As prices go down for consumers, investments go up for mobile telecom providers
Thomas Hundt, CEO of SmartAxiata Co, Ltd, calls the telecoms industry a “volume game”.
Hundt, who hails from former East Germany, should know. He’s grown his company from a one-man team in 2008 to Cambodia’s second-biggest telecoms provider with a staff of more than 800 employees.
Two strategic mergers have been pivotal to Smart’s rapid growth.
The first was a merger with Starcell in December 2010 – a move that saw Smart grow its subscriber base from 600,000 subscribes to 900,000.
The second was in February last year, when Smart merged with the Cambodian subsidiary of Malaysia’s Axiata Group, Hello Axiata.
Today, Smart has more than 5.5 million subscribers.
“In the telecoms industry, more than in almost any other industry, it’s a volume game,” says Hundt. “It’s not like you invest and build a power plant, and you simply generate energy for 30 years and make money.”
The difference, Hundt explains, is the speed at which the technology is evolving.
“When we first started six years ago, everyone was talking 2G only,” he says. “Then, in 2010-11, 3G became big in Cambodia. Now, in 2014, we’re at the stage of investing in 4G, and that’s again a serious amount of money.”
Hundt adds that from technology to technology, the investments required become bigger. The catch is, he says, “If you don’t invest in the technologies, you’re pushed out of the market, because the consumers have high expectations.”
“Nobody wants to run around anymore with a 2G-only device – at least not in Phnom Penh,” he says.
Meanwhile, Hundt adds, “while there is no inflation in the technology and telecom sector for consumers, which makes the costs for devices, and especially airtime, even lower, it requires even bigger network investments by telecom companies”.
“The 3G smartphone entry point at this point is somewhere at $60 to $70, and the 4G entry level is somewhere at $250,” Hundt says. “I mean there’s inflation on the costs side [for telecom providers], but not on the prices side [for consumers], so that’s what I mean when I call it a volume game.
Smart began experimenting with its rollout of 4G LTE, or Long Term Evolution, in January with six “experience zones”. But today, according to Hundt, 4G is available throughout most of downtown Phnom Penh for anyone who has a 4G-enabled cellphone and a 4G LTE SIM card, which Smart offers as a free-of-charge upgrade for existing subscribers.
“We launched the experience zones in January, but now the 4G LTE network is rolled out to outdoor coverage and you can use it in the vast majority of downtown. The Riverside, Monivong, Norodom, BKK1 – in these areas 4G LTE is already in place,” says Hundt, who adds that the rollout has not been widely publicised because his company is adding further base stations.
“The rollout is ongoing, and we’re adding stations all the time,” Hundt says.
“It’s a very, very heavily investment-driven industry. The more subscribers you add, the more you need to invest in capacity,” he adds.
Nevertheless, Hundt is optimistic about its future in the Cambodian market.
“We’re seeing continuous growth. We’re highly profitable and we’re continuing to invest in the network. Last year, we invested $50 million in the network, and this year we’re investing another $50 million,” he says.
Smart has concentrated its first wave of 4G deployment in Phnom Penh, and the company’s next target is Siem Reap, due to the large numbers of tourists its gets from countries where 4G is already the industry standard.
“In Korea, Europe and Britain, for example, more people are using 4G now than 3G, so it makes Siem Reap a logical next step for us,” Hundt says.
In the meantime, Hundt admits that demand for 4G remains relatively low because the entry-level costs for devices are higher.
“But,” he adds, “anyone who uses it is amazed. There are very low latencies– 23-24-25 milliseconds only, which significantly enhances the browsing experience, and download and upload speeds are extremely fast.”
On the question of how he sees Smart’s role as a business in Cambodia, he says, “We see our role as multidimensional, and a big part of that is helping society, connecting people, and we’re doing that, particularly by offering a very affordable service.”
“We’re a very strong No 2 operator now, and we are very engaged with corporate social responsibility, especially in the areas of the environment, education and sport,” he says.