Establishment of the TRC heralds a new era-

In one of the momentous moves for the Cambodian telecom sector, the Ministry of Posts and Telecommunications (MPTC) officially constituted the Telecommunications Regulator of Cambodia (TRC) in September 2012. Until this time, the MPTC was responsible for policy making and formulation of regulations for the sector. Though Cambodia’s telecom ministry has played a key role in governing and regulating the country’s telecom sector,  the constitution of an independent regulator has been a long-awaited development for industry players and several foreign investors alike.

Specifically, the industry had been concerned about the lack of transparency of the sector’s regulations and the initial surge of telecom licences that many perceived to have been haphazardly awarded. Given the rising information and communications technology needs of critical industries such as banking, education, defence, health care, and retail, the telecom sector has become a significant player in the national economy. Thus, it is vital to institute a fair, transparent, non-discriminatory, and stable regulatory environment in the sector. The need for an independent regulator is further accentuated by the excessive competition in the sector that has led to the emergence of issues related to frequency distribution and interconnection.

The MPTC has transferred its regulatory role to the TRC, making the latter responsible for spectrum allocation and price regulation. The TRC has the authority to deal with a range of disputes including technical, operations, and network usage matters. While independent in its existence, the TRC remains a government-endorsed body. The ministry retains the responsibility of collecting revenues and concession fees. Some of the key functions of the TRC are presented in the box.

Better late than never

Compared to its peers in the Southeast Asian region, Cambodia has been a bit late in its establishment of an independent telecom regulatory body. For instance, the Philippines set up the National Telecommunications Commission as early as 1979; other countries followed in its wake. Cambodia is the latest to join the league.

However, it is important to point out that the level of autonomy in decision-making of these bodies varies considerably from country to country. While the regulators in the Philippines, Vietnam, Malaysia, and Singapore are highly autonomous in their decision-making processes, regulatory authorities in Indonesia and now Cambodia remain largely under the control of their respective telecom ministries (see Table 1).

Cambodia’s telecom market: Rapid evolution, but overcrowded

Cambodia has the unique distinction of being the first country in the world in which the number of mobile subscribers exceeded those on the fixed line network. While a similar trend has been witnessed all over the world during the past decade, Cambodia experienced this development as early as 1993. The main reason for the early emergence of this trend was the destruction of Cambodia’s existing limited fixed line network during the civil war of the1970s. Later, the logistics and cost challenges associated with a wireline network roll-out made it almost impossible for the country to completely overhaul or lay a new network. In contrast, roll-outs of mobile technologies were cheaper and less cumbersome.

Over the years, the mobile market in Cambodia has grown manifold. For instance, the sales of SIM cards in Cambodia exceeded 20 million in 2012, more than the country’s population of around 15 million. The country’s decision to liberalise its telecom markets extensively during the initial years (after the war had ended) has played an instrumental role in enhancing the provision of services within the kingdom. Moreover, the country permits both local and foreign private investment in the sector, although the latter is limited to 49 per cent. As a result, all its market segments including fixed line, mobile phones, and the internet are characterised by intense competition between several private players.

The entry of private players has also helped to spread telecom services beyond the central regions such as Phonm Penh to suburban and rural areas. Internet penetration has also grown at a remarkable pace from about 10,000 users in 2006 to 2.7 million in 2012, according to the MPTC. Fig.1 highlights the trajectory of subscriber growth in the telecom space. In fact, with a wireless telecom penetration of around 135–140 per cent, Cambodia ranks among the top five countries in the Southeast Asian region in terms of mobile penetration.

While excessive competition in the telecom market has helped to increase the penetration of wireless services and ensure affordable rates, it has also led to issues such as price wars that are accompanied by thin margins and high costs for operators. Currently, Cambodia’s mobile market has about seven operators, which is considered to be extremely crowded by global standards.  Vietnam-based Metfone leads the wireless segment in the country with a subscriber market share of 35 per cent (as of June 2012), followed by operators such as Smart (21 per cent), MobiTel (19 per cent), and Hello (13 per cent).

The presence of multiple players in the wireless and internet markets has left little room for foreign participation in these markets. The intensity of the competition translates into uncertain returns for new investors. At the same time, the lack of regulatory certainty has discouraged existing players from committing incremental investments.

It is evident that this market will need further consolidation before healthy margins can be achieved. Already, there are some signs that the market is moving in this direction. For instance, Hello Axiata and Smart Mobile have merged their operations in Cambodia: the merged entity now has a subscriber market share of close to 34 per cent. Fig. 2 presents the shifts in the market shares between June 2010 and 2012. Given these developments, the establishment of an independent regulatory body, which indicates the government’s endeavour to introduce regulatory stability in the sector and thereby instil investor confidence, is a promising move.

The regulatory uncertainty pertaining to the non-payment of interconnection dues between players is another area of concern in Cambodia. The bankrupt mobile operator Mfone currently owes its creditors over 647 billion riel [1 riel = $0.00025]. The MPTC and the general department of taxation at the finance ministry, as well as a few telecom operators in the country, are on the list of the company’s creditors. Here, the TRC can play an important role in overseeing and resolving interconnection-related issues.

Expectations of an improved regulatory framework

The TRC is likely to make strategic moves in the following areas:

  • Facilitating competition: The establishment of fair rules of competition is central to the development of an efficient telecom space. Since there are many wireless operators and internet service providers in the Cambodian market, it is imperative to establish laws to control and resolve conflicts between these operators. Another issue that the regulator is expected to regulate is mergers and acquisitions, as the market heads for consolidation, in order to prevent market control by one or two players.
  • Overseeing interconnections: Several complaints have been filed against companies that have not paid interconnection fees in Cambodia. In July 2012, Hello, Smart, and Metfone filed complaints against CamGSM, claiming that it owed them more than 6.07 billion riel collectively. In February 2013, Smart Mobile filed a complaint to collect unpaid costs from the bankrupt Mfone.
  • Enhancing transparency and non-discrimination: The telecom sector is highly capital intensive with long payback times. Thus, fair rules and regulatory stability is crucial for sustaining investor confidence.
  • Managing pricing polices: Though the intense competition has resulted in service improvements, it has also shrunk operator margins. Currently, there are too many players fighting for ever smaller shares of the market, which has resulted in tariff declines and huge promotional offers. However, surviving amidst an intense price war does not make a profitable business case for operators in the long run. Thus, the TRC’s move to set the base minimum cost for operators, below which services cannot be offered, will ease the price wars. Recently, the  TRC invited the International Telecommunication Union (ITU) to study the country’s telecommunications markets and mobile call prices. The ITU has suggested that the lowest price at which operators can compete is 101 riel or 105 riel. The TRC will now hold discussions with operators to agree on a base price.

Strong legal foundation: Key to TRC’s future success

Independent regulation has proven to be a good practice for the growth of the telecom market in Southeast Asia, as well as other parts of the world. While the establishment of the TRC has been a key move, the operators claim that the market is still under-regulated, probably due to the fact that the TRC is largely a government-controlled body, lacking significant autonomy. To prove their point, operators cite the recent case when the MPTC overrode the TRC directive to mobile operators to stop promotions with call bonuses, which violate an edict announced in 2009. Even though eight of the operators accepted the directive, the MPTC halted the implementation of this decision within days of the TRC’s announcement, thus undermining the fledging regulatory body’s credibility.

Another missing link in the effective regulation of the telecom market in Cambodia is the pending finalisation of telecom law that has been stuck at the draft stage since 2009. The lack of a telecommunications law governing the overall sector in Cambodia limits the powers of the TRC. Independent regulators in most of the countries worldwide are governed by a particular law that grants them the authority to adopt stringent measures.

Ultimately, the creation of the TRC is a step in the right direction, which highlights the progressive intent of the MPTC to usher in regulated telecom growth and policy clarity. However, for the TRC to be effective in fostering a truly competitive telecommunications market in the country, it will still need to be given genuine authority to take the necessary measures to achieve its potential.