Fears grow that cheap and fast access could suffer under regulatory crackdown
ថ្ងៃសៅរ៍ ៥កើត ខែជេស្ឋ ឆ្នាំខាល ចត្វាស័ក ព.ស.២៥៦៦ ត្រូវនឹងថ្ងៃទី៤ ខែមិថុនា គ.ស.២០២២
Saturday the 5th Waxing Moon Jeṭṭha B.E.2566 equivalent to June 4, A.D.2022 Year of the Tiger
Nikkei Asia

On a recent morning in May, utility workers pulled down masses of tangled black wires running above a busy street in Phnom Penh as part of a broad effort to clean up the Cambodian capital’s sprawling fiber network.

Nearby, some residents and businesses saw their internet service cut for days as the cables came down, without replacements ready to go. Far from routine maintenance gone wrong, the episode speaks to major changes happening within Cambodia’s telecommunication sector.

After years of war, Phnom Penh was left with just 3,000 telephone lines in the 1990s. Today, Cambodians enjoy some of the cheapest and fastest internet connections among its economic peers — made possible by a sprawling network of fiber set up almost entirely by private telecoms companies and internet service providers (ISPs) operating with almost no regulatory oversight.

Now, the pendulum has swung in the other direction. After decades of unfettered growth, Cambodia’s telecoms sector is in the middle of a sweeping crackdown. While industry players and analysts say they support improved compliance, they worry that the “heavy-handed” and “uncompromising” approach by the authorities is degrading internet speeds and increasing prices.

At a time when Cambodian policy makers are touting visions of a “digital transformation” to strengthen the country’s vulnerable export-reliant economy, some in the sector even fear Cambodia’s gains in connectivity will be lost unless a middle ground is found.

“The internet’s getting worse,” said one longtime manager at an ISP in the sector who requested anonymity to avoid repercussions for his company.

“The status quo isn’t sustainable, but the ministry needs to be smarter about how they move forward. If you want to be compliant it means your business was wrong the last seven to eight years. Restructuring takes time.”

The growth of Cambodia’s telecommunications sector since the 1990s has been characterized by low entry barriers and little oversight, which fueled intense competition and price wars that have kept prices low for years.

Licenses were distributed “like confetti,” said a veteran executive in Cambodia’s telecom industry who asked to remain anonymous for fear of government reprisals. It was a “messy process,” he said, but one that succeeded in rolling out a viable network.

“We don’t like the mess of the wires and we don’t like the way these cheap towers are put up. However, everyone in Cambodia who wants to have a SIM card has got one and largely can afford to use it,” the executive told Nikkei Asia.

Heath Shen, chief executive of Cambodian ISP NeocomISP (NTC), Cambodia’s largest backhaul provider — these connect the wireless cell towers to the internet at point of use — similarly described the early days of the country’s internet industry.

“Ministries in the past just kept issuing more and more licenses to a point where it was unhealthy,” said Shen, who started the company in 2005.

“A part of what’s going on now is good in the sense that if there’s more attrition in the market, it creates a healthier environment for the survivors.

“Otherwise, the Cambodian market is just too small. There’s 30 plus ISPs out there… Some of them are more compliant, or less compliant. Some of them don’t even have a license.”

In Cambodia, where mobile broadband subscriptions are 70 times more prevalent than fixed-line subscriptions, competition has been fiercest in the mobile sector. In the late 2000s, the mobile segment counted at least nine operators.

Through collapses and mergers, it eventually shrank to three main operators: Cellcard, Smart Axiata, owned by Malaysia’s Axiata Group, and Metfone, owned by Vietnamese-military controlled Viettel. In the slower-developing fixed broadband segment, however, there remain more than 30 companies.

The drawbacks of the regulatory “vacuum” where investors could do “pretty much anything they want” were summed up in a 2016 report on Cambodia’s telecommunications sector by researcher Fuangfa Ampornstira, who found volatility, uncertainty and corruption curtailed profitability and investment.

But one upshot is that Cambodia is ahead of many comparable countries in terms of internet access, according to the International Telecommunication Union, a United Nations agency. In its Connectivity in the Least Developed Countries: Status report 2021, ITU found average data usage in Cambodia was almost six times the average of surveyed countries. Data cost, meanwhile, was among the three cheapest.

Enter Chea Vandeth. Cambodia’s Minister for Posts and Telecommunications, who took up his post two years ago, is spearheading a push to enforce regulations in the sector that have long been dormant.

Chief among these is the 2015 telecommunications law that gave operators in the sector one year to reapply for their licenses. However, the clause wasn’t enforced and it appears companies did not reapply.

Some of the industry’s biggest players have found themselves in the crosshairs of the crackdown. Axiata Group moved Smart’s longtime German CEO out of the country last year following a legal threat from the regulators.

The minister says he wants to ensure that the almost 50 operators in the sector adhere to their license conditions — and pay up.

On paper, Cambodia’s mobile telecom sector has the fourth highest regulatory fees and taxes in the Association of Southeast Asian Nations, some 32% of revenue, according to a study by ITC consultancy Cenerva, commissioned by Cellcard. Revenue sharing dues, around 13%, make up the largest chunk of financial obligations. The arrangements are similar for ISPs.

For years, many operators simply did not pay, according to sources.

“They were allowed to get away with that for so long, it became standard business practice, until [the minister] arrived and said ‘here’s your bill,” the veteran executive said.

Earlier this year, Sing Meng, an ISP backed by Chinese investors, shut down, unable to pay the more than $2 million that the Ministry for Posts and Telecommunications requested. The company’s license was officially revoked in May, according to a letter seen by Nikkei Asia.

OpenNet, one of the country’s most prominent ISPs, was recently sold by its Vietnamese parent company. It owed the ministry more than $6m, according to correspondence between management and regulators. Both companies’ customers were scooped up by Ezecom, another subsidiary of Cambodian conglomerate Royal Group owned by prominent tycoon Kith Meng.

In addition to those companies that have gone out of business, at least 18 others have lost their licenses for breaching their conditions or because they were operationally defunct.

Supposedly unpaid fees and revenue sharing is just one problem for ISPs, however.

Seeking to impose order on Cambodia’s network chaos, the Telecommunication Regulator of Cambodia has in recent months warned companies in the sector, including NTC, Ezecom, Metfone and Smart, that they are not properly licensed to build or maintain fiber networks, according to letters seen by Nikkei and information from sources.

Instead, they must contract one of two licensed fiber operators: state-owned Telecom Cambodia (TC) or privately-run CFOCN, the company behind Cambodia’s fiber backbone. With TC largely lacking capacity to install or maintain fiber, operators are now reliant on CFOCN.

The problem, said several sources at ISPs, was CFOCN had increased the price of leasing its cables and was also plagued by service delays.

“The biggest financial strain on companies is fiber rental from CFOCN,” said one source. “At the moment, CFOCN can’t deliver because the amount of requests must have skyrocketed.”

Neither CFOCN nor the telecommunications ministry responded to Nikkei Asia’s request for comment.

Shen, of Cambodian ISP NTC, said uncertainty over which companies would be prioritized made running the business difficult. A solution would be for ISPs and telecoms companies to continue to be allowed to lay fiber under strict conditions.

“The biggest impact is our fate is in the hands of the third parties that are the only ones that can do the installation,” he said.

“They don’t want to have these spiderwebs of fiber everywhere, right? So a middle ground is to put strict regulations about how you can do it — you can’t just randomly go hang fiber anywhere.”

Whether more companies will be allowed to resume fiber maintenance and installation is the source of speculation within the sector. Well-placed sources said Ezecom’s sister company Telcotech and Viettel’s subsidiary Metfone were likely to receive the necessary licenses.

Ezecom did not respond to a request for comment. Metfone spokesman Duc Anh said the company “respects and complies with Cambodian laws and regulations” but did not directly answer whether it had been given permission.

“It does not affect our customers,” Duc Anh said of the authorities’ requirement of licenses to work on fiber networks.

Authorities are moving ahead with cutting down tangled wire bundles. These moves might fix the messy appearance of Cambodia’s network, but could also limit investment in its future.

Marc Einstein, chief analyst at Japan-based IT research and advisory company ITR, called the heavy-handed compliance drive “very bad for business.”

Einstein said the government, rather than using the sector as a “cash cow”, should be providing incentives for investment particularly as the “gold rush” in emerging markets was over. “It’s increasingly hard for emerging market telcos to make money,” he said. “This is a bad time to scare away investors from investing millions into the network.”

Companies now working to comply say they hope the crackdown will be accompanied by an increase in transparency surrounding decision-making and clarity around how laws will be enforced in the future. Such an abrupt shift comes at a price, they say.

“There was non compliance across the board — everybody was non compliant,” said Shen, estimating costs for consumers would rise by about 13%.

“Nobody will operate at a loss, so all these costs will eventually be passed on to the customers on new contracts.”