Necessity trumps value for mobile provider mergers

LONG-AWAITED consolidation within Cambodia’s bloated mobile phone market suggests companies will have to make the difficult choice of taking on assets they don’t really need in a bid survive.

Reported talks between Star-Cell and Smart Mobile could lead to the first merger.

But what value can these companies derive from each other?

In terms of infrastructure, Star-Cell would gain almost nothing from the tie-up because Smart Mobile does not offer any new coverage, according to footprint maps provided by both companies.

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The main motivation behind tie up plans is surely survival ... success will depend on ... retaining subscribers.

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Smart would benefit from Star-Cell coverage in new areas including Samlot near Pailin, Koh Kong City, Pursat along with areas of the northeast where it currently has no infrastructure at all in Banlung, the capital of Ratanakkiri and Stung Treng.

However, if the two companies agree to a merger then dozens of towers will become redundant.

Were the two companies to join under one operating licence then the other would become obsolete, an asset whose value is unknown given the lack of transparency in the market.

Whatever the value, there would be little opportunity to sell off the spare licence as no company in their right mind would decide to launch in Cambodia given the high level of competition.

The two companies would also have to make critical decisions on how to move forward under one banner.

In Phnom Penh at least, Smart Mobile has a much more visible presence while Star-Cell has already effectively admitted its brand is worthless when parent firm TeliaSonera announced last month the firm has “no goodwill” towards its operations in the Kingdom.

But then Star-Cell has more subscribers, according to official government data, and a wider coverage area. Which brand should be chosen following the merger?

The main motivation behind tie-up plans is surely survival, so whether or not the merger could be successful will depend on the extent to which the resultant joint-venture can retain subscribers.

Here things look more promising. At the end of the first half of this year, the two firms had a combined 850,000 subscribers, according to government data. Only Mobitel and Metfone have more.

If Star-Cell and Smart Mobile can retain this subscriber base after merging, they would propel themselves into third position in the market, a share which would surely guarantee their safety in Cambodia.

But that is a big if, given the fickle nature of mobile phone users here, and overall the merger would surely represent a huge waste in terms of asset usage.
(source from the phnompenhpost newspaper, Friday, 19 November 2010 15:01 Steve Finch)