With the shift towards a more market-orientated economy, Vietnam’s telecommunications market is seeing further openings for foreign investment, including the supply of telecoms services and the establishment of infrastructure networks. The government has, meanwhile, taken some broad steps in boosting competition in the marketplace by restructuring the state-owned Vietnam Posts and Telecommunications Group (VNPT) and paving the way for the introduction of 4G services, which is expected to generate a spike in new opportunities for investors.
Digital Era
In attempting to gain and retain customers, both the mobile and fixed-line markets are turning increasingly to the adoption of new products and technologies to satisfy the growing communication and information appetites of the Vietnamese public. There has also been a shift away from traditional voice and text services to more digital content, as over-the-top (OTT) services have been eating away at operators’ profit margins.
This will be key as the country’s three primary mobile operators are facing an increasingly competitive landscape, as the number of mobile subscribers has reached 126m compared to a population of around 95m. In addition, there were some 36m 3G subscribers in early 2016, accounting for close to 30% of the total, according to the Ministry of Information and Communications (MIC).
In the meantime, the fixed-line segment has struggled to maintain customers. The MIC reported the number of landline subscribers at around 5.9m in 2016 for a penetration rate of just over 5%. This compares to a peak of 20% in 2009.
Pre-Paid Preference
Continuing its slow but steady progress towards market liberalisation, the long-awaited implementation of mobile number portability (MNP), a service that enables customers to retain their mobile telephone number when changing from one mobile network operator to another, is likely to be carried out in 2017. Its introduction is expected to reduce the current high churn rates. Similar to customers in other emerging markets, the vast majority of mobile subscribers in Vietnam prefer prepaid usage. Of Vietnam’s active subscribers, some 89% were prepaid in the fourth quarter of 2015, while the remaining were post-paid subscribers, according to the MIC.
The number of mobile subscribers has been falling over recent years, as operators have been more aggressive in managing inactive subscribers and the MIC has restricted the purchase of new SIM cards to avoid customers holding multiple SIMs to access promotions offered to new users. This has made an impact, as in May 2013 the number of registered mobile subscribers in Vietnam stood at almost 143m.
The ministry, meanwhile, sees number portability as a way to boost competition and quality on the market, as it would require operators to ensure their services meet standards and provide good customer care. The MIC has said the three largest mobile operators, which are state-owned, will apply MNP first.
Dominated By Three
Vietnam’s telecommunications market has been dominated by three players, Viettel, which is owned and operated by the Ministry of Defence; Vinaphone a subsidiary of the VNPT Group; and MobiFone, which was split from VNPT and is managed by the MIC. The three operators account for 93% of total mobile connections.
In a further move to liberalise the market, the government is planning to sell a 49% stake in MobiFone to private investors via an initial public offering (IPO). MobiFone is the second-largest operator after Viettel with a 30% market share. MobiFone’s partial privatisation has been a hot topic on the Vietnamese telecommunications scene, with potential buyers such as Australia’s Telstra, Norway’s Telenor and Singapore’s Singtel expressing interest. Industry players say that injecting private equity into MobiFone would allow the operator to draw on a deeper pool of capital to expand its network and further develop its infrastructure. MobiFone has already raised its brand value through acquisitions such as a 95% stake in Audio Visual Global, a television service line, that will both allow it to deploy a 4G network in the future as well as couple television and mobile telecommunications. MobiFone also signed a contract with Apple to sell the tech giant’s products such as the iPhone and iPad on the Vietnamese market.
Meanwhile, military-run Viettel is the industry leader, with market share of 46%. Viettel has been pursuing an aggressive overseas expansion, and now operates in nine international markets, including Laos and Cambodia, its two biggest markets. Its Unitel brand in Laos commands a 47% market share, while in Cambodia its Metfone brand has 37% of the market with 5.5m subscribers. The firm is angling to enter 30-35 new countries over the next five years.
The third telecoms operator, VNPT’s Vinaphone, which has a 17% market share, registered 4.2m new mobile phone subscribers as of November 2016, adding to its existing base of 23.3m at the start of the year, according to a company release.
Other Operators
Though these three have enjoyed a dominant position, more competition is expected as the remaining two players, Vietnamobile and Gmobile, are converting their investment models and are expecting increased investment capital.
Vietnamobile is the only market player that is privately owned, by Hanoi Telecom and Hong Kong’s Hutchison Asia Telecommunications. The provider converted its operating model from a business corporation contract to a joint stock company in 2016. Under the new structure, the company is allowed to establish a telecoms network, provide telecoms services and utilise 2G and 3G spectrum. It has also inked contracts with equipment providers Ericsson and ZTE Corporation to expand its 3G network to approximately 90% of the population by the end of 2017. The number of the company’s subscribers using 2G and 3G mobile services was reported to have reached 11m at the beginning of 2016.
The smallest provider, Gmobile, is owned by GT el Mobile, which is part of Global Telecommunications, a state-owned joint-stock company under the Ministry of Public Security. It is set to change its domestic investment model into a foreign investment model. The company plans to tie up with a foreign partner for network and services development with total investment capital of around $2bn. This would mean that Gmobile could sell shares to foreign investors. According to the MIC’s ICT White Book statistics, in 2015 Vietnamobile held 4% of the market, while Gmobile had 3.2% of the 2G and 3G services market.
A Maturing Sector
The Vietnamese mobile market is now showing many of the classic signs of a market in transition, from its beginnings as a high-growth, high-profit industry into a more competitive environment, as it matures. No longer able to rely on large untapped population segments to maintain growth, operators are turning to new products and services such as 3G – and soon 4G – to drive sales.
The deployment of 3G has seen swift development, with the number of 3G subscribers reaching 38m in the first half of 2016, or around 41% of the population, according to the MIC. This represented a 30.5% increase year-on-year from 29.1m in mid-2015. This rise in usage is due to a number of factors such as increasing availability of affordable mobile phones, a growing demand from a burgeoning middle class and improved subscription fee packages.
Wider availability of smartphones has also enabled uses to move into 3G services for accessing the internet. Sales of smartphones continued to rise in 2016 thanks to higher disposable incomes and the government’s decision to slash taxes on mobile ownership and do away with import duties on mobile handsets, which had been passed onto consumers.
Smartphones & 4g
Samsung, Apple and Microsoft, with its Nokia brand, have dominated the mid-class and high-end market segments. Apple has even opened a subsidiary company in Vietnam to import and distribute handsets directly, while Samsung has invested billions into building smartphone plants.
Mobile operators are also gearing up for the introduction of 4G, which will provide a wide array of value-added services. Under the national broadband plan which runs until 2020, the government is setting out to build and develop a modern broadband infrastructure. The plan calls for a 95% coverage of residential homes with 3G and 4G networks by 2020.
The MIC has licensed four carriers, namely Viettel, Vinaphone, MobiFone and Gmobile, to establish the network and provide 4G LTE-Advanced public land mobile telecoms services. After nearly a year of trials, these operators have officially been permitted to roll out their offer of 4G services.
Vinaphone became the first to commercially launch LTE services in Vietnam when in November 2016 it turned on its LTE service in Phu Quoc Island. Vinaphone expects to deploy 21,000 base stations nationwide by the end of 2017.
Next Up
Viettel, meanwhile, is planning a nationwide commercial launch in the first quarter of 2017. MobileFone has been testing the service in the three major cities of Hanoi, Da Nang and Ho Chi Minh City. GT el Mobile became the fourth LTE licensee for deploying 4G services, but unlike its three rivals, it has yet to launch trials. Issues over ready infrastructure and terminal equipment is still being addressed in some areas. A major step forward was MobiFone’s inauguration of its north-south transmission line in 2016, which allows for speeds up to 300 Gbps. This will allow MobiFone to supply broadband services on a high-speed mobile platform.
These investments in 4G infrastructure will serve as the base for the introduction of 5G services expected by 2020. For Vietnam it is the right time to get the network rolled out, as 4G LTE deployment has already reached maturity worldwide. According to the Global Mobile Suppliers Association, the number of 4G LTE subscribers worldwide had already reached 1.3bn in the first three months of 2016.
Over-The-Top Services
As the market becomes more sophisticated and phones more advanced, mobile operators are now facing a drop in revenue from their traditional voice and SMS services owing to the strong rise in OTT services. The threat became visible in 2012, when according to the Telecoms Authority, mobile instant messages sent via applications surpassed the number of SMS text messages for the first time. As a result, operators are expected to shift focus to digital content services such as video, cloud computing and the internet of things, as well as new applications. The launch of 4G is expected to help telecoms providers in this sense.
In 2015 local operators took action, launching their own OTT services, such as Vinaphone’s VietTalk and Viettel’s Mocha in a bid to peel off lost revenue from popular and free services such as Zalo and Viber. The VNPT Group told the local press that these OTT applications have had a serious impact on its revenues, by up to 30% at times.
Industry players note that for telecoms companies to compete successfully, they will have to partner with OTT providers to develop new service packages as well as introduce new 3G service packages which include OTT offerings. However, in a possible bid to clip OTT providers’ wings, there is currently a draft circular on OTT services under which Vietnamese regulators are considering heavily regulating providers of OTT voice and text messaging services.
According to a European Chamber of Commerce in Vietnam (EuroCham) white paper, the proposed regulations would effectively undermine OTT providers’ technological advantage. EuroCham said that if passed in its current form, the draft circular would subject OTT voice and messaging services to the same pricing regime as Vietnamese telecoms services – which would raise transaction costs in the online environment. “Co-operation and dialogue between OTT service providers and Vietnam telecoms companies has not resulted in any solution but rather has resulted in Vietnam telecoms companies creating their own OTT services. An unamended draft circular would continue to cause uncertainty to OTT service providers which could result in foreign OTT service providers adversely amending their Vietnam entry strategies,” EuroCham wrote. It noted that instead of passing the regulation in its current form, cooperation and dialogue between OTT providers and local telecoms firms should be encouraged.
On The Ground & In Space
The arrival of OTT services is not the only threat to VNPT’s revenue stream. As the telco has had the fixed-line market almost to itself, the steady decline in landline subscribers has been a continuous issue for the operator. According to the company, it once had 13m landline subscribers. However, this number has been falling by 25% annually for a number of years.
In Hanoi the Hanoi Post Office, a subsidiary of VNPT which owns an 85% of the market, reported a loss of some 60,000 subscribers every year. Vu Tien Duong, a company executive, told local media that the telco was incurring a loss of trillions of dong from landline services. In its heyday fixed-line service was a good business for VNPT: in 2005 fixed-line subscribers accounted for 45% of total telephone subscriptions, but the number had dropped to 5% by 2015.
Some providers have made efforts to stop the decline in subscriber numbers by showcasing additional features, but this has not stopped the exodus.
For this reason, VNPT is looking upwards instead. The operator has partnered with Vinaphone in signing an agreement with Thuraya Telecommunications of the UAE for a mobile satellite service, which will give the company 100% coverage of the country’s territory through Thuraya’s network. With the satellite mobile and post-paid SIM, users can call, send text messages or use GPS anywhere in Vietnam. Yet, phone companies would not have to invest in satellite services, or laying cables, to increase coverage around the country, especially remote rural areas, if the current phone mast network was improved, especially in terms quantity and economies of scale.
Investing In Tower Infrastructure
The tower sector, or mobile phone masts, in Vietnam is significantly underdeveloped, with only approximately 15% of the infrastructure owned by independent tower companies. Furthermore, the sector comprises a large number of small, unsophisticated tower companies, according to the International Finance Company (IFC), the World Bank’s investment arm. To rectify this, the IFC is investing a total of $20m in Golden Towers, a domestic tower company under the management of ACL ASEAN Tower, an international firm focused on ASEAN states.
In the beginning of 2016 Golden Towers had around 340 towers under ownership and management. It is now looking for funds to acquire and construct up to 5800 towers in the country in FY the 2016/17. Estimated costs for this project amount to about $210m, the company said. IFC would step in by partially financing the project.
The IFC said in its filing that, “the project presents an important roll-up opportunity of the highly fragmented telecoms tower market that can realise economies of scale under an experienced team and strong sponsors.” The organisation added that, “The success of this project will demonstrate the importance of private sector involvement in the telecoms tower sector and may help to attract more private capital flow into the sector.” In addition to the funding, the IFC will also help the company attract more capital as the project expands.
Rural coverage in Vietnam is still limited and this project should help widen access to telecoms services. The IFC is also keen for the project to advance tower-sharing practices, which would cut down on costs as operators pool resources.
Outlook
The telecoms market is expected to continue to be dominated by the big three telcos, Viettel, MobiFone and Vinaphone, which together accounted for 93% of total mobile connections in 2016. Indeed, the three were included in the top-20 most-valuable telecoms brands in South-east Asia in 2016, with a combined value of nearly $1.8bn, according to consultancy Brand Finance. MobiFone’s planned IPO may shake things up, while competition is set to get tougher, as smaller players such as Vietnamobile and Gmobile have changed their investment models and will be open for equitisation.
Meanwhile, it will be a busy period for telecoms groups, as they will have to make quick preparations for the introduction of MNP in 2017. The 4G roll-out will also mark a significant milestone for the sector, with four operators having received licences and one already providing LTE services. As data use grows, revenue from voice and SMS services is expected to see a slide due to the strong rise of OTT services. This will force telcos to change from being purely telecoms exploiters to service and solution providers. And as the market has reached saturation levels, there will be a shift towards customer care as well as a stronger focus on service quality.
A raft of new legislation has also heartened industry players going forward, notably a new Law on Information Security, which marks Vietnam’s first comprehensive statute in this area. Data-security regulations were previously fragmented across various pieces of legislation such as such as the Law on Information Technology and the Law on Telecommunications. According to the MIC, the new law, which went into effect on July 1, 2016, includes, among other things, provisions on ensuring safety and security of information, protecting personal information in the network environment, as well as preventing spam, computer viruses and harmful software.
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