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VNCI Policy Paper # 3

Vietnam Competitiveness Initiative

COMPETITION REVIEW OF

THE VIETNAMESE TELECOM SECTOR

June 2005
This publication was produced for review by the United States Agency for International Development
(USAID). It was prepared by Nguyen Thanh Ha and Pham Quang Thanh of Vietbid Technology &
Investment Consulting Center and Jacob Gullish of the VNCI with substantive technical input from
John Davis of the USAID-funded STAR Vietnam Project.
COMPETITION REVIEW OF

THE VIETNAMESE TELECOM SECTOR

Disclaimer
The authors' views expressed in this publication do not necessarily reflect the views of the United States
Agency for International Development or the United States Government.
ACKNOWLEDGEMENTS
This report was prepared by Nguyen Thanh Ha and Pham Quang Thanh of Vietbid and Jacob Gullish of the
VNCI, with substantive technical input from John Davis of the USAID-funded STAR project.
Following the completion of the first draft of the report, the results were disseminated at a public workshop
hosted by the Central Institute for Economic Management on 10 November 2004. Feedback from this workshop
was then incorporated into the final report.
VNCI would like to thank Huynh Thanh Tung of Saigon Postel, Nguyen Manh Bang of VP Telecom and the other
managers of the surveyed firms for their responsiveness to our questions and inquiries. Other acknowledgements
include Steve Parker (STAR project) and Fred Burke (Baker and McKenzie) for their input and advice, and Ngo
Thi Minh of Vietbid for data processing.This report also benefited from the guidance and support provided by
Dennis Zvinakis,Vietnam Country Manager of USAID.
All the remaining errors and omissions, and of course interpretations and opinions expressed in this report, are
the sole responsibility of VNCI.
*
* *
The Vietnam Competitiveness Initiative (VNCI) is an economic growth project funded by the United States
Agency for International Development (USAID).VNCI is managed by Development Alternatives Inc (DAI).
The Asia Foundation is the principal subcontractor to DAI and is responsible for implementing the research and
policy component of the VNCI project.The objective of this component is to improve the regulatory
environment for business, with a particular focus on regulations governing small and medium sized private
businesses.This is the third in a series of policy studies produced by The Asia Foundation under VNCI.

i
CONTENTS
ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LEGAL AND INSTITUTIONAL FRAMEWORK . . . . . . . . . . . . . . . . . . . . . . . . 9
Ministries responsible for Vietnam’s Telecommunications Policy . . . . . . . .9
Ministry of Posts and Telematics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Telecommunications development strategy and policy . . . . . . . . . . . . . . . .10
Telecommunications law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Ordinance on Post and Telecommunications 2002 . . . . . . . . . . . . . . . . .11
Decree 160 Provisions Regarding Competition: Decree on
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Telecommunications regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Setting tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Interconnection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
International commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
MARKET STRUCTURE AND OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . .21
Facility-based operators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Competition status in the mobile service market . . . . . . . . . . . . . . . . . . . . . 22
Service based operators: Internet Service Providers . . . . . . . . . . . . . . . . . . 23
Information Technology Enabled Services (ITES) . . . . . . . . . . . . . . . . . . . . . 24
Private and foreign investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Rationale for BCCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Evaluating BCC performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Regional comparisons of foreign investment . . . . . . . . . . . . . . . . . . . . . . . . . 29
THE DOMINANT ROLE OF VNPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Anti-Competitive Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Competition Law Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
The argument for privatizing VNPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
RESULTS OF THE SURVEY OF TELECOM SERVICE USERS . . . . . . . . . . . .37
The sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Utilization of telecom services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Telecom costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Service quality assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Impact assessment of improved services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Conclusions of the survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
THE WAY FORWARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Vietnamese telecom stakeholder conference . . . . . . . . . . . . . . . . . . . . . . . .43
BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

iii
LIST OF FIGURES
Figure 1 : Penetration levels for telecom services in Vietnam . . . . . . . . . . . . 4
Figure 2: Key telecommunications indicators of ASEAN member countries 4
Figure 3: Allocation of major responsibilities in telecommunications policy . 9
Figure 4: Recent MPT regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 5: Tariffs for international service in Vietnam . . . . . . . . . . . . . . . . . .14
Figure 6: Vietnam-US BTA for foreign investment in telecommunications 18
Figure 7 : Overview of Vietnam’s international treaty obligations . . . . . . . .19
Figure 8: Competition among Vietnam’s FBOs . . . . . . . . . . . . . . . . . . . . . . .22
Figure 9: VNPT organizational structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure 10: Competition in Vietnam’s mobile segment . . . . . . . . . . . . . . . . . . 23
Figure 11: Internet subscribers and density in Vietnam. . . . . . . . . . . . . . . . . . 24
Figure 12: ISP market share, March 2003 – June 2004. . . . . . . . . . . . . . . . . .24
Figure 13: Vietnam internet connectivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Figure 14: Comparison of Vietnam to regional ITES players . . . . . . . . . . . . .25
Figure 15: Permitted form of foreign investment in telecom by foreign
parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Figure 16: Vietnam's BCCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Figure 17: Regional comparison of limits on foreign ownership. . . . . . . . . .30
Figure 18: Telecommunications issues addressed via the Law on
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Figure 19: Asian privatizations in the 1990s. . . . . . . . . . . . . . . . . . . . . . . . . . .35
Figure 20: Breakdown of sample. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Figure 21: Level of importance of telecom services and products. . . . . . . . 37
Figure 22: Telecom costs as a percentage of total costs . . . . . . . . . . . . . . . . 38
Figure 23: Assessing telecom service prices. . . . . . . . . . . . . . . . . . . . . . . . . . .38
Figure 24: Connection service quality measures. . . . . . . . . . . . . . . . . . . . . . . 39
Figure 25: Breakdown frequency and technology assessment. . . . . . . . . . . .40
Figure 26: Impact of improved services on enterprises. . . . . . . . . . . . . . . . . . 40
Figure 27: Telecom’s best and worst practices. . . . . . . . . . . . . . . . . . . . . . . . .42
Figure 28: A roadmap for change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

iv
ABBREVIATIONS
ADB Asian Development Bank
BCC Business Cooperation Contract
BPO Business Process Outsourcing
BTA Bilateral Trade Agreement between the United States and Vietnam
CAGR Cumulative average growth rate
CDMA Code Division Multiplexing Modulation
CSO Community service obligations
DGPT Directorate General of Post and Telecommunications
DLD Domestic long distance
DSL Digital subscriber lines
FBO Network or facility based operations
FCC US Federal Communications Commission
FPT Fiber to the premise
GATS General Agreement on Trade in Services
GIPI Global Internet Policy Initiative
GSM Global System for Mobile Communications
HT Hanoi Telecom
ICT Information and communication technology (ICT)
ILD International long distance
IP Internet Protocol
IT Information technology
ITES IT-enabled services
ITU International Telecommunications Union
IRR Internal rate of return
ISP Internet service provider
IXP Internet exchange providers
LAN Local area networks
MFO Most favored nation
MP 3 Moving Picture Experts Group Layer-3
MPT Ministry of Post and Telecommunications
NGN Next generation networks
NII National information infrastructure
NIPTS National Institute of Post and Telecommunications Strategy
PHS Personal Handy-phone System
PTT Postal,Telephone and Telegraph
RFID Radio frequency identification
SBO Service-based operations
SMS Short messaging service
SOE State-owned enterprises
SPT Saigon Postal and Telecommunications
TCP/IP Transmission control protocol/Internet protocol
TSLRIC Total service, long-run incremental cost

v
VAS Value-added services
Viettel Vietnam Military Telecom Company
VISHIPEL Vietnam Shipping Telecommunication Company
VNCI Vietnam Competitiveness Initiative
VNPT Vietnam Post and Telecommunications
VOD Video-on-demand
VoIP Voice over IP
VPN Virtual private networks
WAN Wide area networks
WiFi Wireless fidelity
WiMax Worldwide interoperability for microwave access
WLL Wireless local loop
WTO World Trade Organization

vi
INTRODUCTION
ew eras in human history

F
loop (WLL) and mobile wireless the market, some building their
have experienced such rapid networks. In many cases, carriers own networks, some reselling
change in the way societies are entering markets via services provided by facility-based
communicate and interact as the partnerships, acquiring important operators.Voiceover IP (VoIP)
present time. Driven by dramatic technical expertise and capital. In providers have emerged – notably
improvements in computing power countries with limited Yahoo,Vonage and Skype –
and broadband access to the infrastructure, wireless subscribers providing inexpensive voice
Internet, recent advances in are surpassing wireline users; in communications and forcing
computers and telecommunications 2004, both Malaysia and India traditional operators to introduce
have fundamentally changed the entered this category. lower cost VoIP services of their
way we live. Access to modern own, thus cannibalizing their
telecommunications is no longer Emergence of the Internet, and the revenue stream. Cable TV
viewed as a luxury but rather as an explosive growth in the sector that providers are offering telephone
economic and social necessity. comes with it, is creating new and Internet services, and soon will
Every aspect of modern life has felt threats and opportunities for bundle mobile services on a resale
this impact – telecommuting, traditional carriers. Competitive basis.Telephone carriers are likely
telemedicine, online banking, online Internet service providers (ISPs) to respond with a video offering of
education and eGovernment are are offering dial-up access to their their own, requiring fiber to the
examples of this digital age. customers, while cable TV premise (FTP), additional network
companies are bundling high speed upgrades and partnerships with
Convergent technologies – Internet access over their coaxial media and entertainment
networks, products and services video networks. Carriers are companies.
that combine aspects of responding by upgrading their
telecommunications, computing, copper infrastructure with digital Convergence has introduced other
media and entertainment – have subscriber lines (DSL) to provide technologies that are disrupting
changed the underlying nature of high speed Internet access to traditional telecom business
the telecom sector. Digital customers, along with a variety of models.The Internet has forced TV
technology is replacing analog, value-added services (VAS) and radio broadcasters, to develop
Internet Protocol (IP) is supplanting significantly outside the carriers’ online strategies, video
circuit switching, and wireless traditional services, notably, email, broadcasting and Internet radio.
technology compliments, and in ecommerce, unified messaging and Satellite radio has attracted eight
some cases substitutes, traditional content services. million subscribers – a technology
wireline networks.Telecom adoption rate faster that mobile
companies are reorganizing in New innovations and competitive phones. New services like Tivo
order to meet these changing forces will continue to converge have brought video-on-demand
times.Telephone providers are telecommunication networks with (VOD), and WiMax technology will
upgrading their facilities to next the computing, media and transmit video wirelessly. Smart
generation networks (NGN), which entertainment industries, and will cards and radio frequency
combine voice, data, mobile and force traditional telcos to deploy identification (RFID) are emerging
video services into a single costly technology upgrades to applications which may further
interconnected platform. Carriers remain competitive. In many transform traditional methods of
are quickly moving into the wireless worldwide markets, new communications and the business
area, deploying wireless in the local competitive carriers have entered models that support them.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 1


Advances in technology are central such as broadband fixed wireless traditional equipment
to the telecom revolution, and (WiFi) and WiWax, and RFID has manufacturers and service
understanding current and future impacted on the development of providers.
technology is primary to the telecom equipment, networks • Intelligent networks and
change management process.Too and services. software: Network intelligence is
often, governments and policy- • Satellite technology: New cost- devolving to the edge of the
makers are behind the curve, effective satellite service system via Internet routers.
meaning that they address providers such as PanAmSat play Software is becoming smarter
technology issues only after they an increasingly significant role in and more user-friendly, with
impact on the sector. As a case in global communications networks. voice recognition systems likely
point, look at the development of Satellite radio and the Internet be a major future application.
have become important Optical recognition is maturing,
the Internet,VoIP and electronic
segments of these networks. and radio frequency technology
commerce: regulatory institutions
• Data compression technology: is emerging.
have been slow to adapt to the
Compression technologies such • Convergence: The borders
profound technological and
as TCP/IP (Internet), CDMA between computing, telecom
economic realities of these
(wireless), MP3 (on-line audio), and entertainment will
advances.
free space optic lasers and increasingly blur. New hybrid
Of course, understanding and wavelength division multiplexing ‘infocomm’ or ‘telematics’
forecasting the current now allow higher data transfer services are becoming
technological revolution – and how rates and impact on the increasingly commercialized.
architecture of telecom systems Technical and regulatory barriers
it influences telecom networks,
and software. between sectors and services
business models and socio-
• The rise of networking: The will dissipate.
economic systems – is a daunting
task. At the same time, commercialization of the
Of course, most of these trends
Internet, intranets and extranets
understanding these trends is are interconnected and, in turn, will
changes the organizational
critical to managing the reform influence the types of technologies,
structure and hierarchy of
process. Without presaging the architectures and services provided
telecom networks. As the
ultimate result of these innovations, growth of local and wide area to the end-user. Rather than be an
several technological trends are networks (LAN, WAN) and absolute set of issues, these trends
emerging as influencing drivers virtual private networks (VPN) are not exclusive of others.
within the sector: continues, the installation of Nonetheless, they may provide a
• Technology adoption rates: home networking systems starting point from which decision-
Compared to older (combining a variety of makers can further understand
technologies, new telecom consumer electronics) may future technologies and craft
networks and services – such as emerge as a major industry. appropriate telecom strategies.
satellite radio, cellular phones, • Electronic commerce: A wide
computers and the Internet – variety of products and services Of equal import is the global
have been quickly accepted by are available on-line, consensus role that
large segments of society, in part fundamentally altering traditional telecommunications play in
due to advances in advertising, marketing, sales and facilitating economic prosperity and
telecommunications itself. customer care processes. Online social well-being.The telecom
• Growth of wireless systems: The security, intellectual property network provides the foundation
commercialization of various rights and identity theft are for entire other sectors, from
wireless technologies such as 3rd emerging issues. information technology to business
and 4th generation (3G, 4G) • IP telephony: Circuit-switch voice process outsourcing (BPO) and
cellular technology, WLL, systems are migrating toward eCommerce. In addition to a
broadband transmissions systems VoIP technology, impacting on robust underlying telecom

2 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


network, the inherent nature of These actions have resulted in One noticeable aspect of Vietnam’s
these sectors requires private rapid development of Vietnam’s telecom sector is that it does not
investment, cross-border telecom sector over the last have an independent regulatory
partnership and global commerce. decade. In 1995,Vietnam had less body and there is no serious
than 1million land lines and only discourse about creating one.
So what does this mean 23,500 mobile connections. Only Internationally, an independent
for Vietnam? four people in 1,000 had a regulator is the accepted norm,
telephone line.The network was with more than 100 countries
Vietnam’s leadership understands outdated and the Internet had not subscribing to this model.This
the fundamental changes facing the yet reached the country.Today, the structure may prove useful for
global community and in the early country has more than 5M land Vietnam in the long run, in order
1990s launched Doi Moi (literally lines and 2.5M mobile users, for the country to cope with
‘change and newness’), a policy increasing telephone density to increased competition, advanced
aimed at modernizing Vietnam’s nearly 5%. Nearly 2M people have technology, convergence issues and
economy by introducing Internet accounts, and a data additional stakeholders, e.g.
competition in multiple sectors. network has been established in all consumers, associations or
Prior to this time,Vietnam’s cities and provinces to ensure manufacturers.
telecom sector was organized coverage of the entire country.
around the Postal,Telephone and From a network perspective,
Nearly 90% of the country’s rural Vietnam’s expansion is one of the
Telegraph (PTT) model, where the communities now have
monopoly government-owned PTT fastest in the world, albeit from a
connectivity and new technologies, low start point.The number of
company was responsible for all such as VOIP and WiFi, are used main telephone lines grew from 0.4
aspects of postal service and increasingly. But most importantly, per 100 inhabitants in 1995 to five
telecom – from policy and network expansion and the in 100 by 2003, at a cumulative
regulation to telephone operations, introduction of advanced services average growth rate (CAGR) of
postal delivery, and so on. In 1993, continues apace. 45%.The number of cellular
limited competition and small
Despite Vietnam’s impressive gains subscribers grew from 23,500 in
quantities of private investment
in network expansion, introducing 1995 to 1,480,000 in June 2002
were introduced into the
competition and reducing prices, with a CAGR of 80%.Teledensity is
telecommunications sector, and the
the country remains well behind approaching 10 telephone lines per
monopoly status of the Vietnam
other countries in the region – and 100 inhabitants, a target set by the
Post and Telecommunications
Government for 2005. By most
(VNPT) was ended. Furthermore, far short of the country’s aggressive
accounts,Vietnam now has a fairly
the government separated telecom objectives for the telecom sector.
good physical infrastructure.
operations, which remained with Legal and institutional reforms
Internet penetration has also
the VNPT, and created the account for much of the gains to
grown rapidly since 2000. Figure 1
Directorate General of Post and date – improved regulations, limited
shows the growth in penetration
Telecommunications (DGPT), competition, private sector and
rates for fixed, cellular and Internet
which later become the Ministry of foreign investment – but by global
services.
Posts and Telecommunications standards, the country’s telecom
(MPT). Recent new reports even sector remains restrictive and only During 1998-2003, the average
suggest VNPT plans to raise capital semi-transparent. In addition, growth of Vietnam’s network was
for its cellular subsidiary via a public though there is competition in 26.8%, one of the highest in the
offering, rather than extending its most telecom segments, most of region, albeit from a low base. If
Business Cooperation Contract the major players are state-owned the growth continues,Vietnam is
(BCC) relationship with its current and there is cross ownership on target to reach 10 million lines
foreign partners. between state-owned operators. installed by 2006, and a teledensity

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 3


Figure 1: Penetration levels for telecom services in Vietnam
rate of 30% within a decade.To a
certain extent, however, the easy
growth is over (e.g. pent up
6.0
demand in urban areas).To achieve
this next stage of network
L i n e s /u s e r s p e r 1 0 0 i n h a b i t a n t s

5.0
expansion,Vietnam will need to
Fixed invest billions of dollars in smaller
4.0
cities and rural locations. Although
Vietnam’s penetration rate is high
3.0
by regional standards, even with
recent growth the country remains
2.0
Cellular well behind many developing
countries worldwide. Even if the
1.0
Internet
country reaches its current targets,
Vietnam will continue to lag
0.0
1995 1996 1997 1998 1999 2000 2001 2002
behind its regional competitors
(see Figure 2).

Source: ITU. Vietnam’s competitive environment


is also improving, although at a very

Figure 2: Key telecommunications indicators of ASEAN member countries

Population (Mil GDP per capita Fixed line Mobile Internet users per
Countries Total teledensity
2002) (US$ 2001) teledensity teledensity 10,000 inhabitants

Brunei Darussalam 0.358 12,447 25.95 46.8 72.75 1,023.00

Cambodia 13.79 254 0.28 2.54 2.82 21.76

Indonesia 212.11 1,002 (2003) 3.65 5.52 9.17 377.16

Lao PDR 5.53 324 1.57 3.64 5.21 27.11

Malaysia 24.53 3,684 18.30 41.30 59.60 3,196.00

Myanmar 48.98 148 0.61 0.03 0.64 2.07

The Philippines 79.48 913 4.17 10.36 23.53 437.60

Singapore 4.16 20,752 46.29 79.56 125.85 5,396.00

Thailand 61.89 1,874 10.51 26.04 36.54 775.61

Vietnam 81.25 406 4.84 2.02 6.86 184.62

ASEAN average -- 4,150 11.60 21.40 33.03 1,144.37

Asia average -- 2,296 11.99 12.41 24.4 584.75

Note: Countries above the ASEAN average are shaded.


Source: ITU world telecom indicators, 2003.

4 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


measured pace. Following key now competing for business, time, there is a growing realization
regulatory changes in the mid to prices will fall and soon Vietnam of the important role played by the
late 1990s, the dominant position will have more mobile private sector in importing capital,
of the government owned subscribers than traditional technology and expertise.
monopoly,VNPT, was dismantled to wireline subscribers.
a certain extent by the entry of • FPT Communications, the largest The purpose of this report is to
other state-owned players. But private ISP, ordered equipment provide insight into the current
Vietnam must act decisively and to introduce video streaming situation of Vietnam’s telecom
quickly if the government seriously technology to its customers. sector, placing a focus on recent
intends to reach and sustain • Hanoi Telecom signed an regulatory changes, the status of
regional norms of agreement with HK-based competition and the actions
telecommunications development. Hutchison Telecommunications required by the government to
to invest US$656M to build a achieve its objectives for the sector.
Recent events however suggest CDMA-based mobile network in The report provides an
that Vietnam is firmly on the road Hanoi. introduction to the current status
to liberalization. According to of the industry, highlights recent
several government These actions represent the trend
events and their impact and
announcements, the country is and direction of Vietnam’s
reviews key structural elements –
moving forward with reforms, while liberalization program.The
government, operators and
at the same time, competitive remainder of this report will focus
consumers. As a point of reference,
players are moving forward with on the overall competitive
where applicable, this report
aggressive service rollouts and the environment and the status of key
provides international and regional
introduction of new technology. telecommunication stakeholders.
comparisons.The content of this
Take the following examples: Understanding the importance of report updates a previous version
• A recent government decision telecommunication and information published in December 2004.This
(No. 58/2005/QD-TTg) was technology to the overall economy report does not intend to replace
taken to restructure VNPT into a and well-being of its people, the the December version but rather
parent-subsidiary consortium government of Vietnam has set to supplement the debate and
comprising a management board aggressive targets in order to focus on recent changes within the
to manage the parent and the revamp these sectors, build its telecom sector.
creation of separate post and NGN infrastructure, and introduce
telecom subsidiaries.This action, advanced technology and services Chapter 1 provides an introduction
expected to be implemented in and background to the current
to consumers and businesses.
the fourth quarter of 2005, situation of Vietnam’s telecom
Vietnam’s leadership also
represents an important first sector. In the early 1990s, the
understands the obstacles, namely
step in reorganizing VNPT. Government launched Doi Moi, a
the existing gap between Vietnam
• In mobile communications, and other countries, both in South policy aimed at modernizing
Vietnam Military Telecom Vietnam’s economy by introducing
East Asia as well as with important
Company (Viettel), a competitive competition in multiple sectors.
trade partners.There is a growing
government-owned operator, Prior to this time,Vietnam’s
realization that the current
launched services in October
structure of the country’s telecom telecom sector was organized
2004 and signed up 200,000
sector – market dominance by a around the PTT model, where the
subscribers in its first four
months of operations (a sign of state-owned company, limited monopoly government-owned PPT
pent up demand).The company private sector participation, company was responsible for all
plans to invest a further persistent questions about aspects of postal service and
US$50M to achieve 1.1 million regulatory transparency – is not telecommunications – policy,
customers by October 2005. conducive to meeting the country’s regulation and operations. In 1993,
With several mobile operators aggressive targets. At the same limited competition and small

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 5


quantities of private investment key milestones and objectives to sectors.This dominant position
were introduced into the telecom 2010 and a long-term vision to inhibits true competition and
sector, and the monopoly status of 2020.To follow up on this strategy, prevents potential competitors
the PTT was officially ended, the government issued a from entering the market.
although the company remains supporting ordinance and decree
This section also reviews the role
dominant even today.The that provided guidelines to
of private and foreign investment in
government formed a ministry- implementing government policy.
Vietnam’s telecom sector, focusing
level policy-making and regulatory Subsequently, additional decrees
on the role of BCCs and the
body, combining both functions into and decisions have provided
impact of Vietnam’s bilateral trade
a single agency. Limited amounts of implementation details, and clarified
agreement with the US which
private and foreign investment legal and regulatory positions.
stipulates the opening of Vietnam’s
were permitted via joint stock While Vietnam is moving in the
market to US investment. It
companies and business right direction, the legal and
provides a regional perspective on
cooperation contract (BCC) regulatory reform process remains
the role of private sector and
relationships with foreign partners. incomplete.There are legitimate
foreign investment.To date,
These actions resulted in rapid concerns that Vietnam’s policies
Vietnamese companies have
expansion of Vietnam’s telecom inhibit true competition, and limit
participated in 11 BCCs in order
sector, from less than 1M in 1995 private sector and foreign
to attract foreign investment and
(four lines per 1,000 people) to investment.The government also
expertise. Interestingly, the most
7.5M today (five lines per 100 needs to strengthen and open the
recent BCC is structured more like
people).The country’s network has policy-making process, and initiate
a joint venture, and has provisions
been upgraded and the Internet is reforms to solidify transparency
to convert to that ownership
growing rapidly. New VoIP and WiFi within the regulatory environment.
model once Vietnamese law
services are available. However, Problems associated with Vietnam’s
permits it. As a reference, the
despite Vietnam’s impressive gains interconnection are also discussed.
chapter also provides a brief
in innovation, network expansion These issues and others, such as
review of the role of privatization
and competition, the country cross-subsidies and adherence to
of state-owned telecom assets in
remains well behind other treaties, are discussed in detail.
the region.
countries in the region – and far
Chapter 3 provides an overview of
short of the country’s aggressive Chapter 4 discusses the dominant
the current market structure and
objectives for the telecom sector. role of VNPT and explores the
the role of state ownership of
Recent events, however, suggest the issue of anti-competitive behavior.
Vietnam’s telecom operators. While
government is committed to The research provides anecdotal
competition has been introduced
moving forward with plans to examples of anti-competitive
in some sectors, the state-owned
reorganize the state-owned PTT, practices commonly used by the
PTT continues to dominate the
allow additional forms of private VNPT to limit competition.These
market – controlling nearly 95% of
and foreign investment and push examples include unfair allocation
the aggregate telecom market.The
policies to liberalize the sector. of network facilities, high prices for
PTT dominates every telecom
use of network facilities, cross-
Chapter 2 offers insight into the segment, and owns non-core
subsidization, refusal of services,
current legal and institutional businesses in the equipment,
forced use of VNPT services and
framework of Vietnam’s telecom engineering, construction and
abuse of technical measures to
sector. Since 1993, the government consulting fields. Many new market
block competitors’ services.This
has decreed a series of important, entrants also have state-ownership,
chapter also reviews the strategic
fundamental changes to its legal thus limiting the role of private and
rationale for privatization of VNPT.
environment. In 2001, the foreign operators.The company
government issued Vietnam’s new also retains non-telco assets in the Chapter 5 provides the results of
strategy for the sector, highlighting tourism, printing and insurance the market survey of telecom

6 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


users based on responses from 89 consensus for reform among the bright future.The Asian
Vietnamese companies.The survey following key stakeholders: Development Bank (ADB)
covered types of services used, • Government – strategy, policy forecasts economic growth of 7.6%
quality and price.This section and regulation. in 2005. However, there are
provides details regarding the • Business – operators, vendors concerns about the pace of reform
survey respondents, and makes the and related businesses. and strong regional competitors.
following conclusions: The government reform process
• Consumers and Civil Society –
• Vietnam appears to have a well- began in the early 1990s but
business and residential users,
run and reliable telecom unions, trade groups, et al. important aspects of economic
network that provides relatively liberalization – including key
fast connections, but often slow Specific recommendations are aspects within the telecom sector –
transmission speeds. made to improve the following remain incomplete. While the
• Although new services are aspects of Vietnam’s Government is moving in the right
available, most firms continue to telecommunications sector: direction, 15 years into the
focus their telecom use on • Telecommunications Policy. liberalization process there are
traditional telephony and serious questions about the pace
• Regulatory Transparency.
Internet services, suggesting that and depth of reform.
important platforms for • Strengthen Vietnam’s
innovation are yet to be interconnection regime. Vietnam has serious economic and
exploited. • Strengthen Vietnam’s licensing commercial competition from
• Most business concerns focus on regime. major economies, both developed
the relatively high prices of • Tariff rebalancing. and developing.Vietnamese
Vietnam’s telecom services. Price • VNPT reform. companies, and foreign company’s
reductions would lead to deciding to invest in the region,
substantial increase in demand Finally, the VNCI highlights the need compete and compare Vietnam to
for telecom services. A price to organize a Vietnamese Telecom technology powerhouses like
reduction of one-third would Stakeholder Conference, the aim of Singapore,Taiwan, Japan and Korea.
likely lead to a 25-30% which would be to bring together Vietnam also borders China and
expansion of the telecom key decision-makers and neighbors India – two emerging
market. stakeholders to discuss important powers with highly competitive
• Improved service delivery issues associated with the ongoing aspirations in the sectors of
(including lower prices) would reform and liberalization process. manufacturing, outsourcing and
translate into improved firm level The conference would not only technology innovation. Other
competitiveness through contribute to the debate but also
significantly higher turnover and regional players include Malaysia,
build a consensus of opinion Indonesia and the Philippines. All of
revenues, improved profitability
among intellectual leaders and these countries have highly
and an increased rate of
decision-makers which will assist advanced telecom frameworks.
innovation.
Vietnam to introduce a vibrant and
Chapter 6 offers a framework competitive telecom environment. The path for Vietnam is clear –
which can be used to move reform the VNPT, create an
Observers of Vietnam’s recent independent regulatory body,
forward, highlighting key areas for
history are rightly optimistic about introduce real competition and
action by the Vietnamese
the country’s recent economic divest the government from
government.These
performance and its commitment telecom operations.The open
recommendations build on
to reform. With economic growth question remains: when?
previous work conducted by the
of 7.7% in 2004, based in large part
World Bank and the Vietnam
on liberalization across the
Competitiveness Initiative (VNCI),
economic spectrum, and an 8.5%
and focus on the need to build a
target for 2005,Vietnam has a

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 7


LEGAL AND INSTITUTIONAL
FRAMEWORK
ietnam has made in tariffs. In addition,Vietnam is regulations; and ensuring efficient

V important fundamental
changes to its legal
environment with the objective of
behind schedule in implementing its
obligations under the bilateral
agreement with the United States,
implementation of a consistent and
transparent regulatory environment
that will ensure effective policy
creating a robust and competitive namely access for US investors. implementation and compliance.
telecom sector, which in turn These issues combined produce This chapter deals only with the
provides the foundation for uncertainty and risk to new market policy aspects of government
economic growth for telecom and entrants and investors, which in strategy, legislation, policy,
IT-enabled business. However, turn limits network expansion, the regulation, regional comparisons
Vietnam’s reform process remains introduction of new services and and international commitments.
incomplete.There are legitimate overall economic growth.
concerns that the country’s policies
Liberalizing Vietnam’s telecom
Ministries responsible for
inhibit competition, and limit Vietnam’s
sector, however, is not a short-term
private sector and foreign
proposition; rather the process Telecommunications
investment. In terms of
transparency of regulations, the
requires a long-term approach that Policy
impacts on three primary
current regulatory body doesn’t As with most governments, setting
government activities: developing a
fully meet international norms of policy for a complex sector like
strategy and policy; providing the
independence, and this effects telecommunications requires action
legal foundation for action, for
licensing, non-discriminatory from multiple ministries and
example, through laws and
interconnection and cross-subsidies agencies. Given the complexity of

Figure 3:Allocation of major responsibilities in telecommunications policy


Agency Responsibilities

Of the four DPMs, one holds the portfolio for telecom, one holds the portfolio for ICT, and one
Deputy Prime Ministers (DPMs)
holds the e-government portfolio.

Office of Government (OOG) This office serves as the PMs and DPMs secretariat and clearing house, and also coordinates inter-
departmental policy and institutional initiatives. OOG runs the in-house e-government program,
which focuses on building intra-departmental and provincial networks.

Ministry of Post and Telematics Sets policy for and regulates the telecom sector; representative of the State’s capital interests in
(MPT) facility-based operators, including the dominant VNPT.

Ministry of Trade (MoT) Sets policy and develops legislation and programs for e-commerce and trade.

Ministry of Science and Develops R&D programs for telecom and ICT; sets ICT standards. Was formerly the chief policy
Technology (MOST) actor in ICT, but this role was changed with the creation of MPT.

Ministry of Planning and Ensures sufficient and timely investment is available for approved development in IT (defined broadly
Investment (MPI) to include telecom).

National Steering Committee on Monitors implementation of the national IT plan (which covers telecom, ICT, and the ICT projects,
ICT functions and responsibilities of all ministries and agencies).

Source:World Bank.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 9


the telecom sector and its impact plans related to posts, telecom outlining the government’s objective
on the entire economy,Vietnam’s and IT. of introducing competition and
policy-making rightly includes • Conduct international private sector ownership, and
multiple organizations. Figure 3 cooperation activities in posts, integrating Vietnam into the
outlines the roles and telecom and IT. increasingly interconnected global
responsibilities of various community.
Regulatory functions:
government bodies in crafting The following Strategy excerpts
national policy. • Regulate access to and inter- emphasize the government’s clear
connection between public commitment to fundamental long-
switched telephone networks, term liberalization of the country’s
Ministry of Posts and
and specialized and private telecom sector:
Telematics networks.
• Strategy Principle Two: ‘To make
Based on recent changes in the • Regulate the electronics and IT
full use of all resources of the
telecom law, the MPT is the industry development plan.
country, and to facilitate and
primary driver of telecom strategy, • Regulate charges and tariffs in make conducive conditions for
policy and regulation.To emphasize the fields of post, telecom and IT. all economic sectors (in term of
its role in developing the IT sector, • Plan, assign and allocate the ownership) to participate in the
the MPT recently changed its name radio frequency spectrum. development of post and
to the Ministry of Post and • Control and monitor the radio telecommunications in a
Telematics. Unlike many countries frequency spectrum and radio transparent, competitive and fair
that have created an independent, equipment; organize radio- environment administered by the
autonomous regulatory body, the frequency, satellite orbit State with an appropriate
MPT is the state administration in registration and coordination. mechanism.’
charge of policy-making and • Grant licenses in post, telecom, • Strategy Principle Three: ‘To
regulatory matters in post, telecom, radio frequency and the Internet. actively make international
IT, electronics, the Internet, radio integration and development in
• Regulate the quality of post,
transmission and emission parallel with ensuring national
telecom and IT networks, plants,
techniques, radio-frequency security and information security.’
products and services.
management, and national • Regulate numbering resources, The Strategy also sets strategic
information infrastructure.The MPT codes and domain names. objectives for the development of
manages public services as well as the sector, notably to:
• Inspect all activities and settle all
having control over the state capital regulatory breaches in the fields • position the telecom industry as
(for example, investment), on of post, telecom and IT1. a leading sector that drives and
behalf of government and as
enables overall economic growth
stipulated by laws and regulations
Telecommunications in all regions of the country;
in post, telecommunication and IT
enterprises. Its main functions
development strategy • issue policy and regulatory
and policy documents to facilitate IT-
include:
enabled services (ITES);
Policy-making functions: Issued by the Government in 2001,
• develop a national information
Vietnam’s Post and
• Submit to government drafts of infrastructure (NII) to deploy
Telecommunications Development high-capacity communications
laws, ordinances, regulations, Strategy (the Strategy) lays out
strategies and development and innovative technology
policy objectives through 2010 and throughout the entire country;
plans on posts, telecom and IT.
provides a long-term vision through
• Give guidance in implementation • ensure the introduction of a
2020.The underlying principles of
of laws, ordinances and wide range of services;
the Strategy are quite liberal,
regulations, as well as __________
• by the year 2010, increase
development strategies and 1. Source: MPT’s website telephone and Internet

10 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


penetration rates to the regional transactions occur online by market dominance,
average; 2010. interconnection, co-location and
• introduce competition, with a universal service.The following
target for competitive operators Telecommunications law summarizes the important
obtaining a 25-30% market share principles embodied in the
by 2005, and 40-50% by the year Following the development of Ordinance:
2010; and Vietnam’s new strategy to foster
growth and development in its • Licensing: The Ordinance defines
• reform tariffs to lower consumer two types of licenses for
telecom sector, the government
costs in comparison with telecom enterprises, with
regional benchmarks. moved to codify these objectives in
durations ranging from 10 years
law. Accordingly, the government
for network services to 15 years
This Strategy document has issued two legal rulings in the for service-based operations and
represented a distinct turning point past few years: the Ordinance on 25 years for international cable
in the Vietnamese liberalization Post and Telecommunications (the landings:
process because it advocated a Ordinance) and Decree 160 - Network or facility based
dramatic change in policy. In Provisions Regarding Competition: operations (FBO): An FBO
addition to driving fundamental Decree on Telecommunications owns and operates its
structural reform by the (the Decree).Together, these laws telecom network. FBOs sell
government, the Strategy provides form the legal basis for the MPT’s services directly to an end-
guidelines for new roles and subsequent regulatory rulings, user, or sell wholesale services
responsibilities and, most arbitration or legal actions.The to companies that resell its
importantly, sets specific objectives following section highlights the key service. In Vietnam, FBO
and targets to measure success. As policy and regulatory issues dealt licenses are only issued to
a first step in a long-term initiative, with in these two laws2. state-owned enterprises
the Strategy was an important (SOEs), defined as an
contribution to subsequent laws Ordinance on Post and operator owned by the
and regulations. Telecommunications 2002 government, wholly or in part.
The National Institute of Post and The Ordinance was issued by the The ordinance outlines the
Telecommunications Strategy Standing Committee of the concept of a ‘golden share’,
(NIPTS), an independent unit of National Assembly in 2002, six which presents a share of the
the MPT, drafted a complementary months after publication of the company that allows veto
strategy for information and Strategy.The law reiterates and rights over certain corporate
communication technology (ICT). reinforces the policy principles decisions.
The objectives, which included the outlined in the Strategy, adding - Service-based operations
expansion of the telecom network, important implementation details (SBO): An SBO provides a
also included goals targeting the and clarifications to the service that does not require
‘information sector’.The NIPTS government strategy. It also network facilities, or leases on
goals for telecom and ICT for the outlined specific mechanisms – for a wholesale basis network
year 2010 included the following example, policies and tools – that facilities from an SBO for
detailed specific objectives: can be used by the regulator.These resale to the end-user.
mechanisms include licensing, Ownership in SBO licensees is
• Achieve teledensity of 25-26
open to complete private
lines per 100 people by 201, 28-
sector ownership.
30 total lines by 2020. __________
2. It is important to note that these laws do not • Market dominance: Defines
• Achieve a total teledensity by adequately deal with three important policy
operators with a dominant
issues: competition between multiple SOEs,
household of 60% by 2010 and possible privatization of SOEs and unbundling market share as those that have
100% by 2020. of the local loop. Any action on these issues, more than 30% of the market of
or inaction, has important implications for the
• Have 30% of all commercial country’s telecommunications sector. a particular service.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 11


- Regulations may regulate services, except for charges clarifies interconnection issues.
dominant operators, e.g., involving community service or - Reiterates that
market share, pricing, service interconnection, and those for interconnection charges shall
quality, cost accounting, et al. telecom services with market be based on cost, and are
- Dominant carriers are dominance. reasonably broken-down
prohibited from using anti- • Universal Services: Established according to network
competitive practices, e.g., fund with contributions from components or service
cross subsidies, below cost telecom enterprises and other processes, without
pricing, high wholesale rates, sources. discrimination between
et al. different types of services.
Decree 160 Provisions Regarding
- Non-dominant operators set - Elaborates the principle that
Competition: Decree on
their own prices, including the interconnection must
Telecommunications
promotional packages (while ensure that users are free to
the regulatory can control Building on the Strategy and select any service provider
dominant carrier pricing). Ordinance, both of which support they want.
- Lower interconnection charges liberalization and competition, - Interconnection charge related
applied to non-dominant firms Decree 160 was issued by the to universal services must be
also provide new entrants Government in September, 2004. clearly defined.
with some cost advantage. The specific additional details are as
• Interconnection: Stipulates that follows: Telecommunications
all telecom enterprises have the • Market dominance: Sets regulations
right to ‘link their own network dominance at 30% of essential
to those of other telecom facilities. Defines essential During the past year, the MPT has
enterprises and shall be obliged facilities as local loops in a issued a variety of rulings to clarify
to allow those other telecom geographic area, domestic or its strategy, policy and
enterprises to link and access international long-distance administrative procedures.These
their own networks or services channels and base radio stations rulings cover the full gamut of the
subject to fair and reasonable of the mobile network. Requires Ministry’s remit, including
conditions’. dominant carriers to: telecommunications, post and IT
- Mandates access and - develop a master plan for sectors. Important issues addressed
interconnection points based network investments access include the creation of the Vietnam
on economic and technical points, interconnection and Public Telecommunications Fund,
feasibility. anticipated increases in clarification on tariff issues,
- Stipulates that interconnection network traffic; equipment standards issues, the
agreements be negotiated - create favorable conditions for creation of a technology
between operators. the negotiation and execution directorate and several IT specific
- Allows interconnection of interconnection of orders. Of particular note, in 2003,
charges regulated by the MPT, networks and services for after a long delay, the MPT legalized
using cost-based pricing. telecom companies in a fair
VoIP services, allowing the public to
- Defines co-location, an integral and reasonable manner; and
make low-cost international calls.
aspect of interconnection, as - prepare and submit to MPT
Figure 4 provides an overview of
‘shared use of linking points for approval a Master
recent decisions with hyperlinks to
and technical infrastructure Interconnection Agreement, a
the detailed text:
facilities via a linking template which will be made
agreement between two public and used by companies Setting tariffs
signed parties’. requesting interconnection.
• Tariffs: Enterprises are free to • Interconnection: Reiterates key MPT regulates tariffs on those
decide on charges for their own aspects of Ordinance and operators with a dominant market

12 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


Figure 4: Recent MPT regulations

Regulation number Date issued Summary

Provide sanctioning of administrative violations in post, telecom and radio


04/2004/TT-BBCVT 29/11/2004
frequencies

191/2004/QD-TTg Set up organization and operation of Vietnam Public


8/11/2004
Telecommunications Service Fund

41/2004/QD- BBCVT 5/10/2004 Promulgate regulation on telecom equipment standards

42/2004/QD-BBCVT 5/10/2004 Promulgate list of telecom equipment that requires standard conformity stamps

07/2004/CT-BBCVT 19/7/2004 Enhance management of public Internet agents

Clarify position on safety and security for post, telecommunication and Internet
06/2004/CT-BBCVT 7/5/2004
information

Approve project on open-source software application and development of in


235/QD-TTg 2/3/2004
Vietnam, 2004-2008

101/2004/ND-CP Establish provincial/municipal services of post and telematics in provinces and


25/2/2004
centrally-run cities

Price setting rules for enterprises


16/BBCVT-KHTC 6/1/2004
Cost based tariffs

Outline dominance: telecom providers with less than 30% market share can set
217/2003/QD-TTg 27/10/2003
their own prices

99/2003/ND-CP 28/8/2003 Promulgate the regulation on high-tech parks

148 /2003/QD-BBCVT 26/8/2003 Set provisional interconnection fees set and lowered from previous levels

75/2003/ND-CP 26/6/2003 Define organization and operation of MPT technology inspectorate

Promulgate regulation on Internet resource management and use, for example,


92/2003/QD-BBCVT 26/5/2003
domain names

Provide table of international telcos using the public switched telephone network
47/2003/QD-BBCVT 20/3/2003
(PSTN)
49/2003/QD-BBCVT 20/3/2003 Provide table of post-paid GSM mobile phone charges

53/2003/QD-BBCVT 20/3/2003 Regulates circuit charges applied to Internet exchange providers (IXPs) and
Internet service providers (ISPs)

Promulgate tariff table of the international telecoms circuit leasing service applied
55/2003/QD-BBCVT 20/3/2003
to IXPs for access

57/2003/QD-BBCVT Issue of tariff of direct international Internet gate (IIG) installation and lease of
20/3/2003
IXPs

90/2002/ND-CP 11/11/2002 Outline functions, tasks, power and organizational structure of MPT

Regulate telecom networks and services, licensing procedures and prices; defines
43/2002/PL-UBTVQH10 1/10/2002
types of telecom services

33/2002/QD-TTg 8/2/2002 Approve the plan for Internet development for 2001-5

158/2001/QD- TTg 18/10/2001 Approve VNPT strategies through 2010 and 2020

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 13


Regulation number Date issued Summary

55/2001/ND-CP 23/8/2001 Outlines management, provision and use of Internet services

Sets out action to implement Politburo Directive 58-CT/TW and step up the
81/2001/QD-TTg 24/5/2001
application and development of ICT 2001-5

Set implementation of Politburo Directive 58-CT/TW in the areas of post, telecom


DGPT Directive 01/2001/TCBD 4/1/2001
and IT

Politburo Directive 58-CT/TW 17/10/2000 Directs increased development of IT, telecom and related areas

99/1998/QD-TTg 26/5/1998 Promulgate regulation of posts and telecom prices

Decree No. 79/CP 19/6/1997 Promulgate administration of disputes in post, telecom and spectrum

Source: Djankov, S. et al, 2003. The Regulation of Entry, p. 47.

share, whereas other operators are


Figure 5:Tariffs for international service in Vietnam, $US/minute
allowed to set their own tariffs.
Tariffs in Vietnam are still cross- Service Dec. 2001 July 2002 Jan. 2003 April 2003
subsidized and are not aligned to
Calls to other ASEAN countries 1.70 – 2.30 1.50 – 1.70 1.30 – 1.40 0.90 – 1.30
costs. In 2001, tariffs for
international calls were among the Calls to Europe, USA, Australia 2.30 – 2.00 1.80 – 2.00 1.50 – 1.70 1.00 – 1.40
highest in the world, while local Calls to all international
and national tariffs are relatively 1.2 0.75
destinations by VoIP
cheap in comparison with the
regional average3.
Despite the dramatic decrease in and World Bank. As such, the
Under a timetable to reduce tariffs, prices in Vietnam remain out following benchmark rates apply:
telecom fees,VNPT has already of sync with regional and global • Upper Income: 15¢.
scaled back telephone charges nine norms. Since local and long
times over the last four years. • Upper Middle Income: 19¢.
distance services are cross
Mobile phone rates have recently subsidized, local prices are well • Lower Middle Income: 19¢.
undergone five consecutive below ASEAN averages, for • Lower Income: 23¢.
reductions.The MPT introduced example Singapore, while
several provisions in 2002 and The FCC tracks operators that
international long distance calls are
2003 to reduce tariffs and make dominate the market and are
higher.
them comparable to those of hence able to set rates above
regional countries. As indicated in A good barometer for tariffs is the global norms.The FCC exempts
Figure 5, most international tariffs US Federal Communications dominant carriers that negotiate
were reduced by 50%, and other Commission (FCC) benchmarks for prices below its benchmarks.To
services such as cellular, Internet its international settlement policy. date, 163 countries meet these
and leased circuits were reduced The FCC sets target settlement benchmarks;Vietnam does not4.
from 10% to 30%.These actions rates, which in turn are a key Classified as a low income country,
should drive tariffs towards their determinant of prices for the FCC’s target international tariff
real cost; however, a detailed tariff international calls.The FCC divides for countries where the carrier has
re-balancing process has yet to be countries into four groups based market dominance is $0.23. In
defined. on economic development levels January 2005, the FCC calculated
as determined by information from __________
__________ the International 4. FCC Public Notice DA 04-1584, May 28, 2004
3. ITU,‘Vietnam Internet Case Study’, March (updated international settlement policy) and
2002. Telecommunications Union (ITU) FCC website.

14 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


the US/Vietnam rate at $1.19 per the Global Internet Policy Initiative cost of the community service
minute plus $2.00 per connection (GIPI) Vietnam, a global non- obligations (CSOs) in the cost
– well above FCC benchmarks and governmental organization that baseline. While forming the basis
international norms. promotes legal and policy reform for Vietnam’s interconnection
which in turn supports a robust regime, there are two areas
Interconnection Internet environment, where the Ordinance lacks
‘interconnection is the single most sufficient detail:
Interconnection between - What is the precise definition
telecommunications networks is a important determinant of a
successful transition from of cost? Although most
perquisite for an efficient countries define and calculate
competitive telecommunications monopoly to competitive
telecommunications markets’5. cost using a forward-looking,
sector. Interconnection transfers total service, long-run
the transmission of voice, data and The basis for Vietnam’s incremental cost (TSLRIC)
video communications from one interconnection regime is included method, the process in
network provider to another, in the Ordinance, which deals with Vietnam of costing network
allowing traffic originating in one interconnection by stipulating that services is a complicated and
network to be terminated on all telecom enterprises have the difficult task.
another. For example, an right to ‘link their own network to - What is the incremental to
international voice call originating in those of other telecom enterprises interconnect charges
Vietnam could interconnect with and shall be obliged to allow those associated with CSO?
the landline network which other telecom enterprises to link • Partial unbundling of network
transfers the call to an international
and access their own networks or components: The Ordinance
gateway. In turn, the call may prohibits unreasonable refusal to
services subject to fair and
interconnect with multiple interconnect by bottleneck
reasonable conditions’. Providing
international carriers before the call facility owners, provided
access and interconnection at
is terminated at its international interconnection is economically
technically and economically
destination.The proper working of and technically feasible. However,
feasible points is mandatory for
interconnecting allows seamless the interconnection regulations
service providers that hold
communications for the end-user. have not prescribed sufficient
‘essential equipment and facilities’.
unbundling, i.e. the access seeker
Interconnection promotes The Ordinance also states that
should not be required to pay
efficiencies in telecommunication interconnection agreements are to
for interconnection or network
carriers allowing operators to be negotiated between operators
components it does not need in
share network assets; thus a carrier with interconnection charges order to provide its service.
doesn’t need to duplicate network regulated by MPT.The key
• Interconnection at all feasible
construction when the volume of regulations provide for the
points in the network: The
traffic doesn’t justify the expense. In following:
Ordinance appears to satisfy this
newly competitive markets, new • Interconnection rates should be requirement broadly, but there is
entrants can provide services ‘cost-oriented’: The Ordinance no clear statement relating to
without the massive investments states that calculation of the requirement.
needed to set up their own interconnection charges will be
network backbone, local loop or based on ‘gia thanh’, which Co-location, a key enabler of
other major facility. Interconnection means the cost of provision of a interconnection, is also covered in
between competing networks is product.There is a provision that the Ordinance. Article 43(2)
now widely seen as a critical allows carriers to include the stipulates ‘shared use of linking
mechanism for introducing market __________ points and technical infrastructure
5. The report,‘Promoting Internet Policy and
forces into a monopolistic Regulatory Reform in Vietnam, Assessment facilities via linking agreement
telecommunications environment. Report’, March 2004, Status of between the two signed parties’. If
Telecommunications Development in Vietnam
According to a recent report by is available at http://www.gipi-vn.org/ an interconnection agreement

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 15


cannot be reached within a 45-day the problem of interconnection mobile networks, while it takes a
time limit (a period set by comprehensively but did not very long time in the case of S-
subsequent MPT regulations), the change the details specified in the Fone. If VNPT has a cooperative
MPT can intervene in the process. previous regulations. Despite these attitude, only 10 days are needed
The MPT’s decision can be rulings, some potential problems to settle everything.”
challenged via the Administrative with Vietnam’s interconnection
VNPT also is alleged to have used
Courts; however, there are regime remain, namely anti-
technical reasons to deny
separate issues within the legal competitive behavior relating to
interconnection ‘at any technically
system that make this option interconnection, e.g., ‘technical
feasible point’.The most notable
impractical. problems’ and pricing constraints.
example is the requirement of
Issues related to these two
Further clarifications to Vietnam’s VNPT that S-Fone be connected
behaviors are outlined below.
interconnection regime are with VNPT mobile networks not
included in the MPT’s Decision Technical reasons for delaying directly through a tandem switch,
148/2003/QD-BBCVT, dated 28 interconnection but indirectly through a toll switch,
August 2003, which specifies that which is managed by VNPT.This
There are many technical reasons has forced S-Fone to pay an
the charges for interconnection
consist of two parts: a) that can be used as excuses for not additional 250 VND per minute.
interconnection charges; and b) providing fair interconnection. According to S-Fone, this extra
costs for establishing the These ‘technical problems’ often charge costs the company more
interconnection route. result in long delays to than 1.4B VND in the last six
Interconnection charges are interconnection. One recent months of 2003, and 1B-2B VND in
determined: example involves S-Fone, a cellular 2004.These extra charges inhibit
upstart launched in mid-2003. An the company’s competitiveness and
• on the basis of the cost of essential requirement for a new
interconnection; profitability. It is noteworthy that
mobile phone network is the ability Mobifone, another cellular
• with the principle of no to connect messaging services with competitor, pays the same extra
discrimination between different other incumbent cellular providers, charges.
services, between different Vinaphone and Mobifone.The
telecom companies or between agreement between the new According to a manager from S-
members of a telecom Fone, such indirect interconnection
market entrant on the incumbent
companies with other telecom via a toll switch was
called for interconnection by
companies; understandable and acceptable in
December 2003, but it wasn’t
• on the basis of rational implemented until mid-2004 – a the earlier period of
unbundling of network interconnection, when VNPT was
full year after service started.
components or stages of unfamiliar with the technical issues
During VNCI interviews, statements
services; and of interconnecting a CDMA-based
from S-Fone management highlight
• in comparison with the level of the difficulties of executing to a GSM-based network.
interconnection charges in other interconnection: However, technical capability has
countries in the region. improved but the situation has
“ Obviously, there are some technical remained unchanged.
The Government further
problems in connecting different
elaborated on the issue of In July 2004, S-Fone made a
networks, but they are not big
interconnection charges in the request to MPT to intervene to
problems. The real problem is
Decision of the Prime Minister force VNPT to provide direct
whether VNPT wants S-Fone to be
217/2003/QD-TTg, dated October interconnection.The MPT replied
connected or not.”
2003, and Decree on Telecom that it was not able to consider a
160/2004/ND-CP, dated “ Cityphone is not compatible but solution at least until the beginning
September 2004, which addressed connected quickly with VNPT of 2005. S-Fone subsequently

16 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


requested in September 2004 that high-cost tariffs reduce the price in many countries, and Vietnam is
if the interconnection is still made competition among telecom no exception. Although liberal and
via a toll switch, then the extra toll services providers. One of the competitive elements have been
interconnection fee of 250 VND problems leading to high introduced to the institutional and
per minute be waived for S-Fone. interconnection charges is that, so regulatory regime governing
However, so far no reply has been far, such charges have not been interconnection, there have been
provided by MPT or VNPT. calculated on a ‘cost-based’ basis. many complaints from competitive
According to the same manager: Rather, interconnection charges are carriers in Vietnam. While the
approved by MPT based on Vietnamese regulations governing
“ VNPT really has everything relating
information provided by VNPT. interconnection are favorable,
to telecommunications
However, as the accounting system some important regulation
infrastructure. New entities in this
of VNPT is not independent, it is uncertainties remain and, not
industry have to borrow or hire
not possible to actually calculate surprisingly, there have been
facilities or infrastructure of VNPT.
interconnection costs. Accordingly, difficulties in actually executing
The problem is that it is always
difficult to borrow or hire them. interconnection costs may be interconnection agreements
Sometimes it takes considerable overestimated, and result in inflated between carriers.
time and sometimes requires large charges for competitive carriers.
fees. Even negotiation with VNPT is International
Another problem is that VNPT
also a controversial uses its dominant position to
commitments
matter....MobiFone and Vinaphone impose an extra burden on the The regulatory framework just
are monopolists in Vietnam. I interconnecting telecom described is generally consistent
understand that they do not want
companies. According to MPT with the requirements for avoiding
us to interconnect with our SMS
Decision 148, the cost for anti-competitive actions provided in
[short message service] services. In
establishing and maintaining an the international agreements that
my opinion, if they are not willing
interconnection route between Vietnam has signed to date. In
to connect messaging services with
two interconnecting networks particular, the Bilateral Trade
S-Fone, MPT should intervene in
should be borne equally by each Agreement between the United
the arrangement and force VNPT
network. However, in reality in States and Vietnam (BTA), which
to allow the interconnection of
many instances, provincial PTT new Vietnam signed in July, 2000,
messages between MobiFone,
entrants bare the cost for extra incorporates key provisions on
Vinaphone and our network as
cable upgrades and other physical competition from the World Trade
soon as possible. If MPT had done
facilities. Since VNPT states that the Organization (WTO), General
so, our messaging services would
required infrastructure is not Agreement on Trade in Services
have been connected within at
most six months6.” available, competitors have little (GATS), the GATS Annex on
option but to pay the entire Telecommunications and the WTO
Commercial/pricing issue of expense if these operators need to Reference Paper on Basic
interconnection interconnect their services. Telecommunications (the
Reference Paper).
Interconnection charges by VNPT As these examples suggest, despite
are considered by other telecom the obvious benefits of While the BTA includes, by
companies as much too high, and interconnection, implementing a reference, required actions with
represent 60-70% of the progressive and efficient regard to international telecom
competitive carriers’ costs. Such ‘interconnection regime’ is a very accords, the agreement has specific
__________ difficult task that often gets mired objectives related to permitting US
6. It is interesting to note that the short
messaging service (SMS) between S-Fone and in controversy and the details of foreign investment in the
Viettel Mobile was interconnected after execution. Disputes on Vietnamese telecommunications
several months, and direct interconnection
was made via a tandem switch. interconnection issues are common sector. Figure 6 outlines the level of

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 17


US investment during the course Figure 6:Vietnam-US BTA for foreign investment in
of the BTA’s implementation telecommunications
(Vietnam’s international
commitments pertaining to the US
Phase Market segment Timing Deadline
investment
BTA and its referenced documents,
as well as compliance and 0 All market segments 0% Upon BTA Dec 2001
remediation actions, are
summarized in Figure 7). 2 years after
I Value-added telecom services Up to 50% Year end 2003
agreement
Vietnam’s regulatory framework is II Value-added Internet services Up to 50%
3 years after
Year end 2004
already consistent with many of the agreement
international commitments that Mobile, leased lines and 4 years after
III Up to 49% Year end 2005
Vietnam has made regarding the satellite services agreement
telecom sector, and with those that Fixed line services (including 6 years after
IV Up to 45% Year end 2007
it is likely to make in the course of long-distance) agreement
WTO accession. At the same time,
there are gaps that need to be
filled by additional regulations and chapter are fairly open to appropriate level of control by the
competition, as well as to market State.The opinions of State officials
by the amendment of existing
principles, and do not indicate that the key issue is one of
ones.The recommendation of this
overemphasize the need for maintaining appropriate State
report is that the Reference Paper
control by the State in the telecom control. Monopoly by the State
be the first point of focus as it
sector. Completion of Vietnam’s over certain resources is
opens the door to other WTO
regulatory framework in a pro- instrumental for State control, but
benefits.The Paper has a pro-
competitive manner should not be does not seem to be a value that is
competitive and telecom-specific
difficult. However, despite the pursued for its own sake. As a
character and will help considerably
officially stated policy, government result, completion of a regulatory
towards efforts to complete
authorities have unofficially framework for Vietnam that will
Vietnam’s telecommunications
expressed cautious opinions about enhance competition in this sector
regulatory framework.
the level at which the sector may not be as smooth as it
The official policy and regulatory should be opened to private and appears at first sight.
documents discussed in this foreign participation, as well as the

18 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


Figure 7 : Overview of Vietnam’s international treaty obligations

Progress towards
Treaty Provision Action taken/required
compliance

Bilateral Trade Agreement (BTA)

• Chapter III: Services • Eliminate non-tariff barriers to U.S. • Vietnam has • Government has established working
• Chapter VI: exports, including telecom exports. implemented some group to coordinate efforts to
Transparency and • Provide effective protection of U.S. aspects of the BTA, revamp laws and regulations,
the Right to Appeal intellectual property rights. but is currently however,Vietnam lacks technical
• Chapter IV: • Open Vietnam's market to U.S. service behind schedule. expertise and resources.
Development of providers, e.g., foreign investment. • U.S. government providing technical
Investment Relations • Create fair and transparent rules and assistance to Vietnam for technical
(supplemented by regulations for U.S. investors. advice, training and materials to
Annex H and the facilitate reforms necessary to meet
Exchange of Letters) the BTA's complex requirements.

The GATS Annex on Telecommunications (Reference to the BTA with the exception of Paragraphs 6 and 7)

• Paragraph 4 • Requires the development of a • Arguably,Vietnam's


transparent regulatory framework, e.g., regulatory framework
publicly available information and is consistent with
notification of standards, tariffs, licensing, these conditions.
et al.

• Paragraph 5 • Requires access to the public network, • Lack of explicit • MTP should clarify its interconnection
e.g., interconnection and co-location. reference to a non- policy, explicitly defining and
discriminatory preventing non-discriminatory
interconnection could behavior.
be interpreted as
non-compliance by
international norms.

WTO Reference Paper on Basic Telecommunications (Referenced by BTA)

• Definitions • Align Vietnam's legal definitions to • Compliant, although


WTO definitions. some differences in
definitions exist.

• Competitive • Cross-subsidization. • Vietnam had a policy • Develop better cost accounting, e.g.,
safeguards for cross-subsidization; chart of accounts and cost allocation,
current framework to identify and eliminate subsidies.
does not completely
eliminate it.

• Misuse of information about • Largely compliant, but • Strengthen guidelines re: 'misuse' via
competitors. has narrow definition government decree or order.
of 'misuse'.

• Withholding necessary technical and • Compliant based on • Clearly link telecom sector to Vietnam
commercial information. Law on Competition. Competition Law.

• Interconnection • Detailed and technical criteria to meet • Partially compliant, • Issue order re: interconnection
global interconnections standards. but missing key costing and technical delays.
aspects of connection
regime.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 19


Progress towards
Treaty Provision Action taken/required
compliance

WTO Reference Paper on Basic Telecommunications (Referenced by BTA) (continued)

• Universal service • Right to define the kind of universal • Undetermined as


service obligation (such obligations will Vietnam is currently
not be regarded as anti-competitive), developing its
provided transparent and neutral Universal Service
administration. institutional structures
and policies.

• Public availability of • Licensing criteria and time required to • Licensing criteria are • Further development of the licensing
licensing criteria reach a decision, including the terms incomplete and vague criteria in Vietnam's regulatory
and conditions of individual licenses. - no timelines for framework for telecom would be
• Reasons for license denial made known licensing decisions. appropriate.
to the applicant upon request. • Terms and conditions
of individual licenses
are not made public.

• Independent • The regulatory body is separate from, • Non-compliant, as the • Independent regulatory body.
regulators and not accountable to, any supplier of relationship between • Privatization of VNPT.
basic telecom services. MPT and VNPT
• Decisions and procedures used by continues to be close.
regulators shall be impartial with • Substantial rotation of
respect to all market participants. personnel among the
two agencies.
• Responsibilities
overlap, e.g., head of
MPT is also on VNPT
board.

• Allocation and use • Any procedures for the allocation and • Since MPT's plans for
of scarce resources use of scarce resources will be carried these resources have
out in an objective, timely, transparent not yet been released,
and non-discriminatory manner. it is unclear whether
• Current state of allocated frequency the other three
bands will be made publicly available, criteria (objective,
but detailed identification of frequencies timely and
allocated for specific government uses transparent) will be
are not required. observed.

20 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


MARKET STRUCTURE AND
OWNERSHIP
ompetition in Vietnam’s - Complicated organizational

C
including 18% ownership by
telecom sector has structure including 61 VNPT.
increased substantially provincial and local PTTs, joint - Provides fixed local (Ho Chi
since 1993 when there was an stock companies, joint venture Minh City only), DLD, ILD,
absolute monopoly on all companies, and other wholly- mobile and VOIP services.
segments of the industry. Despite owned subsidiaries.
- Operates mobile joint venture
these changes, however, the - Owns 18% of second-largest with a Korean consortium
telecom structure remains operator in Ho Chi Minh City. using CDMA technology.
dominated by the state-owned - Owns and operates nearly
- Operates around 40,000 land
VNPT. According to the World 100% of total 5.4 million lines
lines in Saigon as of June
Bank, the VNPT retains in service.
2004.
approximately 94% of the - Established VPN and WiFi in
aggregate market, including 2003. - Retains approximately 3% of
operations in all telecom segments: - Retains approximately 94% of the overall telecom market.
equipment, engineering, the overall telecom market. • Vietnam Electricity Corporation
construction and consulting.The • Vietnam Military Telecom (ETC):
company also retains non-telco Company (Viettel): - 100% owned by government-
assets in the tourism, printing and - 100% owned by the owned electricity monopoly.
insurance sectors. Other carriers Vietnamese military. - Provides fixed local, DLD, ILD,
have entered the market, but - Received license in 1995 and leased line, mobile and VOIP
overall Vietnam lacks a truly provides fixed local, domestic services.
competitive environment. long distance (DLD), - Actively developing network
International long distance infrastructure and fixed leased
Facility-based operators (ILD), leased line, mobile and lines services.
internet services. - Preparing launch of VOIP and
Vietnam has six FBOs that provide - Operates trunk radio network CDMA mobile services.
services based on their own in Hanoi. • Hanoi Telecom (HT):
network infrastructure. Each of - Operates IXP and offers retail - Only operator with private
these operators is primarily state- access, e.g., ISP. investment, albeit limited.
owned and, except for VNPT, are - Network largely based on IP - Joint stock company
geographically focused or service protocols, and beta testing established by: High-tech and
specific.The following summarizes VoIP services. Telecom Union (56.25%)
ownership and services of - Commenced mobile service Hanoi Electronics (25%),
Vietnam’s six FBO operators: in October 2004. Hanoi High-tech Development
• Vietnam Post and • Saigon Postal and Joint Stock Company (6.25%),
Telecommunications (VNPT): Telecommunications (SPT): and Hanel Plastics Joint-Stock
- Dominant state-owned - Established in 1995 as a joint- Company (12.5%).
operator with operations in all stock company. - Provides fixed local (Hanoi
telecom segments, except for - Founding shareholders are only), DLD, ILD, mobile,
marine-based services. state-owned enterprises, internet and VOIP services.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 21


• Vietnam Shipping Figure 8, along with an assessment restructure VNPT into a parent-
Telecommunication Company of the segment’s level of subsidiary consortium comprising
(VISHIPEL): competition. of a management board to manage
- 100% owned by the General the parent and the creation of
Corporation for Marine It is important to note that the
separate post and telecom
Transport. VNPT is not a cohesive company
subsidiaries. Internationally, the
- Provides marine (Inmarsat) in line with western private sector
corporatization process is viewed
services and radio standards. Rather the VNPT is a
collection of regional and as a prerequisite to privatization as
communication services for it requires the PTT to operate
ships at seas. provisional PTTs, SOEs, joint
ventures and ancillary businesses. A using international norms of
The telecom segments service by recent government decision (No. governance, finance and
the six FBOs are summarized in 58/2005/QD-TTg) intends to accountability.The revamp,
anticipated to begin in the fourth
quarter of 2005, represents an
Figure 8: Competition among Vietnam’s FBOs important first step in reorganizing
VNPT. Figure 9 highlights the
SPT HT VISHIPEL
Segment Competition VNPT Viettel ETC complexity of VNPT’s current
(Saigon) (Hanoi) (Marine)
organizational structure.
Local Limited
• VNPT
Competition status in
Dominance. 9 9 9 9 9
• Geographic the mobile service
competition.
market
DLD Limited The state of competition in the
• VNPT
mobile service market is more
Dominance. 9 9 9 9 9
• Geographic robust than that of fixed line
competition. markets. In Vietnam, six licenses
have been awarded in an
ILD Limited
• VNPT increasingly competitive market.
Dominance. While there remains cross
• Geographic 9 9 9 9 9 9 ownership, e.g.,VNPT owns
competition.
• Competition Vinaphone and partly owns
via VOIP. Mobifone, competition has resulted
in a rapid increase in subscribers.
Mobile Competitive
• JVs w/
According to a recent government
foreign 9 9 9 9 study, there are some 5.5M mobile
operators. phone subscribers.The high level of
competition, which includes several
Leased Limited
Lines • VNPT
foreign investors, has resulted in
Dominance. 9 9 9 price decrees. One carrier, S-
• Geographic phone, recently cut connection fees
competition.
by 50% and reduced its
Internet Competitive
subscription fees.The network
• Limited operators use three competing
bandwidth. 9 9 9 9 technology standards: GSM, CDMA
• SBO
operators.
and Personal Handy-phone System
(PHS). Figure 10 outlines the

22 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


Figure 9:VNPT organizational structure
pioneered the introduction of e-
mail and Internet in Vietnam. Both
VNPT companies have a large number of
faithful customers.

61 Provincial and Local PTTs


According to MPT statistics,
Internet usage has grown
substantially in recent years.The
most recent figures for July 2004
Stated-owned BBC-Based Other Telecom- Other Lines of show a market growing nearly 70%
Subsidiaries Ventures related Companies Business in terms of new subscriptions,
• Vietnam Telecom • VN-Telstra. • VN Telecom • Construction.
reaching nearly 1.5 million
National (VTN). • VN-Korea Equipment. • Tourism. accounts. In the early stages of
• Vietnam Telecom Telecom. • P&T Construction. • Consulting. Internet development, it is
International (VTI). • Vina Daesung • P&T Finance. • Import.
• Vietnam Data Cable Optical • Equipment • Insurance.
common for multiple users to
Corporation (VDC). Fiber Mfr. Installation. • Engineering. utilize a single account, e.g.,
• Vietnam Telecom • VN-Alcatel. • Telecom • Printing. universities or businesses.Taking
Services Corp. • VN-Siemens. Manufacturing.
this factor into account,Vietnam
(GPC). • VN-Fujitsu.
• Vietnam Mobile • VN-NEC. had more than 5M Internet users
Telecom Services • Etc. at the end of July 2004. Broadband
(VMS). Internet access in Vietnam is not
Source:VNPT website,World Bank,VNCI interviews.
widely available. Figure 11 outlines
the rapid expansion from 2003 to
Figure 10: Competition in Vietnam’s mobile segment
mid-2004.
Company Owner Investment Technology Subscribers Operational Another proxy for usage and
growth of the Internet sector is the
Vinaphone VNPT US$130M GSM 3.0M 1996
registration of IP addresses and
VNPT domain names. According to the
US$456M GSM 2.5M 1998
MobiFone Comvik
Vietnam Internet Information
Viettel Viettel JV n/a GSM 250K 2004 Center, an MPT unit, the volume of
SPT
IP addresses increased by more
S-Phone US$230M CDMA 200K 2003 than 220%, from 134K in
SLD Telecom
September 2003 to 433K in June
Cityphone VNPT n/a PHS n/a n/a
2005. Domain name registrations
VP Telecom VPT US$630M CDMA n/a 2Q 05 have increased less dramatically:
HT 7%, from 4,300 to 4,600 over the
HT US$656M CDMA n/a 4Q 05
Hutchison same period. Of these domain
Source: Saigon Times. names, .com.vn represents 82%,
followed by .org.vn (5%), .edu.vn
competitive makeup of Vietnam’s companies have been granted (5%), .gov.vn (3%), Loai.Khac (3%),
mobile market. licenses for value-added services, and .net.vn (2%).This breakdown
mostly ISPs. Of the 13 companies indicates the general use of local
Service based operators: licensed, few provide service. websites.
Internet Service Among independent ISPs, FPT The Vietnamese Internet sector
Communications and Netnam are remains dominated by FBO license
Providers
active. FPT Communications is holders and, like most segments,
In addition to these six FBO backed by the large FPT group of VNPT is the dominant player with
licensees, over a dozen other companies, while Netnam a 57% market share. While VNPT

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 23


Figure 11: Internet subscribers and density in Vietnam

Internet subscribers Internet density


6,000 6,000 7.0%
5,342
Users
Subscribers 4,714 6.0%
5,000 5,000 % pop
S u b s c ri b e rs (000)

Users

S ubs cri bers (000)

Internet Dens i ty
3,821 5.0%
4,000 4,000
3,332
4.0%
3,000 2,490 3,000
3.0%
1,904
2,000 2,000
1,268 1,436 2.0%
852 1,027
1,000 632 1,000 1.0%
466
- - 0.0%
2Q 03 3Q03 4Q 03 1Q05 2Q05 Jul 04 2Q 03 3Q03 4Q 03 1Q05 2Q05 Jul 04

lost some of its market share in up ISPs.The breakout of Vietnam’s Information Technology
March 2003 (from 65% to 57%), ISP from March 2003 to June 2004 Enabled Services (ITES)
these gains accrued to other SOEs is reflected in Figure 12.
rather than independent ISPs, The government of Vietnam
One of the constraints to Vietnam’s strongly supports the development
whose combined market share
Internet market (aside from simple of the country’s IT industry.The
remains nearly the same.
access to landlines) is international reform of the telecom sector will
Internationally, independent ISPs
connectivity. As of July 2004, the fundamentally impact on the
lose ground as traditional telcos
entire country had only 1038 Mbps success of the government’s policy.
initiate Internet services, bundle
of connectivity, and VNPT An important aspect of its IT policy
dial-ups with landline services or
controlled nearly 90% of the lines. is to nurture Vietnam’s ITES sector.
broadband services such as DSL.
In terms of destination points for Like Internet access, ITES
Cable TV operators also gain a
this connectivity, Hong Kong and companies rely on the underlying
market share when they introduce
Singapore accounted for 68% of telecom infrastructure to conduct
broadband products. Future
Vietnam’s international access. day-to-day business activities. Since
innovations such as mobile Internet
Figure 13 provides details of carrier Vietnam has stressed the
access provide integrated carriers
bandwidth and connectivity points. development of this telecom-
with additional leverage over dial-

Figure 12: ISP market share, March 2003 – June 2004

ISP Carrier Market, March 2003 ISP Carrier Market, June 04


VIETEL SPT
OCI, OCI
7.714 16.593 HANOITEL VIETEL
9.480 22.983
2% 4% 3.306 93.802
HANOITEL 2%
2% <1% 7%
21 SPT
NETNAM
<1% 99.771
29.820
6% 7%
NETNAM
FPT 104.927
98.205 7%
21% VNPT
823.172
VNPT 57% FPT
303.877 288.456
65% 20%

24 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


Figure 13:Vietnam internet connectivity

Internet Bandwidth by ISP Internet Bandwidth by Country % of


% of
Market
Market
HK 38%
VNPT 905 87% 387

C o u n t ry o f C o n n e c t i o n
30%
Co n n e c ti v i ty (M b p s )

Singapore 314
FPT 89 9% USA 175 17%

VIETEL 38 China 155 15%


4%
Korea 4 <1%
SPT 4
<1% Japan 2 <1%
ETC 2 <1%
Taiwan 1
<1%
0 200 400 600 800 1000 0 100 200 300 400 500
Mbps Mbps

dependant sector, the following


Figure 14: Comparison of Vietnam to regional ITES players
overview provides a perspective to
understand this emerging industry. Parameter Vietnam India China Malaysia
Sometimes referred to as IT-
related, remote services or Industry Size
business process outsourcing n/a 6,200 >1,000 n/a
(US$M, 2000)
(BPO), ITES refers to services
IT employee
which: cost (US$ per 7,200 5,880 8,900 7,2000
• provide data entry, data year)
conversion, information/data
Number of
development, processing and CMM Level 5 0 48 0 0
response; Certifications7
• use IT in providing and/or
Positives • Strong • English • Large pool of • Strong
transmission of the service; Government • Quality IT grads Government
• do not require any software support • Project mgmt trained abroad support
programming expertise and, in • New services
• Strong diaspora
most instances, do not require
any particular education Negatives • Poor • Ordinary • Language skills • Absence of
discipline other than on-the-job infrastructure infrastructure • Project Mgmt large pool of
training for service providers; and • Political risk programmers
• are sourced off-site from the Source: IDC.
end user, i.e. are ‘outsourced’.

Common ITES activities include: • human resource services; billion. With anticipated growth
• financial and accounting services; through 2006 of 11% CAGR, the
• transcription; ITES industry is poised to increase
• litigation and legal support
• billing and collection; to US$1.2 trillion. At present, the
services; and
• customer interaction centers; ITES market leaders are Ireland,
• purchasing support.
• claims processing; India, Israel, Canada, the Philippines
• content development; In 2001, IDC estimated the global and South Africa. However,Vietnam
ITES industry to be worth US$7.1 is viewed as one of several dozen
• engineering support;
• administrative services; __________
7. Capability Maturity Model, a quality certification based on the audited requirements of the Carnegie
• geographic information systems; Melon University.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 25


presence in Vietnam. Figure 15
Figure 15: Permitted form of foreign investment in telecom by foreign
parties shows Vietnam’s commitments in
each of these categories.
Category Commitment
According to the Foreign
Value-added services including email, voice- • Dec 2003 for JVs with maximum 50% Investment Law and related
mail, electronic data interchange (EDI), U.S. capital contribution. regulations – especially
value-added facsimile services, code and • Dec 2004 for Internet services for JVs
protocol conversion and on-line with maximum 50% U.S. capital
Government Decree No.
information and data processing. contribution. 27/2003/ND-CP – the BCC is the
only form of foreign direct
Basic telecom services including packet- • Dec 2005 for JVs with maximum 49% investment in telecom services. In
switch, circuit switch, telex, telegraph, U.S. capital contribution.
facsimile, private leased circuit, radio-based the past, BCCs have made a
services including cellular, mobile, satellite. significant contribution to the
development of the telecom sector
Voice telephone services including local, • Dec 2007 for JVs with maximum 49%
in Vietnam, notably at important
long-distance and international. U.S. capital contribution.
junctures, notably the development
of international transmission lines,
second-tier destinations, and strong model of investment is considered introduction of the first mobile
government policy and action less desirable than other forms by phone system, introduction of the
could improve the country’s foreign investors for a variety of first CDMA mobile system, etc.
prospect vis-à-vis strong reasons that will be discussed in BCCs have also enabled some of
international competitors. Figure 14 this section. In addition, assuming the leading international telecom
highlights Vietnam’s position that joint ventures will someday be companies to enter into Vietnam
compared to leading ITES allowed in the telecom sector, markets, and make a foothold in
providers in the region. there is an open question as to those markets.
if/how current BCCs can be
However, the BCC model of
Private and foreign converted to joint ventures when
investment has some obvious
investment that form becomes available. What
drawbacks and limitations as
is apparent, based on international
When it comes to private and discussed below, such as restricting
treaties and recent policy
foreign investment in the equity participation and
announcements, is that Vietnam is
telecommunications sector,Vietnam management control.This in turn
moving to open the telecom sector
has a restrictive investment climate. has made foreign investors less
to more private investment.
While the country’s Law on comfortable, and the lack of
Foreign Investment permits both The BTA requires that Vietnam flexibility negatively impacts on
joint ventures and 100% foreign- open its telecom sector to United market efficiency.The limitations of
owned enterprises8, neither are States investment, although the the BCC as a mechanism governing
applicable to the treaty gives Vietnam time to foreign investment will likely inhibit
telecommunications sector. Private implement this change. It is incentives to future foreign
domestic investment is permitted, important to note that Vietnam is investment, when large capital
but foreign investors can only behind schedule in implementing outlays are required for the next
invest through a BCC.The BCC the BTA.Vietnam’s commitments generation of technology and
on market opening in telecom services.This chapter will present
__________ services are set forth in three the main constraints of the BCC
8. The restriction is found in the so-called
‘conditional list’ attached to the implementing categories, with a schedule that forms of investment, the benefits of
regulations for the Law on Foreign Investment, allows for the ability to form a joint
Decree 27/2003/ND-CP amending Decree alternative investment forms, and
24/2000/ND-CP on the Detailed venture with certain equity shares make initial recommendations to
Implementing Regulations for the Law on for trade involving a commercial
Foreign Investment (March 19, 2003). create a more favorable and

26 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


liberalized environment for foreign needed to have capital and and responsibility in operation
telecom companies to operate in technology only and that and services.
Vietnam. everything pertaining to an - Difficulty in focusing on the
investment could be conducted by customer as few resources
Rationale for BCCs the government. Management and earmarked for marketing.
operational expertise did not figure - Transfer of skills lower than
A BCC is a form of investment in
high in the minds of those officials what might be with equity
which a Vietnamese and a foreign
and business leaders. So participation.
partner agree to carry on an
government officials opted for the • Financial limitations:
investment activity without creating
BCC model in order to: - Foreign investor will receive
a new company.The obligations
• attract investment capital no long-term asset value from
and the rights of the two sides are
required for network their investment.
set out in a contract. One or both
development and modernization; - High transaction costs due to
parties may contribute fixed or
• bring expertise and new separate management
working capital but the division of
technology, e.g., CDMA, card- approval processes of the
profits will be what is agreed upon
phone technology; partners.
rather than being in the same
• acquire management expertise - Focus on short term
proportion as the capital
and business practices; and investment for quick return,
contributions. In the case of a
• train human resources. with no long term incentives
telecom BCC, the Vietnamese
for investors to invest in
party will usually contribute access For foreign investors, there was no modern technology or
to the networks and some working other option at the time. However, reinvestment over the life of
capital while the foreign partner it was acceptable to some extent, the project.
contributes money for new fixed because a BCC ensured an - The short duration can limit
capital that becomes the property adequate internal rate of return the time available to recoup
of the Vietnamese partner at the (IRR) on their investment while the the investment.
end of the project. Management Vietnamese partner,VNPT, enjoyed - High rate of depreciation
control of the network remains a dominant monopoly position drives cost of service higher.
with the Vietnamese party. with little likelihood of newcomers
emerging to compete for cash- Vietnam current has numerous
In the past, BCCs as a form of
flows. Foreign companies hence operating BCCs focused on
foreign investment created some
had to take it or leave it. Despite international telecom networks, a
important advantages for managers
the positive achievements of BCCs mobile system and a local network
of the telecom sector in Vietnam.
for Vietnam generally, and their with many types of services, from
These contracts helped to address
financial success for both the basic to value added. Each contract
security and sovereignty concerns,
domestic and the foreign parties, is different in scope and detail.
which were essential considerations
there are many limitations inherent Nine of these BCCs are entered
for the government. In addition, the
in the BCC form.The most notable into with VNPT, and only one of
telecom industry in the 1980s and
ones for foreign investors are: the BCCs is signed with a non-
until late 1990s was fully
VNPT company. Figure 16 outlines
monopolized by the state-owned • Structural limitations:
present and past BCCs and
VNPT, which wanted to exert its - No clear legal entity limits
provides key deal and contract
influence on the denial of any ability to mortgage assets or
information.
investment which would weaken its tab capital markets.
management control.VNPT - Strict limit of scope for BCC,
management and many e.g., one market segment or
government officials perceived that geographic location.
Vietnam in general, and the • Management limitations:
telecom sector in particular, - Limited management control

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 27


Figure 16:Vietnam's BCCS

BCC Partners
Term Foreign
# (Source of Foreign Year Scope Notes
(Years) Investment
Investment)

1. VNPTTelstra 1998C 6 US$237M Development of international telecom • Original BCC signed 1988
Australia network and services • Three contract extensions
(Australia)

2. VNPTComvik 1995 10 US$127.8M Development of the nationwide • Constructed first GSM


(Sweden) mobile phone network and services network
• Recently terminated

3. VNPTVoice 9 US$ 725K Development and exploitation of • Contract extended from 5 to


International paging services in HCMC 9 years
(Australia)

4. VNPTSapura 1993 8 US$3.8M Development and exploitation of the • VNPT contributed US$1.6M
SDN-BHD public card phone services in HCM
(Malaysia) area

5. VNPTWorldcorp 1995 5 US$842K Development and exploitation of • VNPT contributed US$2.3M


Holding yellow page services
(Singapore)

6. VNPTKorea 1996 10 US$40M Development of network in Hai • BCC signed 2 years earlier
Telecom (South Phong city and Hai Duong, Hung Yen
Korea) and Quang Ninh provinces

7. VNPTNippon 1997 15 US$40M Development of network in the • Project IRR estimated at 12-
Telegraph and Northeast of Hanoi area. Construction 24%, with a 47/53
Telephone (Japan) of 240,000 new telephone lines (NTT/VNPT) profit share
• Realized on 50% of planned
expansion

8. VNPTFrance 1997 15 US$467M Development of internal network of


Telecom (France) the east of HCMC. Construction of
540,000 new telephone lines

9. VNPTCable & 1997 15 US$207M Development of telephone network in


Wireless (UK) the east of Hanoi city. Construction of
250,000 new telephone lines

10. SPTS-Telecom 2003 n/a US$230 Development and exploitation of • First non-VNPT BCC
(South Korea) CDMA mobile phone network and • Has clause to convert into
service joint venture when Vietnam
law permits

11. Hanoi Telecom 2005 15 US$656M Build a CDMA mobile phone network
Hutchinson in Hanoi
Telecom (HK)

Source:VNPT website,World Bank,VNCI research.

Evaluating BCC performance It has been satisfactory for both calls by VNPT, the income for
sides, because the need for Telstra was positive.
BCCs in Vietnam have had mixed
international lines in Vietnam at
success.The BCC between VNPT Later on, another BCC between
that time was huge and, due to the
and Telstra was the first in Vietnam. VNPT with Comvik International
high tariff imposed on international

28 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


was workable, as it brought into level applied when business plans continues to be used, it is likely that
place the first mobile phone are prepared each year. Vietnam will only be able to attract
network in Vietnam. Similar to low quality investors. A better
Many managers of foreign investors
international calls, the mobile alternative would be for Vietnam to
involved with these BCCs believe
phone tariff had also been set high expand the types of foreign
that substantial change in the form
by VNPT and the government of investment allowed to United
of investment should be introduced
Vietnam, and therefore Comvik’s States investors according to the
if Vietnam wants to obtain a
income from the BCC was requirements of the BTA.
qualitative investment in the sector
considered to be acceptable. In
in the future. According to a Vietnam agreed in its BTA with the
both of these BCCs,VNPT
former manager of Telstra, a new United States on a timetable for
benefited considerably from both permitting joint ventures with U.S.
form of investment is needed
the capital and technological investments in the telecom sector.
because the prevailing BCC system
contribution of the foreign It is likely that a similar
does not accord with global trends.
partners. Recently the VNPT commitment will be made to other
According to Comvik International,
decided against renewing its BCC countries in the course of
the BCC with VNPT is successful
with Comvik, which may increase but the overall financial Vietnam’s accession to the WTO.
the risk, and hence cost, of future performance has not met Comvik’s Some countries may already enjoy
BCC deals. expectations because of the benefit of the same timetable
The fate of other BCCs with VNPT weaknesses in the BCC system and because of most favored nation
in the less lucrative area of local taxation changes. Similarly, a Korea (MFN) clauses in their trade and/or
fixed telephone networks has been Telecom manager said: “Our investment treaties with Vietnam. In
less satisfactory.The existing BCCs experience and achievement has us any case it seems likely that the
wanting to make additional Vietnamese Government will
are those with NTT (Japan) for the
investments but in a climate more eventually publish regulations that
Hanoi area, French Telecom for
favorable to FDI enterprises.The will permit investors from all
HCMC area, and KT (Korea) for
BCC system is not suitable to countries to enter JVs in telecom
Hai Phong, Quang Ninh, Hai
commercial sectors –such as the on a timetable similar to that
Duong and Hung Yen areas. Capital
Internet – which are developing permitted for U.S. investors. When
investments made by foreign
very rapidly and need market combined with the recent
partners in those BCCs have been
competitiveness.To encourage the termination of its cellular BCC with
substantial and were therefore
development of these sectors, Comvik, it appears government
accordingly acknowledged by the
foreign enterprises should be policy, market forces and financial
Vietnamese side. However, the
allowed to share corporate pressure is pushing Vietnamese
technology and know-how
ownership and to participate companies toward more common
contribution of the foreign
directly in the operation of the forms of joint ventures.
partners were not highly
business.” These comments explain
acknowledged by some local
to a certain extent recent news Regional comparisons of
telecom officials, claiming that
Vietnam had already mastered the
about VNPT’s plan to raise capital foreign investment
for its mobile operations via a
technology for local telephone The degree of liberalization of the
public offering rather than an
networks. More importantly, as the traditional fixed-line voice service
extension of its BCC.
tariff for local calls was set fairly sub-market is commonly used as a
low by VNPT and the government, In the future, the capital cost for litmus test of whether the overall
the income stream for investors investment in telecom projects will market is open to competition. In
has not been satisfactory.There is a likely be greater but the expected terms of the number of suppliers,
lot of tension between VNPT’s margins will be lower due to more monopoly or duopoly structures
foreign partners about the IRR competition.Thus, if the BCC form still dominate ASEAN fixed-line

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 29


voice services markets. Only the Figure 17: Regional comparison of limits on foreign ownership
Philippines, Malaysia and Vietnam
have a competitive market Countries % of foreign capital allowed Legal forms required
structure (as defined as having
more than three operators Brunei Darussalam Not allowed n.a.
competing with the incumbent Cambodia 49 (with exception) None
PTOs). However, unlike most other
ASEAN countries,Vietnam restricts Non-ASEAN: 35 ASEAN: 40
Indonesia JV, JO, CM
(with exception)
equity participation by foreign
investors, as outlined in Figure 17. Lao PDR
Foreign equity not less than 30
JV or foreign-owned company
for JV

61 allowed for the first 5 years; Through acquisition of shares


Malaysia
49 subsequently existing operators

Myanmar Not allowed Not allowed

The Philippines 40 No restriction

Singapore 100 No restriction

Thailand 20 JV

Vietnam Not allowed Only through BCC

30 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


THE DOMINANT ROLE OF VNPT
he introduction of maintained a dominant position, in beyond the scope of this report to

T competition into the


telecommunications sector
is a relatively new phenomenon,
terms of network infrastructure
and market share, which in turn
allowed the company to participate
investigate these allegations.
However, it serves the purpose of
focusing attention on the need to
largely driven by the breakup of in anti-competitive activities. In review the position of VNPT in
AT&T in the USA in 1984. response, the international making an assessment of
Previously, telecommunications was community developed the GATS competition in the telecom sector
viewed as a utility or ‘natural Annex on Telecom and the and the impact of the type and
monopoly’. In many countries, both Reference Paper to provide level of competition on the sector’s
developed and developing, this minimum standards to prevent a future development. Many of the
monopoly was state-owned. During former operator creating a complaints against VNPT have been
the 1980s and 1990s, however, the monopoly, and any new entrants investigated and settled by MPT.
landscape changed significantly as who achieve large market shares However, there are indications that
country after country adopted a from using their positions to some of these practices are
new model based on private engage in anti-competitive continuing.The particular
sector ownership and competition. practices. In principle,Vietnam has allegations made about anti-
In almost all countries, the mobile agreed to these standards. competitive practices by VNPT
sector became a driver for include:
VNPT’s dominant position in
competition, not only with other Vietnam’s telecom sector is • unfair allocation of network
mobile operators, but with landline unquestionable, with the World facilities;
operators as well.These new Bank estimating that the company • high prices for use of network
networks also required large sums holds 94% of the aggregate market facilities;
of capitol, ushering in a wave of – well above the 30% threshold • cross-subsidization;
new operators, joint ventures and outlined by the MPT.This • refusal of services; and
other new business models continuing control of essential • forced use of VNPT services; and
dependant on private sector facilities and its overwhelming share • abuse of technical measures to
investment. of multiple segments have led to block competitors’ services.
Policy-makers and regulatory questions about whether the VNPT
is inhibiting competition and, hence,
measures quickly released the Anti-competitive
impacting on network expansion,
natural advantage that incumbent behavior
service quality and the introduction
operators had to impact on the
of advanced services.The historical Unfair allocation of network
market and inhibit competition.
relationship between the MPT and facilities
When the incumbent is state-
the VNPT adds to the debate for
owned, there is a potential bias, Due to its incumbent status, the
the need for a fundamental
both perceived and real. After all, VNPT owns most of Vietnam’s
restructuring of VNPT and the
one branch of government telecommunications network, and is
establishment of a powerful,
overseeing another may create the only operator with widespread
independent regulator.
problems and, in many cases, there geographic coverage. Given this
was a history of shared Such questioning has been situation, competitive operators
responsibility and overlapping accompanied by allegations from must interconnect with VNPT to
personnel. When the operator was other service suppliers of anti- offer a variety of services used for
private or privatized, the company competitive practices by VNPT. It is long haul traffic (also known as

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 31


backbone or trunk services) and overpriced services. One glaring However,VNPT is not able to
local access, not to mention access example involves the schedule of accurately calculate cost-based
to VNPT’s subsidiary networks in charges for leased lines to interconnection because the
the mobile, data and Internet companies outside VNPT. One company does not have a separate
spaces. According to industry company has to lease international accounting system or adequate
experts,VNPT frequently cites the lines from VTI, a VNPT subsidiary, at financial processes for several
lack of network capacity as the a price four times higher than the subsidiaries involved in cross-
reason for denying interconnection level at which VTI leases the lines subsidization. For example,VNPT’s
for new telecom companies, or for from foreign companies. Similarly, mobile and Internet subsidiaries
meeting only small parts of their another company has also lack an independent cost
requests. In practice, these actions complained that the charge by accounting and do not pay VNPT
stifle competition, and in turn inhibit VNPT on its leased lines accounts interconnection fees.These
the development of the sector. for 79.9% of the lease line fee, and practices distort the market and
is four times higher than the levels allow the dominant carrier to have
Viettel’s experience provides an of other countries in the region9. a significant competitive advantage.
example. In accordance with the Since the new entrants cannot
interconnection agreement lease international fiber optic cable, Refusal of services
between the two parties,Viettel the dominant carrier,VNPT,
submitted a request for There have been many cases
extracts a 300% margin from its
interconnection three months in reported of VNPT refusing to
competitors.
advance so that VNPT could provide services to market
prepare plans for investing and Cross-subsidization competitors, notably Viettel and
upgrading its network. On 30 SPT. According to the regulations,
Cross subsidies take excess profit the dominant operator must
October 2002,Viettel submitted an
from one service, e.g., international provide every available service in
official dispatch to VNPT to give
leased lines, to provide another its network to customers of the
notice of its plan to open VoIP
service, e.g., local service, at levels
networks in 21 provinces and to interconnecting new operators. In
below cost. When a competitor is
request increased interconnection one example,VNPT temporarily
paying for a service that is
capacity for 17 provinces in 2003. refused to provide value-added
overpriced, e.g., international leased
However, the result was that VNPT services, toll free (800 services)
lines, that company and its users
only agreed to allow Viettel to and paid toll (900 services) to
are subsidizing users of the below
open the network in nine Viettel’s subscribers.There are
cost service, e.g., local service.This
provinces. It is one thing if the other instances where VNPT
practice expressly contradicts
VNPT truly does not have network refused to provide competitors
government regulations, outlined in
capacity. However, there are with certain licensed directory
Decision 217/2003/QD-TTG
indications that the VNPT has services.
where the ‘interconnection fee of
sufficient capacity for its own telecom companies is Forced use of VNPT services
operations while rationing the determined...without differentiation
same access to its competitors. between telecom companies and Using the power of the dominant
between members of telecom service provider and network
High prices for use of
companies with other telecom infrastructure operator, there are
network facilities
companies’.That means that all cases where VNPT subsidiaries
VNPT has been alleged to charge telecom companies should have to forced distributors to sell only
unreasonable prices for use of its pay the interconnection fees VNPT services. One typical
network facilities, and due to its stipulated by MPT. example is provided by NetSoft, an
dominant position in the __________ ICT company operating under the
marketplace, competitors have no 9. ‘Phong Lan Enterprises are in big trouble auspices of the Ho Chi Minh City
because of high leased line fees’,VnExpress, 31
option but to purchase these March, 2004. PTT.The memorandum states that

32 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


‘from 1 March 2002, NetSoft companies had problems in making b) Payment of compensation for
agents must commit to sales of and receiving telephone calls, as damages to an individual,
pre-paid VNN Internet (such as well as in obtaining repair services organization or the State that is
VNN 1260-P, Fone VNN, etc) and from the local PTT12 . harmed by the violation13.
commit to minimum sales of
The Competition Council, another
400,000 VND/month, otherwise Competition Law Issues agency to be established under the
the agent’s ADSL connection shall
Many of the allegations just Law on Competition will decide
be cut off ’.This decision is seen as
described against VNPT and the whether a violation exists and on
unfair by many agents, particularly
provincial PTT companies, if true, the penalty, and has considerable
because the NetSoft commission
would amount to violations of the discretion regarding the remedy for
fee is about 6% to 8%, lower than
Law on Competition recently the violation and any penalty.There
the 15% to 25% commissions
adopted by the National Assembly. is also the possibility of an appeal
offered by other ISPs.VNPT’s
One of the most important to higher administrative authorities
master contract with agents also
aspects of the new law is that it is and to the courts and, because the
stipulates that ‘NetSoft agents shall
written to apply to SOEs as well as standard for review of the initial
not act as agents for any Internet
private enterprises.The conduct of decision is set out clearly in the
services providers other than
VNPT and the provincial PTTs, law, it seems that some exercise of
VNN’10. Given VNPT’s market
therefore, could be the subject of a discretion by these appeal agencies
dominance, these commercial
competition case to be investigated may be possible.The likelihood that
arrangements are clearly anti-
by the competition enforcement VNPT or any of the provincial
competitive.
agency that will be based at the PTTs will be sanctioned for alleged
Abuse of technical measures Ministry of Trade. Such a case could misconduct, if proven, may depend
to block competitors’ be initiated either by a person or on the Government’s policy on
services organization whose interests were competition and the degree of
harmed by the alleged competition separation between VNPT (or the
One of the most frequent
law violation or by the PTT involved) and the government
complaints about VNPT is that its
Competition Administration authorities handling the appeal.
provincial subsidiaries, the provincial
Authority, a new agency to be
PTTs, use technical measures to Most of the anti-competitive
established within the MOT. A
drive VoIP traffic over to VNPT’s conduct that VNPT and the
finding that a violation of the Law
network.The PTT engage in a provincial PTT companies are
on Competition did occur could
practice called ‘turn off the trunk alleged to have engaged in falls in
lead to:
side’ to block telephone calls the category of abuse of
through the VOIP networks of a) The imposition of one or more dominance, i.e. conduct that is
Viettel and SPT. In such cases, sanctions against the violator possible because of those parties’
customers can only make calls including monetary fines,
dominant positions in the relevant
revocation of permits and
through VNPT’s VoIP network11. markets. Six types of abuse of
licenses and ‘handling measures’
that seek to cancel or unwind an dominance are prohibited in the
There are also instances where a
illegal agreement or transaction; current draft law, and much of the
local PTT has punished large
and conduct alleged appears to fall
corporate clients that select VNPT
__________ within one or more of the types of
competitors or refuse to purchase 12. After many similar occurrences, in June 2004, conduct that will be prohibited.
value added services. If the MPT arranged an investigation of Khanh Hoa
provincial PTT, and made VNPT sign a memo Figure 18 reviews the alleged anti-
contract was refused, these with Viettel, committing not to take such
actions again. However, in spite of the memo, it __________
__________ has been reported that such activities still 13. Law on Competition, Arts. 116 and 117, states
10. ‘A competition going through a blind alley’, occur, and in August 2004, the Ministry of that the fine is limited to a maximum of 10%
Thanh Nien Online, 28 July, 2004. Defence had a meeting with MPT, requesting of the sales revenue of the violator for the
11. Hoang Ly,‘Competition according to ‘jungle’ MPT intervention to solve the problem financial year preceding the year in which that
laws’,Thanh Nien Online, 13 September, 2004. completely. act is conducted.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 33


Figure 18:Telecommunications issues addressed via the Law on competition law agency.Vietnam’s
Competition Law on Competition so far makes
no such assignment, perhaps
Alleged conduct Type of prohibited abuse of dominance because, as yet, there is no
separate regulatory body for
High prices of Price squeeze: telecommunications. However, the
infrastructure 2. Impose unreasonable purchase or sale prices for goods and
services services or fix the minimum re-sale prices, thus causing damage activity of the Competition Council
to customers. in enforcing the Law on
Competition for
Cross-subsidization Predatory pricing, price discrimination:
1. Sell goods at prices below the cost price (including the
telecommunications could
production cost and circulation costs) in order to preclude contribute to the design of a new
competitors, except for special cases provided for by the regulatory agency for
Government.
4. Apply different commercial terms to different enterprises with
telecommunications that could be
respect to the same transactions, hence placing those assigned to enforce some aspects
enterprises in an unequal position in terms of competition. of competition law in the sector in
the future.
Refusal of services Refusal to deal:
6. Hinder market access by new competitors.
The argument for
Unfair allocation of Refusal to deal: privatizing VNPT
network facilities 6. Hinder market access by new competitors.

Forced use of VNPT Tying:


There is a global consensus among
services 5. Impose on another enterprise conditions for entering into a opinion-leaders that privatization
contract for the purchase or sale of goods or services, or and competition provide economic
compel another enterprise to accept obligations that are not
and social benefits to society,
directly relevant to the subject matter of the [concerned]
contract. particularly in the
telecommunications sector.
Abuse of technical Limiting markets, refusal to deal: Sometimes called equitisation,
measures to block 3. Restrict production [or] distribution, limit market[s], or hinder
capitalization or divestiture, the
competitors services technical and technological development, thus causing damage
to customers. privatization consensus is apparent
6. Hinder market access by new competitors. in many countries in Asia where
governments are pressing to
liberalize their economies and
competitive practices of VNPT and companies of various competitive reform the public sector, with
provincial PTTs and links to the capacities, this importance will likely emphasis on structural reforms
abuse of dominance prohibited in increase and the other categories within the telecommunications
Article 13 of the Law on of competition law, agreements for sector. While regulatory reforms,
Competition. restriction of competition, mergers privatization and the introduction
and acquisitions, and unfair of competition gain momentum
As the above discussion of possible
competitive acts will become worldwide, each country must
applications of the Law on
important as well. Because of the pursue a strategy and pace of
Competition to the
importance of competition law change most appropriate to its
telecommunications sector
issues to the regulation of the socio-economic and political
indicates, the standard competition
sector, some countries assign the situation.The overarching trend,
law issues in the category of abuse
function of enforcing competition however, is clear: the region’s
of dominance can be expected to
law in the sector to the governments are executing
be important in the sector. As the
independent telecommunications ambitious initiatives to reform their
telecommunications sector
regulatory agency rather than (or telecommunications sectors and
develops and attracts more
in addition to) the general ultimately improve the economic

34 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


Figure 19:Asian privatizations in the 1990s

Year Country Company % sold Sale amount Financial notes Purchaser(s)

1999 India VSNL 10.0 US$ 104 M Public offering Local/Foreign

1997 India MTNL 8.5 US$ 359 M Public offer Various

1997 India VSNL US$ 448 M Public offer Foreign investor

1997 China China Telecom HK 25.0 US$ 3,933 M ADRs Various

1997 Kazakhstan Kazakhtelekom 40.0 US$ 370 M Private sale Foreign investor

1997 Russia Svyazinvest 25.0 US$ 1,875 M Private sale Local investor

1997 Sri Lanka Sri Lanka Telecom 35.0 US$ 225 M Tender Foreign investor

1991 Turkey Turk Kablo 38.0 US$ 11 M Direct sale Foreign investor

Total US$ 7,324 M

Source:World Bank,VNCI research.

and social well-being of their more than US$40 million. In 1998, Internationally, the benefits of
populations. As decision-makers Brazil privatized its state-owned privatization are convincing.
continue along the path of operator, receiving an incredible Statistical data from recent
institutional capacity building, US$19 billion in bids. Of all privatizations strongly suggests that
privatization or the licensing of new privatizations in 1997 and 1998, the the introduction of private sector
service providers, the liberalization telecommunications sector capital and management results in
process is likely to provide represented one-quarter of the network expansion, increased
tremendous opportunity for the transactions. More recently, India teledensity, higher levels of
private sector to invest in privatized in the late 1990s, raising investment and the introduction of
telecommunications infrastructure nearly $1B through public offerings, advanced technology. However,
as well as modernize and improve and Pakistan is selling a 26% in privatization in some countries has
access to advanced PTCL worth around $750 million. produced more benefits than in
telecommunications technology Thailand intends to sell-off two others. For example, in terms of
and information services. telecom SOEs (and recently the relationship of privatization and
recreated an independent annual investment in the telecom
VNPT’s recent announcement of
regulatory as a prelude). In fact, in sector, empirical data points out
its intent to sell to the public a
recent years more than 50 that annual investment increases in
49% share in its mobile subsidiary
governments have transferred the post-privatization environment.
suggests that it is an appropriate
ownership and control of state- In Mexico, annual investment nearly
time for Vietnam to discuss an
owned telecommunications doubled in the second year
overall policy on privatization.
providers to the private sector, following privatization, while in
Recent history suggests this policy
raising more than US$200 billion – Peru, annual investment nearly
is in fact overdue. During 1996
a trend that is unlikely to ebb in tripled in the first year alone. In
alone, there were more than 110
the near future. Figure 19 provides Malaysia, annual investment
telecom privatizations transactions
an overview of recent increased three-fold during the
in nearly 70 different countries. In
privatizations in the region. fourth year of post-privatization. In
1997, there were an additional 17
terms of raising teledensity and/or
privatization transactions, raising

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 35


increasing telecommunications terms, on average, privatizations permits the government to tap into
access, similar discrepancies arise; worldwide have improved the this information, experience and
privatization has a positive impact, efficiency of the mainline operator, analysis. In this way, several
but the relative benefit varies from and dramatically increased capital competing interests may provide
country to country. expenditure and teledensity. difference analyses, studies and
recommendations. Privatization,
In addition to a rapid roll-out of By learning from these international
albeit an important first step,
the network, international experiences,Vietnam can develop
should be seen however as only
experience suggests that privatization and liberalization plans
one of the initial policies of
privatization also results in that meets the country’s overall
liberalization, and must ultimately
increased revenues for the mainline needs. It is important to note that
be linked to regulatory reform and
operator, higher revenue per line much of the technical, legal and
the introduction of competitive
and improved operational efficiency business expertise within the
market forces.
as measured by the number of telecom industry resides within the
employees per line. In simple private sector; this planning process

36 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


RESULTS OF THE SURVEY OF
TELECOM SERVICE USERS
his chapter draws upon the

T results of a survey of
telecom users to outline a
number of key demand side
Figure 20: Breakdown of sample

By location By industry By ownership By size (staff)

features of the Vietnamese telecom Hanoi 72% ICT 37% Private 66% less than 100 58%
HCMC 25% Other services 36% SOE 20% 100 to 300 20%
sector. As discussed below, there
Other 3% Manufacturing 15% FDI 14% 300 to 500 11%
were 89 firms (from a total sample Banking 12% more than 500 11%
of 150) providing written
responses to our mail-out survey 100% 100% 100% 100%
focusing on the following key
issues: Figure 21: Level of importance of telecom services and products
• The current state of utilization of
Service All enterprises IT Banking Services Manufacturing
telecom services by enterprise
users.
Fixed telephone 1.19 1.24 1.1 1.22 1.08
• The quality of telecom services
and products currently available Internet access 1.48 1.4 1.67 1.5 1.5
in the market. Mobile telephone 1.52 1.64 1.78 1.45 1.23
• The relationship between price
ADSL Internet
and the amount and type of 1.87 1.38 2 1.86 3.09
access
telecom services consumed.
Dial-up Internet
• The likely behavior of telecom access
2.96 3.58 2.6 2.94 1.89
users if telecom services are
substantially improved. Leased line
3.39 3.59 2.75 3.2 3.78

Data transfer 3.44 3.93 2.22 3.05 4


The sample
VoIP 3.95 3.93 3.89 3.84 4.33
Figure 20 provides a breakdown of
Frame relay 4.14 4.24 3.25 4.56 3.9
the sample by location, industry,
ownership and size.The sample is WiFi Internet
4.15 3.95 4.71 4.31 4
not intended to be representative access
of all firms in Vietnam. However a 1800 service 4.16 4.41 4.17 4.24 3.5
number of key criteria were used
Where: 1 = very important/frequently used, 2 = important/generally used, 3 = normal importance and
in selecting firms to be surveyed: use, 4 = less important/less used, and 5 = not at all important/never used
• First, we focused on firms with
telecom intensive inputs, such as domestically owned private much as possible from the
ICT, banking and other services. firms, we limited the number of existing networks of the VNCI
Only 12% of the sample were state-owned and foreign clusters. For this reason, we
from manufacturing. invested firms to about one-third included 30 firms from the VNCI
• Second, in line with VNCI’s focus of the sample. software/ICT Clusters in both
on building the competitiveness • Third, we tried to leverage as Hanoi and HCMC, and 14 joint-
of small to medium sized

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 37


stock commercial banks Figure 22:Telecom costs as a percentage of total costs
associated with the banking
component of VNCI. Telecom costs

Utilization of telecom Manufacturing


services Other services
As presented in Figure 21, various
telecom services and products Banking

were ranked by level of


ICT
importance to enterprise users.
The overall result indicates a low All firms
level of utilization of telecom
services in the surveyed 1 1.5 2 2.5
enterprises, even those from the Note the averages in the above graph are drawn from the following aggregate responses:
ICT sector. It appears that 1 = telecom costs / total costs are less than 5%;
2 = telecom costs / total costs are greater than 5% but less than 10%;
‘traditional’ telecom services such 3 = telecom costs / total costs are greater than 10% but less than 15%; and,
as fixed line telephony, cellular 4 = telecom costs / total costs are greater than 15%.

telephony and Internet were the


most important services across all
sectors (in particular to Figure 23:Assessing telecom service prices
manufacturers), with the least Other
All enterprises IT Banking Manufacturing
important/least used being the service
WiFi access, frame relay and toll
Fixed line telephone 2.06 2.19 2.25 1.82 2.33
free services.
International call 1.48 1.47 1.60 1.35 1.69
The survey asked a follow up
question: what was the primary Provincial call 1.77 1.87 1.73 1.81 1.45
reason for not using new telecom
Local loop call 2.38 2.63 2.50 2.11 2.25
services/products? Respondents
had the choice of one of three Cellular phone 1.62 1.71 1.91 1.48 1.46
answers: 1) the service is not yet Internet dial up
available; 2) there is no perceived 1.98 2.05 1.70 2.08 2.00
access
commercial use of the service; and
ADSL access 2.37 2.29 2.00 2.39 2.89
3) the high price of the service.
The overriding response was 2), WIFI 2.54 2.15 1.33 3.20 4.33
suggesting a number of advanced
VOIP 2.84 2.62 3.00 2.77 4.00
features and services are not
perceived to add value.This could Leased line 1.63 1.43 1.22 1.88 2.38
be due to a lack of customer Data transfer 2.03 1.76 1.57 2.40 3.50
understanding and/or poor product
education and marketing. Where: 1 = too high; 2 = high; 3 = normal; and 4 = low.

Telecom costs sample. Enterprises in banking and typically under 5%.The results are
Telecom related services the financial sector reported a outlined in Figure 22.
accounted for approximately 5% of higher telecom to total expense
Service price levels were very high
the total operational expenses of ratio of 5-10%, whilst for
according to the surveyed users.
surveyed enterprises in the survey manufacturing this ratio was

38 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


Figure 24: Connection service quality measures

Connection times Transmission speed

Connection to Internet Data transfer

Data transfer Leased Line

Mobile telephone VOIP

Local connection WIFI

Provincial connection ADSL

International connection Internet dial-up

1 2 3 4 5 1 2 3 4 5
Where: 1 = very fast; 2 = fast; 3 = normal; 4 = slow; and, 5 = very slow.

This perception was strong for ILD, expanded market for telecom by breakdown frequency and
DLD, Internet dial-up services, 25-30%. technology used.
cellular telephone calls and leased
The general assessment of the level
line services. Fixed line local Service quality of technology used is that it is
telephone calls, ADSL and VoIP assessment relatively new and up to date,
were perceived to be more
Firms were also surveyed about although not state of the art. A
reasonably priced.These findings
their views on service quality based preliminary assessment of the
were consistent across all industry
on four criteria: connection times, quality of telecom services, using
groups, and are summarized in
transmission speed, reliability of the above figures, is essentially
Figure 23.
services (frequency of breakdown) positive.Telecom users perceive
Firms were also asked how they and technology deployed. Average that they have access to a relatively
would respond to 10%, 20%, 30% responses for connection times and modern telecom system that
and 40% reductions in service transmission speeds are provides reliable and fast
prices. We found that, to varying summarized in Figure 24. connections, but with relatively low
degrees, firms were sensitive to transmission speeds.
changes in telecom prices (that is, a Most respondents report
reduction of telecom prices that satisfactory connection times, with Impact assessment of
would lead to a significant increase the possible exception of local
improved services
in the demand for telecom connections.The overall assessment
services).This is what economists of transmission speed for the Firms were asked what would be
refer to as ‘price elastic’.The various telecom services is ‘normal the likely impact upon their
calculated price elasticity of to slow’. Respondents perceived businesses if telecom services were
demand ranged from -0.57 to - the Internet to be particularly slow. substantially improved (i.e.
0.66, with an average for the entire Responses on breakdown delivered in best practice manner
sample of -0.63 (manufacturing frequency suggests reliable network in terms of quality, price and
having the lowest elasticity).This connections. As expected, the most services available).The results, as
means that for every 10% problematic areas in terms of summarized in Figure 26, showed
reduction in price, demand for breakdowns are mobile, dialup and that there would be a significant
telecom services should expand by ADSL services, but even these only increase in revenue, labor
around 6%. In this way a price cut happen occasionally. Figure 25 productivity, profitability and the
of about one third will lead to an outlines the survey results on rate of innovation. Unsurprisingly

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 39


Figure 25: Breakdown frequency and technology assessment

Breakdown frequency Technology used

Data transfer Data transfer

Leased Line Leased Line

VOIP VOIP

WIFI WIFI

ADSL ADSL

Dial up Internet dial-up

Mobile telephone Cellular phone

Fixed line Fixed line

1 2 3 4 5 1 2 3 4 5

Where: 1 = never; 2 = sometimes; 3 = normal; Where: 1 = cutting edge technology; 2 = relatively new;
4 = often; and 5 = very often. 3 = neutral; 4 = old; and 5 = very backward.

likely lead to a 25-30%


Figure 26: Impact of improved services on enterprises
expansion of the telecom
All Other market.
IT Banking Manufacturing
enterprises service
• Improved service delivery
(including lower prices) would
Increased turnover 6% 8.5% 6.5% 4% 5.5%
translate into improved firm level
Increased labor competitiveness through
7.5% 8.5% 6% 7% 7% significantly higher turnover and
productivity
revenues, improved profitability
Cost reduction 4% 5% 4% 4% 4% and an increased rate of
innovation.
Increase in profits 6% 7.5% 6% 5% 4%

Increased technology 6.5%


7.5% 8.5% 8.5% 5.5%
innovation

the strongest impacts would be in • Although new services are


the IT and banking industries. available, most firms continue to
focus their telecom use on
Conclusions of the traditional telephony and
Internet services, suggesting that
survey important platforms for
A number of interesting points can innovation are yet to be
be drawn from this survey of exploited.
business users: • Most business concerns focus on
• Vietnam appears to have a well- the relatively high prices of
run and reliable telecom Vietnam’s telecom services. Price
network that provides relatively reductions would lead to
fast connections, but often slow substantial increase in demand
transmission speeds. for telecom services. A price
reduction of one-third would

40 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


THE WAY FORWARD
he path for Vietnam to

T
prosperity to all segments of the business and residential users,
move forward with its population. unions, trade groups, et al.
process to liberalize the
But change is rarely an easy Implementing change is a difficult,
telecommunications sector is
process, and often requires long- technical process, particularly if
straight-forward. Globally, there is a
term focus and commitments. there is a lack of consensus among
clear bias toward competition and
Change also requires choices that key decision-makers and
regulatory transparency, including a
negatively impact on powerful and stakeholders.Therefore it is
primary role for private investment
vested interests.Therefore, building important to understand the
– both domestic and international.
societal consensus is key to important role each of these
Vietnamese decision-makers
implementing and sustaining groups has in the liberalization
understand this, and have agreed to
change. Indeed, even when process, and learn from the best
meet a variety of criteria
embedded in Vietnam’s bilateral consensus is reached, people and and worst practices around the
treaty with the United States, and organizations have honest world. Figure 27 highlights the role
by reference, international norms differences on how to achieve each stakeholder plays –
associated with GATS and WTO. common goals.Therefore, public government, business and civil
First and foremost,Vietnam must discussion and fact-based decision- society – and provides a
move aggressively to institute making are primary in order to framework for developing a
transparency in its telecom strategy ensure success. consensus for action.
and regulatory policy.The country
In this chapter, the VNCI proposes Recommendations
must also fundamentally revamp
commonsense recommendations
the VNPT through a series of
based on trends in both Vietnam as The VNCI has identified significant
reorganizations that will ultimately
well as international norms. It is gaps between objectives laid out by
result in private sector investment.
important to note that the government of Vietnam and
The government must also
recommendations build on the realities of its telecom sector.
contend with other SOEs
previous works conducted by the Policy-makers have stressed that
operating in the telecom space.
World Bank, GIPI, the Government competition is a key objective for
The importance of the of Vietnam and the VNCI. In order the government. While Vietnam has
liberalization process cannot be to build societal consensus around introduced some competition, it
underestimated, as success or these recommendations, the VNCI remains geographically isolated and
failure will influence Vietnam’s puts forward best and worst service specific. In addition, all
ability to economically compete in practices from around the region competitive players include state
regional and global markets.The and world, and ties these practices investment and/or cross ownership
inability to build out its network to various stakeholders in a vibrant, of the dominant player,VNPT.
infrastructure, for example, directly competitive telecommunications Modernizing and reforming the
impacts all export related business environment: dominant VNPT is primary to the
as well as the IT and ITES success of Vietnam’s liberalization
• Government – strategy, policy program. Other important features
segments. Only with ubiquitous
and regulation;
access, both urban and rural, to of competition include a cost-
cutting edge technologies at • Business – operators, vendors effectively handle mechanism to
competitive prices can Vietnam’s and related businesses; disputes in a timely manner. Based
Doi Moi policy succeed in bring • Consumers and Civil Society – on Vietnam’s new competition law,

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 41


Figure 27:Telecom’s best and worst practices

Stakeholder Role Best practices Worst practices Innovations

Government Policy-making. • Multi-sector policy • Conflicting policies among • Multinational policy14.


development, e.g., telecom, IT, different ministries.
trade and education.

Regulation. • Single, independent regulatory • Separate regulators at • Multinational regulation.


agency for convergence national, state and municipal • Self regulation and multi-sector
sectors, e.g., telecoms, IT, level, e.g., USA. competition' commission15.
media. • Technology/service favoritism. • Universal licensing16.
• Self financed. • Burdensome regulation • Use consultants to capture
• Technology neutral standards sector expertise.
• Robust data gathering and
analysis.

Jurisprudence • Specialized court for telecom • Multiple legal forums for legal • Required independent
(Judicial section with sector review. mechanism for binding
Review). experience and expertise17. • Jurisdiction shopping. arbitration or need for court
action.

Business Operators. • Access to private/foreign • State-owned monopolies. • Cooperatives or municipally-


investment. • Restrictive licensing. owned operators in rural areas
• Converged service providers. • Barriers to convergence to introduce service and drive
• Transparent governance to operations, e.g., restrictions on competitive.
prevent improper accounting, CATV operators. • VoIP and other convergence
and anti-competitive practices. operators.

Financial • Access to multiple financiers, • Excessive limits on private and • Framework for small business
institutions. e.g., equity, corporate loans, foreign investors. loans,VC, angel investment, etc.
bonds, etc.

Vendors • Open access to all • Force vendors to produce • Partnerships between


(hardware, technologies. specific technologies (raises operators and academia for
software, • State support to develop prices). R&R, training.
services). domestic technology.

Ancillary • Multiple ancillary players drive • Government support for


businesses vibrant market. telecom dependant industries,
(ITES, BPOs). ITES, BPOs.
• Divest non-core SOE assets,
e.g., construction.

__________
14. Regional policy-making and regulations in the EU and the SADC harmonize policy and regulation, creating a consistent environment for business to deploy
new services.
15. In Australia, the Communications Authority is responsible for regulating telecom, including promoting industry self-regulation. However competition issues
within the telecom sector are handled by the Competition and Consumer Commission, which is responsible for enforcing telecom related provisions of the
Trade Practices Act.
16. In 2004, India introduced a universal licenses regime, integrating all telecom services – basic, LD, mobile, paging, satellite TV and VAS – into a single license with
common cost, structure, and obligations, e.g., universal service payments.This simplifies licensing, and hence is seen as a mechanism to introduce competition.
17. In 2000, India created the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) to adjudicate disputes between a licensor and a licensee, between
two or more service providers, or between a service provider and group of consumers, and to hear and dispose of appeals against any direction, decision or
order of the regulator.

42 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


Stakeholder Role Best practices Worst practices Innovations

Civil Society Consumers • Consumer/business groups to


(business protect and inform the public.
residential)

Unions • Proactively and positively • Stakeholder forums to educate


impact reform. unions and involve them in the
policy process.

Associations • Multiple trade groups for • Initial government support for


operators, ISPs, consumers, the creation of these
etc. associations, e.g., Indian ESC18.
• Support on entrepreneurs and
VC19.

Academia • Government grants for • Industry sponsored R&D and


academic research, i.e., White academia products, programs,
Papers, studies. and training.
• Government funding for tech.
training, R&D.

the Competition Commission may Lastly, and most importantly, the Vietnamese telecom
play an important (yet undefined) government needs to build stakeholder conference
role in managing anti-competitive consensus for change from all
behavior. stakeholders and segments around Realizing that these issues are
privatization.This process involves complex and difficult to address, the
Secondly, while the government has VNCI suggests the organization of a
made important and notable better public access to sector
Vietnamese Telecom Stakeholder
strides in improving the regulatory information and government
Conference, sponsored by leading
environment to meet international coordination for non-government
stakeholders and decision-makers in
norms,Vietnam needs to create a actors within civil society, notably
government, business and the
separate and autonomous consumer groups and trade private sector.This model was very
regulatory function outside of the associations.This includes a role for successful with USAID’s Southern
MPT. Other weaknesses in the stakeholders currently precluded African Regional
current regulatory environment from Vietnam’s sector – private Telecommunications Restructuring
include the need to establish a investors, foreign investors, financial (RTR) Program. In several countries,
cost-based tariff and institutions and international USAID brought together key
interconnection regime, the lack of organizations. telecom stakeholders from
which results in cross-subsidies and government, business and the civil
high prices on some essential The VNCI recommendations,
society to engage in a fact-based
services.The licensing process also outlined in Figure 28, are meant to discussion with national, regional
lacks sufficient procedures, public be forward looking, targeting the and international experts on topics
information and communications. successful achievement of Vietnam’s ranging from investment
These factors provide an additional sector goals. But let’s be perfectly opportunities, specific regulatory
obstacle to attracting market clear.Vietnam has initiated the issues, e.g., licensing and universal
entrants and competitive reform process, but significant service, and privatization.The forum
operators. additional action is required. allowed honest discussion of the
__________
18. The Electronics and Computer Software Promotion Council (ECS) is a quasi-government agency of the Ministry of Communications including the telecom,
computer, ITES, BPO, electronics industry.The ECS sponsors research and analysis, organizes trade events, supports Indian trade associations, and tracks results.
19. Competition Review of the Telecom Sector in Vietnam.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 43


Figure 28:A roadmap for change

Recommendation Action

Telecommunications • Allow foreign private sector ownership in the telecom sector.


Policy • Require that industry submit market information on a regular basis, e.g., every three months, with more
detailed annual analysis.
• Draft and publish a quarterly telecom report that maps industry trends and actions to government objectives.
• Create quasi-ministerial commission to develop civil society associations and organizations, e.g., ISP association,
consumer group, trade publications, et al.
• Introduce a specialized court to deal with telecom and IT issues.
• Initiate process to revamp telecommunications law (inclusive of the recommendations in this table).

Regulatory • Create independent regulator separate from MPT.


Transparency • Improve public availability of information by consistently updating regulator's public website, including policies,
procedures and online complaints.
• Develop a code of conduct for regulatory employees, including restrictions on gifts, and revolving door
employment.
• Eliminate dual role between VNPT and MPT employees.

Strengthen Vietnam's • Issue additional interconnection guidelines that:


interconnection - explicitly defines non-discriminatory behavior;
regime - strengthens guidelines re: 'misuse' of information;
- defines reasonable interconnection costs and delays of service; and,
- sets out administrative policy to prevent and rectify such behavior, e.g., mandatory arbitration, investigative
process and fines.
• Develop a cost accounting policy, e.g., chart of accounts and cost allocation, to identify and eliminate subsidies
that:
- use industry best practices;
- define costs, and determine cost methods and calculation;
- outlines accounting practices and guidelines; and
- taps private sector and international expertise, e.g., consultants.
• Clarify role of the Competition Commission in the telecom sectors as it pertains to Vietnam's new
competition law.

Strengthen Vienam's • Further development of the licensing criteria.


licensing regime • Introduce concept of universal licenses to increase competition.

Tariff rebalancing • Based on a cost account policy, initiate process to rebalance tariffs and eliminate cross subsidies.
VNPT reform • Reorganize VNPT through a series of radical changes in structure, management and accountability:
- Create separate accounting for different businesses;
- Prepare and issue a type of 'code of ethics' and rules for its subsidiaries, especially provincial/district PTTs,
about what anti-competitive actions they must not take, especially in relation to essential competitive issues
such as interconnection, etc;
- Spin-off non-core assets; and
- Sell-off cross ownership in competitors.
• Privatize VNPT along geographical lines and/or lines of business, e.g., multiple operators to increase competition.
• Privatize other state-owned telecom operators.

issues, opportunities for concerns stakeholders to address the issues organizations such as the World
to be raised among various and actions to move forward. Bank, ADB, USAID, etc. For
stakeholders and, most importantly, Invited participants should include example,Vietnamese policy-makers
allowed for the development of a the widest array of decision-makers could discuss when Vietnam can
consensus for change. and interested parties, including begin the consensus-building
Vietnamese government officials, process required to aggressively
The Vietnamese Telecom
regional regulators from India, the drive forward with the
Stakeholder Conference could set
Philippines,Thailand, etc., business telecommunications reform
up similar discussions between
people, the media, international process.

44 COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR


BIBLIOGRAPHY
ASEAN Secretariat, Liberalization and Harmonization of the Telecommunication Sector in ASEAN Countries, 2004.
‘A competition going through a blind alley’, Thanh Nien Online, 28 July, 2004.
C. Qiang, A Comparative Study of Market Separation and Regulatory Responsibility in China, Spain, Brazil and the U.S,
World Bank memo, 2004.
Government of Vietnam, Development Strategy until the year 2010 and the Orientation until the year 2020.
Government of Vietnam, 2001. Decision 158 on Post and Telecommunications.
Government of Vietnam, 2004. Decree 160 on Telecommunications.
Hoang Ly, ‘Competition According to ‘Jungle’ Laws’,Thanh Nien Online, 13 September, 2004.
Intven, Hank and Tetrault, McCarthy (2000). Telecommunications Regulation Handbook, The World Bank,
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International Telecommunication Union (2002). Trend in Telecommunication Reform. Geneva.
ITU, Vietnam Internet Case Study, Geneva, 2002.
Ministry of Post and Telecom, 2003. Decision 148/2003/QD-BBCVT on Telecom Tariffs.

Ministry of Post and Telecom Website, www.mpt.gov.vn.

Phong Lan, ‘Enterprises Are In Big Trouble Because of High Leased Lines Fees’,VnExpress, 31 March, 2004.
Prime Minister’s Office, 2003. Decision 217/2003/QD-TTg on Regulations of Telecom Charges and Tariffs.
Standing Committee of the National Assembly of Vietnam, Ordinance on Post and Telecommunications, 2002.
‘Vinaphone, MobiFone Violate Interconnection Charges Regulations’. VnExpress, 19 April, 2004.

COMPETITION REVIEW OF THE VIETNAMESE TELECOM SECTOR 45


Development Alternatives, Inc. (DAI) is a global consulting firm providing social and economic The Asia Foundation is a non-profit, non-governmental organization committed to the
development solutions to governments, communities, and companies with projects in developing development of a peaceful, prosperous, and open Asia-Pacific region. The Foundation supports
and transitioning countries. Founded in 1970 and headquartered in the Washington, DC area, DAI programs in Asia that help improve governance and law, economic reform and development,
now includes companies in Brazil, South Africa, Palestine, and the United Kingdom. DAI's 1,600 women's participation, and international relations. Drawing on 50 years of experience in Asia, the
employees work in 75 countries. Clients include global development agencies, international Foundation collaborates with private and public partners to support leadership and institutional
lending institutions, global corporations, and host country governments. development, exchanges, and policy research. With a network of 17 offices throughout Asia, an
office in Washington, D.C., and its headquarters in San Francisco, the Foundation addresses these
issues on both a country and regional level.

U.S. Agency for International Development


Regional Development Mission - Asia
USAID/Vietnam Program Office
Tung Shing Square Tower Building, 15th Floor, 2 Ngo Quyen Street
Hanoi, Vietnam
Tel : (84-4) 935-1260
Fax: (84-4) 935-1176
www.usaid.gov