Background

1. History of Vietnam ’s Telecommunication Sector  

When Vietnam regained independence in 1945, the Vietnamese government established the “Department of Post and Telegraph” (DPT) and took total control of the country’s communication system. Initially, the government simply reestablished the old French system. The ensuing development of the Vietnamese telecommunication sector can be divided in three main periods:

•  1945-1975: The Vietnamese Communist Party, the Vietnamese Government and the Department of Defense took control of the country's post, telephone and telegraph (PTT) system. The system was only accessible for governmental activities and was designed to ensure communication within the defense system and among different areas of the country. It was an important tool in winning the 1975 National Liberation War, yet no new investment was made to upgrade the old French system.

• 1975-1986: The system was expanded to serve not only governmental activities and organizations, but also high-ranking government officials. Most of the telecommunication equipment utilized during this time was imported from the Soviet Union and other socialist countries.  The technology commonly used was analog and was regulated through an operator that had the capacity to control 10,000 numbers. The telephone density at that time remained very low: 0.2 telephones per 100 people. The telecommunication system was still under the control of the government, and its activities followed the State’s strategic plan rather than responding to market demand.

• 1986-present: The Vietnamese telecommunication sector has taken a lead role in the country’s restructuring program (known as “Doi Moi”). A great deal of progress has been made during these years.

Vietnam was forced to define a new national development strategy when the Cold War ended and the Eastern Bloc countries collapsed in the early 1990s. This strategy, “diversification and global integration,” has involved building partnerships and seeking assistance from non-socialist countries throughout the world. The telecommunications sector has been importing high-tech equipment, training a new class of managers and technicians, and finding new sources of investment.  

In 1995, however, the telephone density in Vietnam was still only 3.8 telephones per 100 people—far lower than that of other countries in the region.[2] Moreover, the country's telecommunications prices were three to four times higher than average telecommunications prices around the world[3] because DGPT's pricing policy was to charge high prices for international long-distance calls to cover the deficit on local calls.[4]   

Recognizing the irrationality of this policy, DGPT has, every year since 1995, reduced telecommunication fees an average of 10 to 15 percent. It plans to meet international average prices by 2003. Over the next ten years, DGPT plans to invest heavily in infrastructure construction, particularly in the installation of optical cable.  

2. Vietnam ’s  Telecommunication Sector Today  

The Vietnamese telecommunications sector can be characterized as follows:

•  Postal and telecommunications activities are regulated and operated by the same agency.

• The regulators and main operators in the market (DGPT and VNPT) are the same entity.

• The market is structured as an oligopoly in which state enterprises dominate.

• Market access is not based on competition, and there are significant obstacles to foreign entry into the market.

• The government lacks the capital needed to increase the supply of telecommunications services, which limits its ability to lower prices and improve the quality of services.

•  The post and telecommunications workforce in Vietnam is ill-trained and inefficient.

• The country relies on cross-subsidization, using long-distance revenues to pay for local networks.

• The regulatory framework lacks transparency.

2.1. The linkage between post and telecommunications activities  

Post and telecommunications activities in Vietnam have always been regulated by the same agency. Even recently this linkage has been reaffirmed. In October 1992, the government promulgated Decision N. 3/CP, which established DGPT[5] and clearly defined its authority over post and telecommunication services, as well as data and radio transmission, television, and industrial activities. VNPT is directly responsible for commercial activities in the post and telecommunication sector (including coordinating and furnishing services to its subsidiaries).  However VNPT answers to DGPT (see Figure 1).  

Telecommunications revenues currently provide huge subsidies to postal activities; only 10 of the country’s 61 postal agencies are profitable.[6]  While the number of postal employees represents more than 50 percent of VNPT’s total employment, postal revenues contribute just 5.5 to 6 percent of the agency’s budget.

2.2. The telecommunications regulator as operator  

As noted above, Decision 3/CP stipulated that VNPT, which is responsible for commercial activities in the post and telecommunications sector,[7] is under DGPT's direct control. On April 29, 1995 , however, Vietnam ’s President Le Duc Anh issued Decision 249/TTG, which separated the sector's management and commercial functions. The Decision stated that: 1) all policy-making functions would be given to DGPT; and 2) VNPT would be restructured following the “General Companies 91” model[8] and would be given exclusive authority over commercial activities in the sector.  

Nonetheless, VNPT (through the operator and service providers) remains directly linked to DGPT and other state regulatory agencies (see Figure 1). Moreover, VNPT is also subject to the control of ministries, governmental agencies of equal rank with ministries, and people’s committees of cities and provinces all over the country.  

Figure 1: The Organization of Vietnam ’s Telecommunications Sector until 1995

 
(Source www.vnpt.com.vn)

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

VNPT was established as the only post and telecommunications services provider in Vietnam —a state-run monopoly. In 1995, however, in the face of increasing domestic demand and changes in key sectors of the Vietnamese economy, the Vietnamese government started to implement a pro-competitive policy in the telecommunication sector by creating two domestic telecommunication companies: The Military Electronic and Telecommunication Company (Vietel), and Saigon Post and Telecommunication Company (SaigonPostel).[9]  

(Source: Data collected from interviews with Domestic Telecommunications Companies, November 2000, Hanoi )  

Currently, five domestic companies operate in the market (see Table 1), however VNPT has maintained its monopoly because of the country's lack of capital and technological capacity. Instead of competing with VNPT, the four companies actually rely completely on VNPT’s infrastructure, which gives VNPT “invisible” control over their activities. As seen in Table 2, so-called “partial competition” exists only in the areas of local services, XDSL, WLL, mobile analogue, telex, data transmission and Internet Services Provider. All five companies are required to abide by regulations and policies imposed by DGPT, which further restrains their activities and the scope of their operations.

Table 2: Telecommunications Competition in the Asia Pacific Region

(For certain countries, data is estimated by the International Telecommunications Union )  

Key:  M= Monopoly; D=Duopoly; P=Partial Competition; C= Full Competition  

(Source: ITU-BDT Telecommunication Regulatory Database)  

2.4. Market access for foreign companies  

Today, most of the top telecommunication companies in the world have already established offices in Vietnam, and a majority of European and Asian companies have been in the country for at least four to five years.[10] Nonetheless, it is not easy to get a contract to provide telephone operations in Vietnam. The following analysis provides more detailed information concerning foreign participation in three sub-sectors of Vietnam's telecommunication market: 1) telecommunication service providers, 2) telecommunications equipment producers, and 3) import and export of telecommunication equipment.
   

2.4.1. Telecommunications service providers  

Under the Vietnamese Investment Law of 1992,[11] foreign companies are allowed to provide services to Vietnam’s telecommunication market only if they enter into a Business Cooperation Contract (BCC). BCCs are cost and revenue sharing agreements under which the foreign partner generally provides the needed equipment and training for local operators. To date, nine BCCs have been signed (Table 3), however most of them are experiencing financial difficulties. Only Telstra and Comvik are making a profit.    

(Source: Japan International Cooperation Agency, Strategic Intelligence, September 2000)  

Foreign companies that have signed BCCs have encountered a number of difficulties:

•  It usually take more than two years to negotiate a BCC, and a foreign company must have a presence in Vietnam for a couple of years before it is allowed to enter into negotiations.

• Foreign companies cannot have any equity stake in the operation of the network or the company even though they provide financing.

• BCCs are management and operation contracts for a fixed period of time (usually from 10 to 15 years) with a single corporate entity—VNPT. Thus, France Telecom, Cable and Wireless, Telstra and the Japanese consortium are requested to provide financing, technology and training to an entity that has partnerships with their key competitors.

• The information VNPT supplies often is not adequate for meaningful feasibility studies and, therefore, good investment decisions.  

• To close a deal, foreign companies must negotiate simultaneously with VNPT and regional/local authorities.  

In short, BCCs put foreign companies in a disadvantageous position compared to their domestic partners, give them few incentives to make investments, and expose them to high business risks.
    

2.4.2.      Telecommunications equipment producers  

DGPT manages joint venture and state-owned telecommunications equipment production lines, as well as supervises testing laboratories and training centers that support the development of the telecommunication industry in Vietnam.   

Because Vietnam has made it a priority to develop and modernize its telecommunication system, foreign companies are allowed to establish joint ventures or 100 percent wholly foreign-owned companies in the area of telecommunications equipment production. Currently, domestic production, which mainly consists of producing PBX boxes, small systems, and telephone sets, cannot meet increasing domestic demand. Domestic production also turns out poor quality products that do not meet international standards.  

A few foreign companies have established joint ventures with local companies to manufacture telephone cables and optical fiber cables. For example, Daesung Electronic Wire Co. Ltd. of Korea has joined with DGPT to form Vina Daesung, which produces high quality communication cables. Alcatel and DGPT set up Alcatel Network System Vietnam, which is responsible for manufacturing, engineering, marketing and servicing Alcatel 1000E10 digital switching systems for Vietnam with an annual production of 150,000 digital lines. Telstra International Ltd., Lucky-Goldstar, Siemens, and France Telecom have also formed joint ventures with DGPT subsidiaries.  

Nonetheless, foreign participation in this area is still not flourishing—this despite the fact that the Vietnamese government plans to meet all of the country’s telecom equipment needs with domestic production within the next 10 years.
 

2.4.3. Telecommunications equipment import and export activities  

The import and export of telecommunication equipment is not under the control of either DGPT or VNPT, but rather the supervision of the Ministry of Trade. Taxes imposed on these activities are very low compared to other products to encourage the development of telecommunication infrastructure.  

The Vietnamese government prohibits the import of used equipment for fear that Vietnam will become a junkyard for other countries that want to dump obsolete equipment.  

Major competitors in Vietnam’s telecommunications market are: Telstra (Australia), Alcatel and France Telecom (France), Siemens (Germany), Goldstar (South Korea), NEC and Fujitsu (Japan), Northern Telecom (Canada), Marconi (Italy), Telenz (New Zealand), L.M. Ericsson (Sweden), Sapura (Malaysia) and Singapore Telecom (Singapore). These companies control some 80 percent of Vietnam's telecom equipment market. In terms of large switching systems, the main suppliers are: Siemens with 60 percent of the market, and Alcatel with 30 percent. NEC and the rest of companies represent only 10 percent of the market.
   

2.4.4. Other foreign participants in the telecommunications sector 

To make up for its lack of technological and financial resources, Vietnam has encouraged foreign investment in the installation of telecommunication infrastructure. For example, Siemens was designated to build and install the whole trans-Viet microwave link system from Hanoi . Alcatel was assigned the Ho Chi Minh section of this system and was selected to standardize Vietnam ’s telephone lines based on the French system. Alcatel also won a contract to install a 5,000-line capacity phone exchange in Lao Cai.[12] Marconi was selected to install an optical fiber cable to connect Hanoi and Ho Chi Minh City .  

Unfortunately, Vietnam ’s eagerness to see its telecom networks upgraded, combined with its limited funds, has led to a hasty selection of affordable telecom equipment with little regard for the long-term needs of an integrated network. The resulting picture is one of too many suppliers in an industry that requires compatibility and in which equipment quality is a key factor for success.

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