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Reforming Vietnam 's Telecommunications

Regulatory Framework

Tra Nguyen
May 2001

This paper was researched and written to fulfill the M.A. project requirement for completing the Monterey Institute of International Studies ’ Master of Arts in Commercial Diplomacy. It was not commissioned by any government or other organization. The views and analysis presented are those of the student alone.

For more information about the commercial diplomacy program and the m.a. project requirement, please visit www.commercialdiplomacy.org
Table of Contents

scenario

Executive Summary

Background

1. History of the Vietnam Telecommunication Sector

2. State of the Vietnam Telecommunication Sector Today

2.1. The linkage between postal and telecommunications activities

2.2. The telecommunications regulator as operator

2.3. The Vietnamese government's quasi-monopoly in the telecommunications sector

2.4. Market access for foreign companies

2.5. The lack of financial resources

2.6. Vietnam 's lack of a competent telecommunications workforce

2.7. Cross-subsidization

2.8. Transparency

3. International Context

3.1 The Vietnam - U.S. Bilateral Commercial Agreement

3.2 Vietnam ’s efforts to liberalize trade in services between the ASEAN countries

3.3 Vietnam and the World Trade Organization (WTO)

3.3.1. Vietnam ’s efforts to accede to the WTO

3.3.2. WTO regulations for telecommunications services

a- General Agreement on Trade in Services (GATS)- April 15, 1994

b- GATS Annex on Telecommunications- April 15, 1994

c- Annex on Negotiation on Basic Telecommunications-April 15, 1994

d- Two Ministerial Decisions and the Fourth Protocol to the GATS

e- The Fourth Protocol to the GATS - April 30, 1996

f- Chairman’s Notes

g- Report of the Group on Basic Telecommunications-February 15, 1997

h- Fifty-five Schedules of Commitments and Nine Lists of MFN Exemptions-Feb.15^th, 1997

i- Reference Paper on Pro-Competitive Regulatory Principles-Feb. 15, 1997

4. The evolution of telecommunication regulations around the world

4.1. The trend toward deregulation

4.2. Separating telecommunications regulators from operators

4.3. Global tendency to harmonize domestic policies and global regulatory standards

RECOMMENDATIONS

Analysis

1. Analysis of Policy Issues

Policy Issue # 1: Does Vietnam need to reform its system for regulating the telecommunications sector?

Policy Issue # 2: Should the reform separate postal activities from telecommunications activities?

Policy Issue # 3: Is telecommunications regulatory reform the best way to facilitate telecommunication infrastructure and services development?

Policy Issue # 4: Will the reform mean that the government will lose control of the telecommunications sector?

2. Legal Analysis

Legal Issue # 1: Vietnam 's legal framework for telecommunications regulation will need to be changed.

Legal Issue # 2: The GATS/WTO framework and its Annex on Telecommunications should be used to guide Vietnam 's telecommunications regulatory reform.

Legal Issue # 3: How will Vietnam ensure that its regulatory policies for the telecommunications sector meet WTO requirements?

Legal Issue # 4: What new legal documents will need to be adopted to implement the proposed reform?

3. Commercial Analysis

Commercial Issue # 1: How will the reform affect State revenues and how can Vietnam make up lost revenues?

Commercial Issue # 2: Will the reform help attract domestic and foreign investment in the telecommunications sector?

Commercial Issue # 3: Will the reform stimulate the development of electronic commerce?

Commercial Issue # 4: Will domestic companies be able to survive competition from international telecommunication carriers?

Commercial Issue # 5: How can Vietnam address the job loss expected to accompany the separation of postal and telecommunication activities?

4. Economic Analysis

Economic Issue # 1: Will the reform facilitate economic development?

Economic Issue # 2: Will the reform encourage the establishment of domestic and foreign company business operations in Vietnam ?

Economic Issue # 3: How to set an appropriate pricing policy in order to develop the telecommunications sector while benefiting Vietnamese consumers

5. Political Analysis

Political Issue # 1: Domestic stakeholders and their interests

Political Issue # 2: Foreign stakeholders

Political Issue #3: Corruption. How can Vietnam minimize its impacts on the proposed reform?

Comprehensive Strategy Paper

1. Domestic Political Strategy

1.1 Build consensus in and between the DGPT and the VNPT

1.2 Build consensus among leaders of the Communist Party

1.3. Coalition building strategy

1.4. Legislative strategy

1.5. Strategy for building consensus in the Executive Branch

2- Public Relations Strategy

2.1. Domestic Public Relations Strategy

2.2. International Public Relations Strategy

3- International Negotiation Strategy

3.1. Strategy for communicating with WTO member countries

3.2. Bilateral meetings with foreign stakeholders

List of Figures

Figure 1:	Organizational Chart of the Telecommunications Sector in Vietnam until 1995 (Source: www.vnpt.com.vn)
Figure 2:	Teledensity in Vietnam from 1993 to 1997 (Source: www.vnpt.com.vn)
Figure 3:	Development Plan for Telephones in Vietnam (Source: www.vnpt.com.vn)
Figure 4:	Total number of phone lines in Vietnam (1991-1998) (Source: Department of Planning and Investment, VNPT, 1998)
Figure 5:	Total number of villages with phone lines (1991-1997) (Source: Department of Planning and Investment, VNPT, 1998)
Figure 6:	Foreign Direct Investment in Vietnam from 1995-2000 (Source: Ministry of Planning and Investment of Vietnam , March 2001)
Figure 7:	Regional Shares of Fixed Phone Lines, Worldwide, on 1^st January 1990 , 2000 and (forecast) 2010 (Source: ITU Telecommunication Indicators Database and ITU Forecasts)

Figure 8:	Supply and Demand for Local Calls

Figure 9:	Supply – Demand for Domestic Long distance and International Calls

List of Tables

	Players in the Vietnamese Telecommunication Market (Source: Data collected from Interview with each Individual Company on November 2000, Hanoi )
Table 2:	Sector Structure Level of Competition in Asia-Pacific (Source: ITU-BDT Telecommunication Regulatory Database)
Table 3:	Business Cooperation Contract in Vietnam (Source: Japan International Cooperation Agency, Strategic Intelligence, September 2000)
Table 4:	Widely Accepted Telecommunication Regulatory Objectives (Source: Telecommunications Regulatory Handbook, http://www.infodev.org/projects/314regulationhandbook)
Table 5:	Standard Institutional Structure of the Telecommunications Sector in Developed Market Economy (Source: Telecommunications Regulatory Handbook, http://www.infodev.org/projects/314regulationhandbook)
Table 6:	Contribution of the Telecommunications Sector to Vietnam ’s GDP (Source: National Bureau of Statistics of Vietnam , 2000)
Table 7:	Indicators about Telecommunications and Economic Growth pre and post Telecommunication Restructuring of different Asian countries (Source: International Telecommunication Union , World Telecommunications Indicators)

List of Abbreviations

ADB	Asian Development Bank
AEM	ASEAN Economic Ministerial Meeting
APEC	Asia-Pacific Forum for Economic Cooperation
ASEAN	Association of South East Asian Countries
BCC	Business Cooperation Contract
CVTRR	Coalition for Vietnam ’s Telecommunication Regulatory Reform
ETIC	Electricity Telecommunication Information Company
EU	European Union
DGPT	Department General of Post and Telecommunications of Vietnam
DPT	Department of Post and Telegraph
FPT	Corporation for Financing and Promoting Technology
GATS	General Agreement on Trade in Services
GDP	Gross Domestic Product
GEER	Government’s External Economic Research
IAP	Internet Access Provider
IMF	International Monetary Fund
ISP	Internet Services Provider
ITU	International Telecommunication Union
MCI	Ministry of Culture and Information
MFN	Most Favored Nation Status
MOD	Ministry of Defense
MOF	Ministry of Finance
MOFA	Ministry of Foreign Affairs
MOJ	Ministry of Justice
MPI	Ministry of Planning and Investment
MPS	Ministry of Public Security
MOT	Ministry of Trade
NA	National Assembly
NCIEC	National Committee for International Economic Cooperation
OECD	Organization for Economic Cooperation and Development
SaigonPostel	Saigon Post and Telecommunications Company
US	United States
VDC	Vietnam Data Corporation
VIETEL	The Military Electronic and Telecommunication Company
VIETSHIPTEL	Vietnam Maritime Telecommunication Company
VNPT	Vietnam Post and Telecommunication Corporation
WB	World Bank

Scenario

For the purposes of this project, I assume the fictitious role of an independent consultant to the Division of Planning and Investment of Vietnam's Department General of Post and Telecommunications (DGPT). In light of Vietnam ’s efforts to spur economic development and to become a member of the World Trade Organization (WTO), the director of DGPT has asked me to propose a comprehensive strategy for reforming Vietnam ’s regulatory framework for telecommunications services.

Executive Summary

If Vietnam is to succeed in developing a knowledge-based economy, it will need to develop its telecommunication infrastructure. Currently, the country’s telecommunication system is extremely costly and delivers poor quality services.

Vietnam urgently needs to establish an appropriate regulatory framework[1] that will foster the development of a transparent and stable legal and business environment—an environment that will encourage both domestic and foreign investment, increase consumer confidence, and facilitate Vietnamese businesses’ use of the Internet. Regulatory reform will also bring Vietnam ’s telecommunication regulations toward compliance with the principles and regulations of that organization’s General Agreement on Trade in Services (GATS), which will help ensure Vietnam 's accession to the World Trade Organization (WTO).

The new regulatory framework should:

Separate postal activities from telecommunications activities.
Separate regulatory from operator functions within the sector.
Establish a transparent, efficient licensing framework that will discourage corruption and facilitate domestic and foreign investment.
Allow foreign investors and companies to establish joint ventures instead of only Business Cooperation Contracts (BCCs).
Establish a pro-competitive environment that promotes telecommunications infrastructure development while protecting the interests of consumers.
Harmonize Vietnam 's telecommunications regulatory policies with the regional and global regulatory standards of ASEAN, the ITU and the WTO. This will involve the adoption of policies that respect fundamental international trade principles such as non-discrimination (national treatment), market access, and transparency.

Specific reforms that should be introduced include:

1. Legislative Reforms:

Develop and adopt a telecommunication law that encompasses all telecommunications sector decrees, laws and regulations.
Develop and adopt an anti-trust law and a competition law.
Legally separate postal and telecommunications activities.
Establish a separate regulatory agency for postal activities.
Amend Section 1, Part IV, Annex I of Vietnam ’s Foreign Investment Law of 1992, which governs foreign investment in the telecommunications sector.
Amend Decision 03/CP (October 1992) concerning the establishment of the Department General of Post and Telecommunications.
Amend Article 5 and 6 of Decree No. 109/1997/ND-CP (November 12, 1997) concerning Post and Telecommunications.
Amend clauses related to the telecommunications sector in the U.S.-Vietnam Bilateral Agreement.

2. Pricing Policy Reforms:

The installation fee for telephones should be increased, and a two-tiered telecommunication pricing policy should be introduced: the per minute charge for fixed local calls should be reduced and charges for domestic long distance and international calls should be increased.

3. Administrative Reforms:

Reform licensing procedures to decrease corruption and increase efficiency and transparency.
Separate and reorganize the administrative structures for postal and telecommunication activities.

Businesses must feel confident that they will be able to function and compete within a fully transparent legal and regulatory framework if they are to invest in Vietnam 's telecommunication sector. Without such a regulatory framework, the risks of doing businesses in Vietnam will simply remain too high to attract large-scale investment.

Adopting such a regulatory framework in Vietnam will not be easy:

Vietnam lacks a comprehensive legal system, which will make it difficult to establish a thorough and sound regulatory framework.
Vietnam lacks a legal enforcement mechanism; therefore laws adopted are not always enforced.
Individuals within the Department General of Post and Telecommunications (DGPT)—the single regulator of the telecommunication sector in Vietnam —are likely to oppose any liberalization of the telecommunications market, as will officials at Vietnam Post and Telecommunications (VNPT) —the main telecommunication operator.
Vietnam ’s leadership will likely delay implementation of this initiative fearing that it will cause economic and political instability and therefore threaten national security.
The Vietnamese public does not understand the economic benefits of a pro-competitive legal framework for telecommunications. In addition, they fear that reform might disrupt their normal rhythms of life and incomes.
Postal employees will likely oppose the separation of postal from telecommunication activities for fear of job loss and decreased incomes.
The State will likely lose the significant revenue that the telecommunication sector currently generates. Accordingly, members of the government, and specifically the Ministry of Finance, will have to be convinced of the need and value of reducing the State's telecommunications monopoly.

To overcome these difficulties and achieve the objectives of the reform, the following actions should be taken. DGPT should:

Work toward building consensus among its own employees and those of VNPT concerning the need for the reform and the specifics of how it will be carried out.
Build consensus among Vietnam 's political leaders for the reform. DGPT will need to establish a strategy to explain to all relevant ministries the long-term economic and social benefits of a more modern telecommunication system. The strategy should target the Deputy Prime Minister in charge of Economic Issues, the Deputy Prime Minister in charge of Science, Technology and Environmental Issues, the Deputy Prime Minister in charge of Foreign Relations (including members of the Government’s External Economic Research Service), and high-ranking officials at the Department of Industry. These individuals all act as advisors to the Prime Minister.
Convince Vietnam ’s National Assembly to adopt the proposed legislation. The legislative strategy should focus on (1) overcoming the National Assembly’s lack of knowledge about the telecommunication sector and its role in the national economy; and (2) pushing the issue up on the annual “priority list.” It should target members of three Commissions of the National Assembly: the Law Commission, the Economic and Budget Commission, and the Science, Technology and Environment Commission.

Additionally, DGPT should establish a Coalition for Vietnam Telecommunication Regulatory Reform (CVTRR) as a means of building broad support for the reforms. CVTRR should be tasked with 1) persuading key decision-makers to support the reform; and 2) implementing a media strategy to explain the benefits of the reform to the general public. CVTRR should include domestic telecommunications companies, professional organizations, international companies that already operate in the Vietnamese market (or are interested in the market), representatives of industrial and business organizations, and academics. The Coalition should take part in every step of the domestic strategy. In addition to lobbying key decision-makers, it should brief National Assembly members on the economic benefits of telecommunications reform, and it should play a key role in carrying out the media strategy and the international strategy.

The media strategy should include National Radio and Television speeches by the Prime Minister, the President, the Deputy Prime Mnisters related to the issue, and the General Director of DGPT, Mai Liem Truc. The speeches should explain the objectives of the reform and its benefits. Additionally, in-depth analysis of the benefits of telecommunication regulation reform should be published in national newspapers such as Nhan Dan, Lao Dong, Vietnam Investment Review, and Vietnam News.

The international strategy should be carried out by the Government of Vietnam with the assistance of DGPT, the Ministry of Trade, and the National Committee for International Economic Cooperation (NCIEC). It should include negotiation and media components:

The goal of the international negotiation strategy should be to accelerate Vietnam ’s accession to the WTO. Vietnam will need to convince WTO members that its telecommunications reforms demonstrate its willingness to incorporate WTO rules and regulations into its domestic policies. Vietnam will also need to convince WTO members that its telecommunications reforms are appropriate given the country's development level. Since Vietnam ’s regulatory framework and enforcement mechanism still need to be improved, Vietnam will not be able to fully comply with all WTO/GATS requirements at the present time. It will need considerable time and technical assistance in matters relating to administrative and legislative reform. The international negotiation strategy should also aim to call for financial and technical assistance from country members and non-members of the WTO, as well as international organizations that are interested in the Vietnamese telecommunication market.
The international media strategy should promote the image of Vietnam as a country that is moving progressively toward a market-oriented economy and promote the Vietnamese government as a government that is willing to provide a more stable and transparent business environment. It also should attract the attention of financial institutions and international organizations so that they will provide additional technical assistance for telecommunication regulatory reform.

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