Telecommunications in Cambodia

Years of civil war both destroyed most of the existing fixed network and prevented the construction of new lines. At the end of 1992, the year mobile cellular was introduced in Cambodia, there were only a little over 4,000 fixed lines for a population of some 9.3 million. A year later, mobile had already surpassed the fixed lines. Another contributing factor to mobile success was that the government liberalized the market early on, allowing both private investment and competition. As the Minister of Post & Telecommunications, H.E. So Khun explains: Even though it was very hard to attract foreign investors towards Cambodia, the telecommunications sector in this country had two points of interest. First we put unto place a very liberal and open market and second there were plenty of donations from international organizations to help develop the sector. The private sector is mainly investing into mobile phone services". Cambodia was the first country in the world where mobile telephone subscribers passed fixed ones - way back in 1993. Cambodia began the millennium with more than four out of five telephone subscribers using a wireless phone, the highest ratio in the world. Thanks to mobile, Cambodia's teledensity - telephone subscribers per 100 inhabitants - reached one in 2000, a significant achievement for a Least Developed Country (LDC). While mobile has contributed to the bulk of Cambodia's telecommunication progress over the last decade, wireless fixed lines have also helped and accounted for five percent of all telephone subscribers at the beginning of 2001.

Current Situation

development. Perhaps the biggest factor contributing to wireless success is that there just never were many fixed lines to begin with. Today, Mobitel , a GSM mobile operator, is the largest telecom network operator in the country with more than 120'000 subscribers at the beginning of 2003, and the company is planning to expand further as Oknha Kieth Tieng, Vice-Chairman of the Royal Group (from which Mobitel is a subsidiary) explains: "In terms of growth we are expecting an increase of 10,000 new subscribers every month. We have always been the pioneers in this country and we will keep on being leaders by a constant innovation. We were the first to bring in a GSM system in Cambodia; we also were the first to introduce a cell card (…) This is the only way to win the communications battle, always being one step ahead, and of course provide the best service". This tendency to growth can be confirmed thanks to the statistics of The Ministry of Posts and Telecommunications of Cambodia (MPTC) where an steady increase of the subscriptions can be observed throughout the beginning of 2003.

There are three digital and two analogue mobile operators, all with foreign investors. Two additional digital mobile licenses have been awarded but have not yet started operating. Another success factor has been prepaid, with over 90 percent of mobile subscribers opting for this payment method. With a per capita GDP of only US$260, most Cambodians either could not afford or would not qualify for a subscription telecommunication service. Prepaid cards with denominations as low as US$5, and a used handset available for as little as US$20 make mobile telecommunications much more accessible. Prepaid is also attractive from an operator's perspective because it eliminates the risk of subscriber default. Another contributing factor to mobile growth is billing in US dollars (use of the US dollar is widespread in Cambodia), which reduces the investor's exchange rate risk.

While wireless communications have helped Cambodia achieve a minimal level of communications, it has also created its fair share of problems. This includes a confusing mix of government shareholdings and agreements; an interconnection maze; and an over-reliance on mobile network service provision to the detriment of the fixed line network.
The Ministry of Posts and Telecommunications of Cambodia (MPTC) is the industry policy-maker and regulator. In addition, it is involved in some way in every telecommunication network in the country either as a provider or joint venture partner. But this is soon going to change as the H.E.So Khun is planning to create an independent body who will start regulating the industry and is also considering all the options for privatization. "The first step is to set up the Telecommunications Authority (TCA) in order to be able to prepare a Telecommunications Law. We have drafted some suggestions on how this regulator should have to function and discussed it for a long time with the Ministry of Finance how to set it up. The privatization is needed, but we don't want to go too quickly to avoid problems".

It has managed this feat without investing much of its own money. Most of the fixed network has been provided through bi-lateral assistance, while the mobile network has been constructed with foreign investment. According to the Council for the Development of Cambodia, private capital totaling US$131 million was invested in the telecommunication sector during the period 1994-1999.

The only network the MPTC owns outright is the local exchange in Phnom Penh. The Japanese Government largely funded extensions during the 1990s to the Phnom Penh network (US$ 40 million in two projects, US$ two million contributed by Cambodia). The first extension began in December 1996 and was completed in March 1997 providing 6'800 lines and is to be expanded to 50'000 lines by 2007. In the year 2000, the MPTC also began installing fixed lines outside Phnom Penh by putting local exchanges in eight provinces.

One side effect of practically starting from scratch is that all local telephone lines are connected to digital exchanges. Although over the years consultants have presented several proposals advocating the corporatization of the telecommunication arm of the Ministry and the creation of a "Telecom Cambodia", no action has been taken. Instead, MPTC's revenues continue to be reported as a part of overall government revenues, and its profits absorbed by the government for use elsewhere.

This has adversely affected the MPTC's ability to expand the fixed network. As a result, there is a de facto policy of allowing private investment in partnership with the MPTC to expand telecommunications. Most of this investment has flowed into the mobile sector but has also included Wireless Local Loop (WLL), fixed lines in the provinces and international gateways.

While this policy has contributed to telecommunication development, it is marked by a lack of transparency. For example, there is no clear picture of licensing or policy and timetable for telecommunication liberalization. Rather, restrictions on market entry are generally a function of various contracts signed between the MPTC and the operators.

Prefix city

For a country of its size and income, Cambodia has one of the most crowded telecom markets in the world with six operators running a total of eight fixed and mobile networks. These numbers rather than names have assigned different prefixes to the networks that are often referred to. There is no number portability, for either fixed or mobile. Cambodia has a Calling Party Pays system. All networks are required to interconnect and there is a central interconnection point at the MPTC in Phnom Penh.

The interconnection charge established by the MPTC has been revised several times. While the MPTC had authorized negotiations between operators to establish cost-based interconnection charges the Ministry abruptly changed its mind in mid-2001. It announced that it would adopt Sender Keeps All (SKA) and thus no longer make interconnection payments. This reversal was, no doubt, triggered by a traffic imbalance from fixed to mobile calls of between 14-20:1.

Mobile operators, who receive more fixed calls than they send out, will be adversely affected by this change. Some operators have suggested that if SKA were fully implemented, they would have to reconsider their investment strategy due to the end of revenues from incoming calls.

International cash cow

Telstra of Australia opened Cambodia to the world when it installed the first international gateway in 1990. This was done as a so-called 10-year Business Cooperation Contract (BCC) with the MPTC. Telstra received 51 percent of the revenue, and the MPTC the remainder. The BCC expired in 2000 and the gateway is now fully owned by the MPTC. Millicom launched the country's second international gateway in November 2000 through its Tele2 subsidiary. This arrangement is structured as a joint venture between the MPTC, Millicom and the Royal Group. The license is valid for 25 years. It is not believed that any additional international gateways will be awarded in the near future.

The MPTC earns 85 percent of its revenue from international tariffs in the world and the fixed network is so limited. The international tariff structure is straightforward. There are three bands and a weekday and weekend rate. Mobile operators charge the MPTC rate in addition to the mobile per minute call charge. Access to direct international calling from fixed lines requires the payment of a deposit of currently US$150 for the MPTC network and US$200 for Camintel's network.

Because of the high cost of international calls, users are turning to other methods for communicating abroad. First, many people rely on incoming international calls with the ratio of incoming to outgoing 3:1 (29 million minutes of incoming international calls in 2000 compared to 9.6 million outgoing). Second, despite its illegality, there appears to be growing use of Voice over Internet Protocol (VoIP) with a number of Internet cafés openly advertising it. Due to this situation, the MPTC is looking at the possibilities to open this market. "So far they are in the trial period, from the university of Phnom Penh you can already use it and if everything works out fine, the whole system will be launched this year and will be a protected market for 7 years", said the Minister of Posts & Telecommunications.

Internet

The penetration of the Internet in Cambodia has been as skyrocketing as the implementation of mobile phones, as Under Secretary of State, H.E. Koy Kim Sea, who is also in charge of Camnet, explains: "Lately the growth of Internet has been slowed down due to the lack of a proper telecommunications infrastructure in the country. The mobile telephony has developed at a greater pace than the ground lines making the penetration of Internet to the rural areas more difficult". Nevertheless, next to Camnet, national Internet access provider, there are another 4 ISP's active in the country and other licenses have been granted although they are not yet active.

In order to see the IT sector develop the government has created a new institution responding directly to the Prime Minister Hun Sen, in words of his Secretary General, Mr. Leewood Phu, the NiDA (National Information Communications Technology Development Authority): "NiDA's task is to formulate an IT promotion policy for the short, medium and long term. The purpose of that is again in response to the evolution in ASEAN and to the whole world as well". The Authority is also charged with the formulation of an ICT Master Plan, with one of its main objectives the connection of all layers of the government to the Internet to improve the quality of service to bring the government closer to the people and vice versa.

Since the creation of the Authority three years back, the evolution has been remarkable. It started as a three men team and currently counts with 106 employees. "Before the formation of NiDA the connection to the Internet was considered a luxury for the people of Cambodia. Only NGO's or high government officials had access to it. After the formation of NiDA, the price dropped and Internet café's sprung up. A survey conducted early this year showed that in Phnom Penh only, there were almost two hundred Internet café's with a very cheap access to Internet".

Conclusion

The telecom operation arm of the Ministry of Posts and Telecommunications (MPTC) would be separated out into a state enterprise called Telecom Cambodia (TC), which would respond to the market trends in competition. A Draft of the Sub-Decree on this subject has been made and expects its finalization, possibly, in the current mandate. Telephone calls in Cambodia are generally among the highest in the world. The official price of international telephone calls was set up and published with yearly steady reduction and with up to 20 percent discount on Week-End, based on the international accounting rate bilaterally agreed up on a specific schedule. Prices for calls to neighboring countries then were decreased throughout the years as follows:

Graphic (Click here)

This decrease would be gradually applied for the year 2003. There is no possibility of the MPTC issuing another gateway license based on the current laws and traffic demand. However, these are subject to change depending on the company expressing interest. There are about 313,160 mobile users in the country. It is a very prosperous sector as the operators enjoy the fair playing field fostered by MPTC. They compete with each other freely without any impositions of price restriction. However, it is a common phenomenon for congestion to plague the networks because of over-capacity and insufficient equipment to meet demand, especially during peak hours. Investment has been quite stagnant in this aspect because of costs involved (investments normally get investment incentives such as tax free imports) and the high costs of securing expansion investments.