Mobile telephone service providers Smart Mobile and Star-Cell officially combined operations yesterday reducing the number of providers from nine to eight, a reduction of players that experts say will continue.
Under the merger the Smart brand is absorbing Star-Cell customers and telephone numbers. Beginning yesterday customers of both brands were able to pay inner network rates to call each other.
SmartMobile CEO Stephen Hundt said the merger is intended boost the company’s position and size in the market as competition whittles down the number of providers to five or possible four in the coming years.
“Those who cannot leverage on the economy of scale, they will have
more difficulties being successful competitively at the end of the day,” he said.
“The market will require a certain amount of consolidation. Not so many countries in the world comparable to Cambodia, have such a high number of telecom operators.”
While Mr Hundt said the merger would place Smart as the third largest company by subscribers, with 850,000 active subscribers within the last three months, he acknowledged this ranking was guesswork due to a lack of transparency in subscriber data collected by the Ministry of Post and Telecommunications.
“It always guess work,” he said, adding by his company’s estimates either MobiTel and Metfone is top-ranked.
The merger gives 75 percent ownership to Latelz, which launched SmartMobile in 2009, and 25 percent to TeliaSonera Group which launched Star-Cell in 2007. Earlier this year TeliaSonera announced it was reviewing its ambitions in Cambodia partly due to high churn rates.
It also announced that it had written down Star-Cell’s value by more than $100 million.
Mergers and acquisitions among the country’s telecoms is considered by many to be inevitable, but it’s unclear when the next one could occur.
James Sullivan, head of Asia telecom research for JP Morgan Chase & Co, said typically in markets oversaturated by telecoms, three companies eventually rise to become market leaders, with second tier companies marketing toward niche markets. Though multiple mobile telephone service providers can break even in a static environments, that can change easily, he said.
“What you need to trigger consolidation is something that triggers them to bleed a lot cash,” he said.
In some cases that can be a companies heightening competition by subsidizing handsets, or it can be upgrades in technology, a catalyst in the Hong Kong market nearly a decade ago when eight companies stood on similar footing.
When companies began changing from 2G to 3G technology, some companies without the investment capital lost out to three market leaders that exist today.
Alan Sinfield, CEO of qb network which had offered Teliasonera $40 million for Star-Cell, said it’s unclear when the next companies will consolidate, but his companys is still working its offers to acquire other competitors.
“I am not so clear that the environment is right yet to enable more mergers to happen,” he said, adding that there is little profit under the current situation.
“Returns are marginal at best, which is stopping operators from further investing in better technology and further improving their networks,” he said.