May 30, 2011

World’s Most Cutthroat Cell Market?

[The Diplomat]

By Steve Finch

Ngo Menghorn is a typical student in Phnom Penh. Like many 23-year-olds in the Cambodian capital, he owns a motorbike, more than one mobile phone and goes through SIM cards like they’re going out of fashion.

‘I don’t remember how many SIMs I’ve used because I always change them out,’ he says, adding that he has probably brought at least 40 in his two years as a mobile user.

His preferred network Mobitel—currently number two by market share—sells SIM cards for less than the value of credit each provides. Mobitel sells SIMs for 5,500 riels each ($1.35) loaded with $6 in call credit amid fierce competition for customers. The catch is credit is only good for a week unless the user upgrades to a more expensive call plan.

‘It’s hard to contact me because I always change my SIM card,’ admits Menghorn, adding he has taken advantage of promotions on eight different Cambodian operators.

Emptying his pockets, three SIM cards fall out, not including the one in use in his pink Nokia handset. Menghorn’s mobile usage habits in a market of eight operators—this in a country with a population of 15 million people who have an average annual income of just $650, according to the World Bank—are typical.

‘(Before) when companies had promotions…they distributed SIMs for free,’ says Seng Bopha, whose family runs two mobile phone shops in central Phnom Penh. It’s a business model that attempts to attract customers with cheap tariffs in the hope they’ll stay loyal. And although many users stick to the same network used by friends and family members to take advantage of low in-network rates, constantly rotating SIMs, cost-conscious users like Menghorn switch between networks on an almost a weekly basis.

With so many operators competing just to stay alive, attractive promotions are never ending. Typical off-network rates outside of special offers range from $0.05 to $0.08 per minute, but call rates are meaningless because callers rarely pay them. Just over four years ago in-network calls cost $0.20 per minute in Cambodia prior to an influx of new operators in early 2009.

‘Most observers say Cambodia is the most competitive (mobile phone market) in the world,’ says Simon Perkins, CEO of Hello, a Cambodian subsidiary of Kuala Lumpur-based operator Axiata.

Only neighbouring Laos, with four operators and a population of six million, and Hong Kong with its six operators competing for nearly nine million people, come close to Cambodia in terms of mobile phone markets in the region, analysts say.

Although Posts and Telecommunications Minister So Khun claims 86 percent penetration in Cambodia based on the data submitted by the country’s operators, most industry observers agree there are anywhere between five and six million active users, more like about 37 percent usage. With so many SIMs floating around as operators remain motivated to inflate user statistics to attract buyers and mergers—and boost their share price in a bid to survive—Cambodia’s mobile numbers simply don’t add up.

Market leader Metfone—owned by Vietnamese military-run Viettel—reported 2.37 million users in October last year, but by the end of December this figure had jumped to 4.22 million. The firm’s public relations department in Phnom Penh didn’t respond to questions on its customer base.

‘The reporting of customer numbers in Cambodia is a problem, with some operators choosing to inflate their numbers to fuel their own rubbish,’ says Perkins, who estimated there are six million active users in the country.

The result of all this is a market losing millions of dollars every year where SIMs, market share and brand names struggle to gain relevance. Mfone, a local subsidiary of Thaicom, lost more than $13 million in Cambodia in 2010 amid ‘a price war and intense competition in the market.’ Beeline, owned by New York Stock Exchange-listed Vimplecom, has racked up losses in Southeast Asia for every quarter since launching in Cambodia in May 2009, its latest financial results showed. And Excell, the lowest-placed operator in Cambodia by users, was registering a market share of zero percent by the end of last year as the Telecoms Ministry calculated data to just one decimal place. Meanwhile, Perkins says average revenues per user (ARPU) have now fallen to $3 or less per month in Cambodia when the ‘nonsensical user numbers’ are factored in. India, considered to have among the lowest ARPU rates in Asia, registers about $7 for every user each month.

So just how did things get so bad for business in Cambodia’s mobile industry? After all, the country’s economy grew 6 percent in 2010, according to the International Monetary Fund, and is forecast to accelerate to about 6.5 percent GDP growth this year.

‘The government didn’t price spectrum,’ says one long-time observer of Cambodia’s mobile industry, requesting anonymity. Instead, the Ministry of Posts and Telecommunications (MPTC) simply doled out operating licences as part of a closed, opaque process, he says, adding that this has left the government facing accusations of corruption.

In March, Deputy Prime Minister Nhek Bun Chhay acknowledged one of his advisers served as a paid representative of a company that transferred a 3G licence to a Hong Kong-based firm from which he had been accused of receiving bribes. His case has been brought to the attention of Cambodia’s new Anticorruption Unit.

‘The policy of the government is to increase usage and decrease the price of mobile phones,’ said Telecoms Minister So Khun in response to allegations of government corruption. ‘The procedures for bidding are different from one country to another.’

As operators search for solutions and users enjoy among the cheapest call rates on the planet, Cambodia’s mobile industry is now entering a critical shake-up. Two smaller firms, Smart Mobile and Star Cell, merged in January, bringing the number of operators down to eight. Meanwhile, So Khun says the government might in June finally pass a telecoms law that has been stuck in the drafting phase for about a decade amid disagreement within the government and with the private sector. The new legislation would establish a separate regulator and detail rules on mergers and acquisitions, which some operators complain have remained hazy for too long, stalling market consolidation.

‘(M&A) policy from MPTC is still unclear,’ says Thaicom’s Managing Director of International Business Atip Rithaporn.

Once the market does start to consolidate it’s anyone’s guess how many operators will survive. So Khun predicts ‘about six’ would be left, while the market observer previously mentioned suggested ‘two to three is the maximum long-term.’

With newly-merged Smart Mobile, Mfone, Hello and Beeline all claiming the number-three spot in the past year, and new 4G network Emaxx launching in 2012, the stakes in Cambodia’s feverishly competitive mobile phone market couldn’t be higher.

Steve Finch is a Phnom Penh-based freelance journalist. His articles have also appeared in The Washington Post, TIME.com, Foreign Policy, The Phnom Penh Post and The Bangkok Post.
 

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