Price war looms over mobile sector
Price war looms over mobile sector
Cambodia's telecommunications regulator yesterday warned mobile network operators to avoid engaging in a price war, following the latest salvo by Smart Axiata.
The announcement by the Telecommunication Regulator of Cambodia (TRC) coincided with Smart’s launch of a promotional package that allows subscribers to exchange $1 for $125 worth of value for on-network data, calls and messaging services through the end of February.
Smart’s offer comes less than two weeks since the TRC summoned CamGSM, the operator of Cellcard, to discuss alleged predatory pricing in a promotion that allowed its customers to exchange $1 for $100 worth of mobile services.
TRC spokesman Im Vutha said yesterday that the regulator would set up a team to investigate whether operators were trying to manipulate the market while offering unprofitable products at far below market value.
“What is happening in the market is very strange by allowing customers to exchange $1 for $100 or $1 for $125 worth of services,” he said. “This has not happened before and it is very suspicious.”
While Vutha said the deep discounts would undoubtedly be welcomed by consumers, he explained that the government needed to ensure that products balanced profits and long-term sustainability.
“This unfair pricing makes it difficult for all operators because some have to compete despite their products not being able to cover costs,” he said. “We need to address unfair pricing because operators are now competing to sell products that do not work.”
Cambodia has three large mobile network operators – Smart, Metfone and Cellcard – and three smaller operators – qb, Seatel and Cootel.
While Vutha said a race to the bottom to provide the best rates was unlikely to impact large operators that have “big investment capital”, it creates a climate where new operators vying to enter the market are at a able disadvantage.
“Operators are not focusing on developing and strengthening their products because now they are only trying to knock each other down,” he said. He added that the government was concerned about getting its share of revenue from operators through tax payments.
“When operators lose profits the government’s income from taxes also loses,” he said.
Anthony Galliano, CEO of Cambodian Investment Management, said that the new pricing strategies were a continuation of the long-running struggle for market share and dominance.
“The deepest pockets will weather the storm best,” he said. “The most damage is likely to impact the new entrants as subscribers of the three dominant players are likely to remain loyal rather than convert.”
He said it was no surprise that the pricing rivalry was largely focused on incredible bargains on data usage given that consumers are gravitating towards internet consumption. However, he said that given the price wars that occurred a few years ago that led to losses and insolvencies, it was also unsurprising that the government was taking note.
“Although the regulators welcome a healthy competitive environment which benefits the consumer and the industry as a whole, concerns on solvency and operator sustainability are warranted given past historical events,” he said.
Galliano added that massive discounts typically only had short-term effects on company sales or popularity.
“Spectacular deals by one operator can result in short-term shifts in market share, which are usually impermanent as the greater competition usually follows suit,” he said. Contacted yesterday, Cellcard’s brand manager declined to comment on Smart’s new offer, but clarified that Cellcard “continues to comply with all legal and regulatory obligations”.
Meanwhile, Vietnamese-owned mobile carrier Metfone said yesterday that it was considering offering new discounted products.“We are also considering upgrading our plans to keep up with our vision to offer best quality price services,” said Helene Veal, head of Metfone’s brand development division.
However, she noted that customers would not be swayed by deep discounts alone.
“The most important thing is not only price, but people need better network quality in terms of speed,” she said. “Even though other operators increase their exchange plans, if they cannot provide high speed to customers, the customer’s experience will not be satisfactory.”
Smart CEO Thomas Hundt defended the company’s new promotional offer.
“Smart’s package is a limited-time promotion that we are sharing with our subscribers to celebrate our 8th anniversary in Cambodia,” he said in an email.
“As a leading mobile telco in Cambodia, Smart’s priority continues to be delivering the fastest and widest mobile internet service to all Cambodians at an affordable and attractive price.”
However, he did warn about the dangers of a hyper competitive market.
“Significant reductions in prices will inevitably lead to significant reduction in investments as returns will be less, thereby reducing service expansions and ultimately government resources – a scenario which ultimately benefits no one,” he said.
He added that industry requires “a level playing field among all operators whether in terms of abiding by the same set of rules and requirements on tax and fee payments in order to flourish”.
