The 2015 TowerXchange Meetup Asia featured a host of insightful panels and roundtables providing in-depth insights into tower markets across the region. We took the opportunity to sit in on the Cambodia roundtable, led by Phillip Wong, Managing Director of edotco to find out more detail on a Cambodian market that we have recently started to cover. We found out that Cambodia has its challenges including some difficult conditions on the ground and limited profitability, but has a regulator that is willing to encourage foreign investment to promote telecoms development. TowerXchange has also been tracking a portfolio of towers formerly owned by Mfone which went bankrupt in 2013 to learn about the fate of “orphaned towers”.
Highlights from the Cambodia Round Table
Cambodia has seen a lot of consolidation over the past few years; the market went from nine operators down to five due to intense competition and price wars. The latest trend is the emergence of Chinese operators in the Cambodian market; in fact Cambodia has the most Chinese operators outside of China itself.
Cambodia has a population of 14.5mn, much smaller than many neighboring markets, and the ARPU is quite low at around US$3 which has meant that it hasn’t attracted too much interest from foreign investors.
In terms of on the ground conditions the energy situation in Cambodia is challenging; about 25% of the country is off-grid. Of course this means that there are opportunities for energy solution providers offering hybrid and renewable off-grid solutions. Even connected to the grid, power is unstable and is can be unavailable for a couple of hours per day even in the capital Phnom Penh – with is a drop off in power once or twice a day necessitating batteries for backup. Some companies are looking into solar solutions. To deal with the grid issues, some companies are looking into solar energy systems. Hybrid solutions need to be scalable and capable of powering at least two tenants. With the strong Chinese presence in Cambodia it’s no surprise that Huawei dominates this market and its energy solutions.
Deployment can also be challenging due to environmental conditions; during the rainy season flooding can cause a water level increase of up to three metres. Other challenges in Cambodia include landmines, although this situation seems to be improving everywhere except the most remote areas and incidents are becoming fewer and farther between. There are also some issues with older towers that have never been assessed and have been poorly maintained that eventually are at risk of collapsing. Some of the MNOs have historically not maintained their tower assets adequately, and there was a tower collapse as recently as six months ago. Increasingly the towercos have been given a directive to ensure the safety of towers.
The regulatory regime is relatively advanced; not every country in Asia has towerco licenses. A new local telecoms law is expected to be put into place in Q1 2016; this was in the draft stage a year ago but no-one has seen the final version and the regulator has kept it quiet. However in general regulations for MNOs, towercos and infrastructure providers are moving in the right direction. Foreign investment in Cambodia is encouraged and there are no restrictions on foreign ownership. This is different from other markets in the region such as Vietnam where foreign investors are limited to 49% ownership of companies. There is still no regulation on green energy or carbon reduction, but this is a work in progress.
With new operators from China appearing in this market, there have been some slow rollouts and the regulator takes a progressive view towards commercialisation so this is an advantage for towercos. Currently there are two towercos: edotco and Camtower Link. edotco is encouraging MNOs to hand over tower and power management to them. The incumbents have been offering services for over five years and have taken responsibility for power themselves, but the new Chinese operators and investors entering in 2016 should be open to infrastructure sharing and a hybrid power sharing solution as it will help them get up and running quicker at a lower cost.
The IFC has been involved in financing MNOs in Cambodia, while local banks have been providing increasingly competitive local financing. Previously operators have suffered from the cost local financing; the interest rates are lower than before but still at 8-12%. Cambodia is that does not require business to be undertaken in the local currency, and US dollars are widely used. Cambodia never suffered from currency protections, and the cost of tower rentals vary from US$300-350 per month for rooftops in Phnom Penh all the way down to less than US$100 the further outside of the capital you go. This is even cheaper than the US$600 average in India. The challenge for towercos is to make these assets profitable to achieve some ROI; towercos need to decide whether to choose a pure tower model or a service including energy. Ground rentals are a key component in the construction of a tower, and ground rent varies significantly in different areas of the country. edotco are prepared to pay a sensible premium to have the first site in a given area as this confers a big advantage as it can be challenging to find another site.
Regulations make Cambodia open to any foreign investment, not only Chinese, but the Chinese have definitely gained a foothold. Xinwei Beijing (Cootel) is a Chinese MNO founded in 2013 in Cambodia that brought in their own equipment and have leapfrogged to 4G to provide more data-centric services. The spectrum for their particular service is in the lower 400MHz range and the license is free to apply for.
It remains to be seen exactly what the strategy and objectives of these companies are in this small and not overly profitable market. Perhaps they have been attracted by the open regulations and have come in full force with more money than other countries to capture first mover advantage in 4G.
A tale of 1,000 towers
Due to a history of poor maintenance in some cases, the challenges associated with small, low revenue telecoms markets and the resulting financial woes, there have been cases of telecoms infrastructure sitting idle in Cambodia, as in other markets across Asia, as a result of MNO bankruptcies. Take for example the portfolio of 1,000 towers in Cambodia that were originally owned by Cambodia Shinawatra or Camshin. Camshin was a joint venture between Shin Satellite of Thailand and the Ministry of Post and Telecommunication of Cambodia founded in 1993. Camshin had its license extended from 15 years to 35 years in 1997, and was also given a license to provide mobile services under the brand Mfone the same year. By the time it launched 3G services in 2007, Mfone was already struggling due to the intense competition and low ARPUs in the Cambodian market. Price wars became so intense that the government intervened in Q4 2009 with a minimum tariff edict, but the damage was done and Mfone continued to lose subscribers.
By Q4 2012 Mfone was starting to have legal troubles over unpaid bills. Eltek Valere won a court injunction against Mfone that year over failure to pay US$3.73mn in service charges. Mfone was required to provide an assessment of its inventory and was banned from selling off any assets until the situation was resolved. Mfone was also threatened with legal action by Hello Axiata and Smart Mobile over unpaid interconnection fees. Thaicom attempted to sell Mfone to a local investor, INT Management Service, but the deal fell through and in January 2013 Mfone filed for insolvency. Mfone signed an agreement with Mobitel to migrate its subscribers on to their network with a roaming agreement. This agreement was then disputed by Huawei claiming it was in violation of an injunction to freeze Mfone’s assets. This injunction was lifted by April of 2013 so that the sale of Mfone’s assets could commence.
In the end Mfone’s remaining assets were sold to Khmer Unified Network Communication (Khmer Unicom) for US$10mn, less than 11% of their estimated value
Telecoms towers can prove to be a hard sell unless conditions are just right. In this case interest in the Mfone towers was low with 30% of them located in urban areas where competitors already had their own assets and tower coverage was overlapping. The remaining 70% of the towers in rural areas could be a different story as some may be located in areas with patchy coverage. In addition to this many sites came with unfavourable leases with local landowners, some of which were renegotiated at higher rates in latter years as Mfone came under increased financial pressure. In the end Mfone’s remaining assets were sold to Khmer Unified Network Communication (Khmer Unicom) for US$10mn, less than 11% of their estimated value. Khmer Unicom, owned by Chinese businessman Khao Yun Dy’s Khmer Holding Group. was another potential entrant into the already crowded Cambodian telecoms market. Unfortunately, the Mfone assets then sat idle for another three years as Khmer Unicom attempted unsuccessfully to obtain a telecoms license.
Three years of disuse have had an impact on these assets; according to a local source the power equipment on the Mfone base stations is now defunct. Only the Phase 9 and Phase 10 power supplies can still be used, and will probably need upgrading or replacing. Orphaned towers can also pose a safety risk for local communities; in April 2015 a former Mfone tower in Battambang collapsed during a storm causing extensive damage to the surrounding buildings. Unable to obtain an operator license, Khmer Unicom sold the former Mfone assets in January 2016 to Xinwei Telecom Cambodia (Cootel), owned by Chinese internet mogul Wang Jing. Cootel is the newest entrant into the Cambodian wireless market, starting operations in Q3 2013 and offering exclusively 4G services over its “multi-carrier wireless in the local loop” network.
It remains to be seen how long it will take for the Mfone towers and power equipment to be repaired and upgraded given this long period of inactivity; but the story of Mfone’s 1,000 towers raises several questions: how many other tower portfolios are there like this in other markets around Asia with similar conditions? Are there other neglected assets that could represent an opportunity? Does there come a point when towers should just be decommissioned and dismantled for the safety of the local community? Perhaps there is a role for towercos to play in preventing similar cases like this in the future in Cambodia and other markets across Asia.
