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3G/HSPA

Vietnam Moves Toward Open Market

The Vietnamese government has put a bill before the country's National Assembly that, if approved, will fully open up the country's telecom services market within the three to four years, according to Vietnam's official communist party Website Saigon GP Daily.

The government's deregulation plan, which needs to be acted upon by 2012 if Vietnam is to honor its World Trade Organization (WTO) commitments, includes: reducing government control in state-owned operators; facilitating fair and speedy network interconnection arrangements; enabling infrastructure sharing; and relaxing laws that currently limit foreign investment to 49 percent, according to law firm VLAF – Hong Duc.

The result, experts from the Ministry of Information and Communications predict, should be intensified competition.

Tae Hyung Kim, Asia/Pacific analyst at Pyramid Research , agrees, noting that, by the time the market opens up, it will have moved beyond the pure pricing-based competition that is prevalent today. He also expects the mobile market's second- and third-biggest players, both of which are state-owned, to have merged by then too.

Kim explains that the Vietnamese market has already become far more competitive in terms of pricing, with the military-owned telco, Viettel Telecom initiating a series of across-the-board price cuts since government control over pricing was lifted.

"Viettel’s strategy was to invest heavily in rural areas, where the then-leaders Vinaphone and Mobifone did not venture," he explains.

The effect of this was "a crash in ARPS [average revenue per subscriber], from more than $11 in 2005 to $5 in 2008."

It's a trend he expects to continue, with ARPS reaching $3 by the time the market opens fully in 2012.

At that point, "competition on price will no longer be an option for operators," says Kim. "Issues such as QoS [quality of service], coverage, and differentiated services will be the ones operators should focus on. This will require more capex [investments]," with a particular emphasis on the 3G networks that will soon be up and running following the issuance of licenses in April this year, notes the analyst.

The proposed changes to the country's telecom laws and regulations come in the midst of a significant transition period for the Vietnamese market.

The mobile services sector that dominates the country's telecom landscape is growing rapidly -- by 50 percent in 2008 -- with mobile penetration reaching 72.5 percent at the end of March this year, according to Wireless Intelligence. With 3G licenses already issued, WiMax is next on the licensing agenda: Both wireless technologies will enable operators to offer broadband services to many Vietnamese who are beyond the reach of fixed broadband. (See WiMax Subbing for DSL in Vietnam.)

And it's that kind of broadband-based service development opportunity that, the Vietnamese government hopes, should attract foreign investors.

Some overseas carriers already have an interest in Vietnam's telecom market. Russian operator VimpelCom Ltd. (NYSE: VIP) last year took a 40 percent share in a government-backed joint venture to establish the country's seventh operator, GTEL-Mobile, which is set to launch its GSM services later this year. (See AlcaLu Wins in Vietnam and Vimpelcom Ventures Into Vietnam.)

Korea's SK Telecom (Nasdaq: SKM), meanwhile, holds a minority share in S-Fone , which has been struggling in its attempts to target high-end subscribers, according to Pyramid's Kim. "Parties interested in investing should stay away from small fish," suggests the analyst. S-Fone holds a market share of less than 7 percent, according to Wireless Intelligence's latest figures.

Table 1: Vietnam Mobile Connections Q1, 2009
Operator Connections Market Share
Viettel 23,909,095 37.83%
MobiFone 16,928,079 26.78%
VinaPhone 16,198,519 25.63%
S-Fone 4,289,715 6.79%
E-Mobile 1,680,667 2.66%
Vietnamobile 200,000 0.32%
Total 63,206,075
� Wireless Intelligence 2009




Instead, he believes the privatization of government-owned VinaPhone and MobiFone offer better options for interested investors, especially if they merge to create a more formidable competitor for market leader Viettel.

"I think we’ll see some consolidation happening. Most likely is the merger between VinaPhone and MobiFone, which belong to the same parent company and, when combined, could rival Viettel. Both MobiFone and VinaPhone have IPOs coming up, so this would be a good start for foreign players to get a share."

A merger between MobiFone and VinaPhone would also put even greater pressure on the country's smaller operators, leaving them even further adrift of the leading pack and more likely to engage in M&A activity of their own. (See Asia Minnows Face Cash Crunch .)

For more on the Vietnamese telecom sector and how it compares with other Asia/Pacific markets, see Top 10 Telecom Markets: Asia.

— Catherine Haslam, Asia Editor, Light Reading

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