Why Cambodians Could Pay a High Price for Low-cost Data Packages

The long-awaited film Avengers: Infinity War hit Cambodian cinemas on 26 April, but at Aeon Mall’s Major Cineplex by Smart – one of the largest cinemas in Cambodia and promoted by the Kingdom’s leading mobile telecommunications company – only Smart customers could obtain a ticket to see the film on its opening weekend.

Luckily, there were stacks of green Smart SIM cards for sale just metres away from the theatre, piled high for those moviegoers who couldn’t bear to miss the showing.

“I have [had] two [SIM cards], one Smart and one Cellcard, for almost a year,” said one local Avengers enthusiast as he described standing in line for the movie. “For things like this, and so I get the different promotions – there are a lot of promotions, and [the SIMs] are so cheap.”

Competition between Cambodia’s mobile telecommunications operators has been heating up, with pricing becoming especially competitive since the start of 2017, according to a recent report.

“The Role of Mobile Telecoms in Transforming Cambodia” was released by B2B Cambodia and IMS Consulting Group earlier this month, and outlines a fairly steady increase in unique mobile subscribers in the Kingdom since 2012, but notes that 2017 saw a significant boost of nearly a quarter of a million more subscribers than the year before.

The main driver of this recent growth could be thanks to “increasingly affordable and consumer-friendly mobile data packages [that] operators began launching throughout 2017,” the report reads, adding that this has resulted in greater mobile penetration across rural and female populations.

Low pricing is an obvious benefit in a developing country, but there needs to be a correct balance.

Cambodia’s three leading mobile telecommunications operators have led the charge, including Cellcard, operated by influential tycoon Kith Meng’s Royal Group; Smart Axiata, the Cambodian subsidiary of Malaysian-based Axiata Group; and Metfone, the Vietnamese military-owned subsidiary of Viettel Group.

In a press release regarding the report, Cellcard CEO Ian Watson cited his company’s 4G-rollout strategy as the main driver for increased competition among local telecoms. The strategy, deployed in early 2017, offered data packages at surprisingly low rates.

“It was Cellcard that led the market on mobile data affordability when we launched Osja Xchange $1=$100 in January 2017, and again with BIG Love $1 = $500 in February,” said Watson. “It was Cellcard that gave 4G to much of the rural areas where customers have never before been able to either access or afford the service.”

The Cambodian economy overall is benefiting from our investment in the network,” he added.

And yet it is difficult to say how greatly the Cambodian economy has benefited from the growth of these mobile operators’ networks, as neither Cellcard nor Metfone release annual financial reports. Their profits and the amounts they pay annually in taxes to the government, therefore, remain giant question marks.

The Cambodian Telecom Law, established in 2016, requires telecom companies to pay a percentage of their annual revenue into two developmental funds each year, but the Ministry of Posts and Telecommunications has repeatedly struggled with collecting this mandatory tax.

On 1 March this year, the ministry announced that it was extending the deadline for telecom companies to pay into its funds, stating that only $4.2 million of the expected $17 million in taxes had thus far been paid. Smart was recorded as having already contributed $3.5 million, suggesting that neither Cellcard nor Metfone had yet paid their contributions in full, according to local news outlets.

As a publicly listed company on the Malaysian stock exchange, the amount that Smart pays in annual taxes is a matter of public record. In 2017, Smart paid $76.4 million in taxes, representing a 3% chunk of the Kingdom’s total national income last year. Earlier this month, Smart received the Gold Award for Tax Compliance from the General Department of Taxation, becoming the first elecommunications company in the Kingdom to be officially recognised for its tax compliance.

Competition in an open and transparent market is always healthy and drives competitors to improve the goods and services they offer to their customers. The telco sector is no different,” Smart CEO Thomas Hundt told Southeast Asia Globe in an email.

According to Hundt, however, the Cambodian market has not proven transparent, and the intensifying competition amongst local telecoms has resulted in data pricing becoming so low as to be “irrational”.

“In the short term, [low pricing] is an obvious benefit in a developing country like Cambodia,” he said. “But there needs to be a correct balance. If not, in the long-term, there can be a negative impact on the sustainability of telco companies as well as their ability to invest in critical technologies, infrastructure and maintenance.”

In order to ensure healthy competition that does not drive telecom operators out of business, Hundt said, “all competitors in the market [should] operate on a level playing field, operating transparently and in full compliance with regulations and tax laws”.

“If that is not the case, it becomes an unhealthy competition between asymmetrically aligned competitors who operate in very different and sometimes quite opaque ways.” – Sea Globe