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Telecom War Prompts Ministry Price Floor

A telecom price war that saw rates for callers plummet amid steep competition will cease, thanks to a government-directed floor that analysts say runs counter to the ideas of a free market.

An influx of companies into the country’s nascent phone market produced deep reductions in per-minute charges in recent years, with some rates offered as zero within networks.

The new policy now will not allow competitors to charge below $0.045 per minute within a network, nor $0.0595 for cross-network calls.

A government official said the price floor was the only way to stop an escalating problem, one that had already led to a dispute between the market leader, Mobitel, and a new competitor, the Russian operation Beeline. The price floor came after a series of directives failed to stop the competitive pricing.

Economic analysts said the new order will discourage investment and take away price benefits for consumers.

“To set a price is contrary to the free market, and makes consumers who used a lower price to lose benefit,” said Chan Sophal, president of the Economists Association of Cambodia.

Cambodia’s 1993 constitution says it will abide by a free market system, where buyers and sellers set prices.

The government should only intervene in pricing where people’s livings are concerned, Chan Sophal said.

The price measure could also contradict Cambodia’s investment law, which states that the government will not set prices on products or services for licensed companies, analysts said.

“Price intervention by the state is clearly contrary to the investment law,” said Ly Tay Seng, CEO of the HBS law firm and consultancy. “It will not only impact current investors, but also discourage investors who want to invest in the country.”

Telecommunications Minister So Khun rejected the criticisms, saying the state had a right to “stand as an arbitrator.”

“It is not about intervention, but to be as an arbitrator, to not let companies compete by killing each other,” he said. “They can compete on quality and coverage area.”

The new policy could not be frozen, he said, but the price might be adjusted following requests by operators. The ministry will meet with operators individually in coming months to find a better solution, he said.

Lim Sovanara, an economist for UNDP, said the time was not yet right for set prices. A price floor will benefit larger, established companies, keeping smaller one less competitive.

“If you want to mitigate the adverse impact on a certain segment of society, it is usually not the best to act on the price like this,” said Eric Sidgwick, a senior economist for the ADB. “Maybe you leave the price to go where it needs to go in the market, and you find an alternative mechanism to compensate those who are affected.”

Cambodia has more the 4 million phone users, amid a population of 14 million, a potentially lucrative tax base for the government, with much potential for expansion.

Senior officials at various smaller phone companies declined to comment, but staff members say they are preparing to set a new price in January.