Newcomers set to transform sleepy wireless market

Marc Einstein, Frost & Sullivan
12 Jun 2009

Asia is no stranger to extreme competition in the wireless space. India has 12 mobile operators with more on the way while Indonesia is home to 11. Vietnam, Pakistan, Bangladesh and Thailand now all have six. Cambodia seems to be the next market in the region to be flooded by new entrants as the country\'s three established operators have been joined by five new rivals in the last year. This influx of competition will inevitably transform this market from one of the region\'s least innovative and dynamic into a hotbed of activity going forward, and there are signs that this is already happening.

Cambodia is the least saturated wireless market of the 18 Asia-Pacific countries, with a SIM card penetration of only 25% at the end of 2008. Cambodia also finds itself on the extreme opposite of the digital divide, with almost no fixed-line infrastructure to speak of. This low penetration rate is invariably what has attracted so many greenfield operators to the country. We expect robust subscriber growth in Cambodia\'s mobile sector and estimate that the market will grow from its current subscriber level of 3.7 million subscribes to over 13.1 million by 2014, and boast a corresponding penetration rate of 81%. Revenues should also increase to over $603 million by 2014, up from the current market value of $308 million.

The Cambodian mobile market has attracted foreign investors from across the world striving for a piece of this burgeoning emerging market. The established mobile operators MobiTel, CamShin and TMIC are based in Luxembourg, Thailand and Malaysia respectively; while new entrants such as Applifone, Viettel, Sotelco and Smart Mobile are backed by investors in Sweden, Vietnam, Cyprus and Russia respectively.

The capex that foreign companies will make in the market are sorely needed. Even the incumbent MobiTel only has wireless coverage of 63% of the population and has secured a $100 million loan from the International Finance Corporation to expand coverage. Similarly, new entrant Viettel has stated that its strategy will revolve largely around providing superior mobile coverage and has already added 1,100 base stations. This rapid-coverage strategy has worked for Viettel in the past as the operator was able to become the subscriber market share leader in less than three years in Vietnam using the same technique.

The huge influx of new mobile players is already transforming the market in other ways as well. Viettel has already introduced per-second billing to the market, and given that it has live mobile operations in all three Indochine markets could also introduce single-tariff plans while roaming, as has been done in Africa and Europe (ethnic Vietnamese also comprise about 5% of Cambodia\'s population and 2% of Laos\' population).

Another new entrant, Smart Mobile, launched commercial services in March and immediately slashed in-network voice tariffs to $0.04 per minute and $0.02 per SMS, and offers two SIM cards for the price of one. Another operator Cadcomm, branded as \'qb\', is pursuing a completely different strategy by only marketing 3G devices and encouraging subscribers to connect their phones to laptops to leapfrog the country\'s slow, unreliable and often unavailable wireline internet services.

This sudden flurry of competition will without a doubt quickly transform the Cambodian market by increasing coverage, service innovation and ultimately consumer adoption, but there is no free lunch here as is true anywhere else. Eight operators is far too many for a market of 14 million inhabitants, and aggressive marketing strategies will bring massive tariff declines, more multi-SIM card users, and more generous device subsidies, which will erode profitability and end in consolidation. Operators in Indonesia and other markets know this well, but its unlikely to matter to the millions of Cambodians who will be able to access affordable telecommunications services for the first time.

Marc Einstein is a senior analyst with Frost & Sullivan in Singapore

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