Smart Axiata has a lot to be proud of. Apart from being the mobile market leader with a large market share, it is resilient to weather challenges from various divides.
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Though operating in a market where transparency is opaque, the company feels certain its revenue market share is about 40 percent to 45 percent with data now driving 60 percent of its revenue.
“In our view, the market could be more transparent. We publish our results as we are a listed company but others are not required to do so. We somewhat have to make assumptions based on publicly available information and evaluate where we stand,” said Smart Axiata Chief Executive Officer, Thomas Hundt.
For the financial period ending Sept 30, 2018 (9MFY18), Smart Axiata posted $210 million (913 million ringgit) revenue compared to Viettel Global which recently reported $197 million (VNĐ4.54 trillion) revenue for its South East Asia footprint which covers Cambodia and East Timor (Laos is excluded as Viettel only has 50 percent stake in Star Telecom Co Ltd that operates Unitel).
“(One) can argue if the numbers are 100 percent comparable as accounting standards might be slightly different but probably not needle moving,” he said in an interview with Khmer Times.
The earnings of Smart Axiata’s other competitor, Cellcard owned by Cambodia’s Royal Group of Companies Ltd’s CamGSM Co Ltd, are shrouded in mystery.
Similarly, the smaller operators Cambodia Advance Communications Ltd’s network ‘Qb’, South East Asia Telecom Group Ltd or its new brand name YES and CooTel owned by China’s Xinwei (Cambodia) Telecom Co Ltd continue to operate in secrecy.
Powered by data
Based on Smart Axiata’s performance, with the exception of a challenging first quarter ended March 31, 2018, it has seen strong development in the second and third financial quarters.
“We are growing nicely in terms of subscribers and revenue although not at a double-digit growth rate due to the effects of last year’s price war. The market is saturating to a certain extent. It is not stormy as before but we are certainly still performing very well,” Hundt said.
As of October 31, 2018, it recorded 7.5 million subscribers while data subscribers amounted to over 75 percent of total subscribers.
The steady development is a result of investment into the network, digitising its touchpoints and internal processes, building operational strengths, and introducing new initiatives and products that foster its brand proposition lifestyle.
“It is a combination of factors but data subscribers and data traffic are driving the growth of the business. The revenue composition has shifted significantly towards data where more than 60 percent of our revenue comes from data,” he said.
Though price is significantly cheaper, its average data consumption per user is at the same level as (or even more than) most developed ASEAN markets and multiple times to leading telecommunication companies in Europe.
“Generally, majority of our users in Cambodia use more mobile internet compared to Singapore, Europe and US where users also have fibre connection at home. So, the mobile data consumption per user here is extremely high. It is mind-blowing. Data traffic growth is more than two times year-on-year,” he said.
Rising costs and regulatory fees
Telecommunication licensees in Cambodia, like other countries, contribute to national revenue through general taxes and regulatory fees. However, the industry is alarmed by the recent rate of increase in relation to the requirements. Furthermore, there have been changes to revenue share calculations that have resulted in Cambodia having one of the highest revenue share rates in the region, on top of the total tax and fee load.
“We take our national responsibilities very seriously but we need to look at this in a holistic manner. Imposing additional financial burden, for example the change in revenue share, will further affect industry sustainability and future investments into the sector.
“Stifling investments through additional taxes and fees will only result in the benefits of future ICT technologies like 5G not being able to be fully harnessed, contrary to other countries in the region,” he explained.
In 2017, the company paid a total of $76 million in taxes, levies and regulatory fees. For tax payments alone, its contributions made up three percent of the state coffer. It is likely that this year’s contributions will rise because of new regulations, payment requirements and revenue growth.
Hundt assures that Smart Axiata is not struggling as it continues to post profits, although its earnings before interest, taxes, depreciation, and amortisation (EBITDA) is around 45 percent to 46 percent now compared to 50 percent few years back due to the regulatory cost pressures.
“It is not a major degradation of profit and it is still considered a very healthy EBITDA based on our operational efficiency. However, our shareholders are concerned with this impact (and the possible impact in future). Nevertheless, they continue to be positive and satisfied with our development as our overall results are positive and we pay dividends (to the group), contribute to national funds and taxes on time, and collectively contribute national development,” he said.
“From a pure operational perspective, we are stronger than before. We have grown our revenue, subscriber base and profitability in absolute terms,” he added.
Fortifying 4G and 4.5G
Moving forward, Smart plans to continue its investment to expand its data network, introduce advanced mobile technologies, upgrade its IT systems, digitise inside-out and expand its new concept shops.
“Throughout the years, we have invested consistently. We have invested between $70 million and $80 million per year since 2014, 95 percent of that is spent for network expansion. I firmly believe that one of the recipes of success is to be consistent and to do forward-looking operations and planning,” he explained.
Next year, it envisions that 100 percent of its base stations will be 4G-enabled while network expansion will be focused on 4G and 4.5G coverage.
As of December 2018, Smart Axiata operates more than 2,500 sites nationwide, all equipped with 3.75G and more than 95 percent of those with 4G.
“In terms of 4G coverage, I am sure there is no better coverage than ours. We are more deployed and far-reaching than our fellow competitors, and continue to expand,” he said.
Hundt believes that though the government now is utilising the Universal Service Obligation (USO) Funds to close the coverage gap in rural areas, that may not be economically viable in the long run.
“The USO Fund will certainly help but what would be ground breaking is if the government successfully allocates and grants 700MHz spectrum for 4G. If we are all serious about bridging the digital divide with 4G, APT700 is the answer and all stakeholders need to work together on this matter,” he added.
It’s still largely sunshine
On the bright side, the company is well positioned in the market as it expands its market share while providing relevant entertainment content and lifestyle offerings.
Though promotions have rather stabilised, the market is still hyper-competitive. Nevertheless, the industry’s overall price level is settled at a level that is apparently one of the lowest in the world.
“We have reached a level of 10 cents per gigabyte (GB) and unlike other industries, the telco industry has to absorb increasing costs and faces challenges to increase prices due to consumer expectations. We can handle this but not every operator can produce data cheaper than 10 cents,” he added.
Industry consolidation on the cards?
Industry reports have suggested that most markets worldwide are starting to consolidate to around three to four players. Hundt was neutral when asked about his views on this matter.
“How the game will play out, it’s hard to tell. But like many markets globally, I won’t be surprised if there will be some consolidation in future,” he said.
This has happened in the past; some might disappear, be acquired or merge.
“The Cambodian market is certainly way too small to sustain the number of players now,” he said.