Millicom's profitability hurt

Photo by: SOVANN PHILONG
A vendor offers a variety of mobile cards displayed for sale at a Phnom Penh store. Millicom International on Tuesday said its profitability in Cambodia had been hit by excessive competition.

The Phnom Penh Post
Thursday, 23 July 2009
Steve Finch

Majority shareholder in Mobitel, Cambodia’s leading mobile phone firm, says new market entrants have been ‘disruptive’ as it prepares to sell Asian assets

MILLICOM International SA, the Luxembourg-based company with a 58.4 percent share in Mobitel, the country's leading mobile-phone operator, said late Tuesday that profitability had been affected in Cambodia due to excessive competition.

In a report announcing its second-quarter financial results, Millicom appeared to criticise the tactics of new entrants into Cambodia's increasingly crowded mobile-phone sector, which now has nine operators, referring to the practice of issuing free SIM cards and airtime.

"In Cambodia and Sri Lanka new competitors have entered the market with disruptive market-entrance strategies," the report said. "Profitability is being negatively impacted as a result."

Mark Hanna, chief financial officer of Royal Group, which owns a 38.5 percent stake in Mobitel, denied that margins had become tighter.

"[There are] no concerns on profitability from our side," he said by email Wednesday.

Millicom did not release figures on Cambodia, as it has reclassified its Asian assets as "discontinued operations", having put operations in Cambodia, Laos and Sri Lanka up for sale, a process it said Tuesday was expected to be completed by the first quarter of 2010.

"The disposal of our Asian assets is in progress, and expressions of interest have been received from a number of parties for the three assets," Millicom Chief Executive Officer Mikael Grahne said in the report.

Royal Group; Axiata of Malaysia, which runs Hello; and Vimpelcom, operator of Beeline, have all reportedly made offers for Millicom's stake in Mobitel.

Hanna declined to comment further on the process on Wednesday.

Millicom recorded a 13.64 percent fall in net profit for the second quarter of this year compared to the same period in 2008, Tuesday's financial results showed, from US$132 million down to $114 million. Revenues climbed 5 percent over the same period to $814 million, the report said.

"We have not noticed any improvement in the economic environment in the last three months, but, encouragingly, there has been no further deterioration either," Grahne said.

Reported basic earnings per common share, which included Asian assets, fell to $1.05 in the second quarter from $1.22 for the same period last year, the report said.

Following the release of Millicom's results Tuesday its shares jumped 10.16 percent on the Nasdaq to $68.01, although in Wednesday trading it fell 1.18 percent on the Nordic OMX.