Editorial: A first look at the Cambodian tower market

Cambodia may be the next market to watch in Asia, with strong demand for new telecom services and need for new business models for infrastructure ownership and management to help meet this demand. In this editorial, TowerXchange summarises the mobile and the tower markets in Cambodia – finding a country with significant growth potential, with 130%+ mobile penetration and a crowded operator market. However there are still obstacles to be overcome, such as the challenging power grid situation.

Cambodia is an up-and-coming tower market with the potential for organic and inorganic growth. With a population of 15.8 million this is a small market compared to its larger neighbours Thailand and Vietnam, but it is a young population that is growing quickly with a 1.7% increase in 2014. Cambodia has experienced strong economic growth over the last decade. Cambodian GDP grew at an average annual rate of over 8% between 2000 and 2010 and over 7% since 2011, according to the CIA Factbook.  Although it has its regulatory issues to overcome and some challenging operational conditions on the ground, Cambodia is still a market with strong potential and it represents considerable opportunities.

Cambodia’s efforts to expand and upgrade its telecom infrastructure have been successful despite its status as one of the less-developed countries in the region. There was very little infrastructure remaining from before the Khmer Rouge regime, and as a result, Cambodia leap-frogged the rebuilding of fixed-line infrastructure and launched into alternative technologies, jump-starting its telecommunications infrastructure with digital and mobile technology. As of Q4 2014, the GSMA estimated the number mobile connections at 23.9mn and a remarkably high SIM penetration of 154%.

There are approximately 9,000 towers in Cambodia and a growth rate of 3% is expected in 2016.

Cambodia has a crowded, competitive telecoms market; there are currently five MNOs: Metfone (Viettel), Smart (Axiata) and Cellcard (Mobitel) lead the market with 9mn, 7mn and 3mn mobile subscribers respectively. The other operators qb (CADCOMMS) and Seatel (Southeast Asia Telecom) have a combined market share of approximately 1mn between them. There is likely to be some consolidation in the Cambodian market, some of which has already taken place with the number of operators dropping from nine licensed operators in 2011 to five in 2015, most recently with former VimpelCom OpCo Sotelco (trading under the Beeline brand), being acquired by market leaders Viettel. In 2012 Axiata’s Hello merged with Latelz Company’s Smart Mobile in a US$155mn deal. Network integration was completed in August 2013.

There has also been a recent shift in the market with a new agreement between Cambodia’s Ministry of Posts and Telecommunications and the Chinese Ministry of Industry and Information Technology (MIIT) which was signed in January 2015. Under the deal, both sides will exchange information, experience and expertise in the development of telecoms and ICT and this agreement may result in new Chinese entrants to the Cambodian operator market. Cambodia also selected the Chinese vendor Huawei as a strategic partner for its ICT development.

4G has been launched in Cambodia with Smart first offering services in Phnom Penh in January 2014 and Seatel switching on services in July 2015. It remains to be seen how aggressive 4G rollouts will be in Cambodia, and whether its launch will encourage any new players to come into the market.

To date edotco is the leading towerco in Cambodia with a total of 1,700 towers. edotco has plans to expand on its foothold in this market in the short term, but in the long term they expect the volume of tower builds to level off. In the meantime they plan to focus on offering end-to-end managed services along with DAS and small cells to optimise use of infrastructure and remain competitive.

Local turnkey infrastructure firm Camtower Link also owns and operates a small independent tower portfolio.

The lack of a dependable power grid represents one of the biggest challenges facing the Cambodian tower market. The development of infrastructure suffered a major setback during the Khmer Rouge regime and this is still under development to reach the regional standard. The government has been working steadily on this in recent years and now the number of off-grid sites has been reduced to between 20 and 25%. There are also some security risks when deploying towers on remote sites as there are still minefields in the countryside which are the legacy of thirty years of war in Cambodia; experts estimate that another ten to twenty years will be required to clear all of them.

In 2012 Cambodia established an autonomous telecoms regulator, the Telecommunications Regulator of Cambodia, as an entity independent of the Ministry.

Cambodia’s telecoms operators recently voiced opposition to a draft law from the Ministry of Posts and Telecommunications Cambodia (MPTC) in July 2014 which stated that no company can operate infrastructure assets and also provide retail services. This legislation would have required telecoms operators that choose to retain their retail operations to sell off their network assets and rely on government-controlled infrastructure providers or towercos. The draft law also reportedly stated that all telecom licences would be reassessed on new criteria, and some companies could be forced to hand back their existing permits. In addition, the draft law also stated that ‘to ensure the effective security, national stability and public order, the minister of the MPTC has the right to order operators to transfer their systems, which control their telecom operations, to the Ministry.’ To date this law has not passed, and the Cambodian government is under pressure to make its legislative drafting process more transparent, which would help to encourage infrastructure development and foreign investment.

The Cambodian government supports the idea of infrastructure sharing to increase the efficiency of telecoms assets, and it also supports 100% foreign ownership to give a boost to telecoms investment and development. A new telecommunications law should come into effect in the first half of 2016 which should have a significant impact on infrastructure sharing in Cambodia.

With new legislation expected to take effect in the near future, LTE being rolled out, and new operators poised to enter the market, Cambodia should see some exciting new developments, and the tower market may continue to attract foreign investment. Prior to edotco’s entry into the market, the last time foreign towerco looked into a potential purchase in Cambodia was in 2012 when Tower Bersama was reportedly engaged in talks with Mobitel to acquire its tower assets.

With such a crowded operator market serving a relatively small population, the greatest efficiencies in Cambodia may be realised in partnership with a single, or at the most two, towercos of scale. This capacity is reflected in the tower industry’s appetite for Cambodia, which would typically see only the top two to three operators as suitable anchor tenants for a market entry. There may be finite room for many additional towercos in Cambodia with market leaders Viettel historically reluctant to partner with towercos, Smart already working with edotco, and Mobitel backed by the Royal Group (Cambodia’s largest privately owned conglomerate, which has strong connections to government).

With telecoms coverage of the population already at 90% it remains to be seen how many new towers will need to be deployed to extend and densify the network to support the demand for 4G services, and this will also be impacted by the new entrants and whether they build new towers or share with the existing market leaders. Overall, if the government continues to support infrastructure sharing, increases transparency and encourages foreign investment, Cambodia should remain a modest yet investible tower market.