhere to rules governing taxes and fees.

He pointed to the MPTC's attempt to control VOIP calls by regulating and legalizing just one system - the AZ Distribution Co.'s 3telcafe dialer. Though the technology offers international calls at around 15 cents a minute, customers continue to choose cheaper, illegal versions of the service.

"It will be difficult for Telecom because the Cambodian people want the government to compete with the thief," Sangva said. "When you try to regulate, they say 'this is against my democracy.' But they don't know democracy, only anarchy."