Vietnam: Rising Telecom Tiger

Opportunities and Obstacles for Foreign Investors

Vietnam has one of the fastest growing telecommunications sectors in Asia. With a population of roughly 84 million, Vietnam already has over 70 million mobile phone subscribers and 22 million Internet users – and these numbers are rapidly increasing. Vietnam has one of the highest mobile usage penetration rates in Southeast Asia, and some experts forecast that rate will climb to 99% by 2012. All indications suggest the next few years will present significant opportunities in this already roaring sector.

The government has recently reiterated its strong commitment to improving telecommunications infrastructure, and a number of significant projects are already underway. Vietnam Post and Telecommunications Group (VNPT), Vietnam’s largest Internet service provider (ISP), is currently in the early stages of negotiations for a $300 million loan to help it expand the telecommunications network in Vietnam. Furthermore, the Vietnamese Prime Minister recently approved a $290-350 million budget to launch the country’s second telecommunications satellite by 2012.

Vietnam’s staggering penetration rates, planned infrastructure investments, ongoing transition to 3G, impending market deregulation, and political developments such as Vietnam’s accession to the WTO all augur well for foreign investors in Vietnam’s telecom sector.

Ergo asked four leading telecom experts to comment on the opportunities and obstacles facing foreign investors in Vietnam’s telecommunications sector.

Insights from the Ergo Network

• Expert 1: Senior executive at a Vietnamese telecommunications security firm and telecommunications consultant to the government

  Opportunity: Upgrading to 3G
  
  

  "There is huge potential, but one must find a suitable differentiating strategy to share this pie. In order to sustain [a] high growth rate, infrastructure must scale accordingly. 3G just launched in Vietnam last October by Viettel [and] last December by MobiFone. Other operators are expected to catch up too. To replace the whole country’s 2G network with 3G is a huge undertaking, and great opportunity."

• Expert 2: Senior manager at a telecommunications consulting firm advising foreign investors operating in Vietnam

  Opportunity: Forming joint ventures with smaller players
  
  

  "A number of foreign investors have been seeking to partner with one or other of the larger existing Vietnamese mobile operators for some years now. There has been little movement to this process. There have been more success stories when foreign investors have partnered with new entrants to the mobile market such as Vimpelcom with Beeline and Hutchison with VietnamMobile. I think you will see more foreign investors getting involved after July as far as telecommunications infrastructure is concerned. … My view is there are opportunities for foreign investors with the small players and the new companies who need the capital and the expertise."

• Expert 3: Senior official at the Vietnamese Ministry of Information and Communication

  Opportunity: Vietnam heavily reliant on imports
  
  

  "In November, the National Assembly approved the telecommunications law which will allow private companies to invest in this sector. This is an incentive to foreign investors who want to enter this sector. The foreign investors with modern technology and strong financing have many advantages in Vietnam. Foreign telecommunications equipment suppliers have a great advantage because Vietnam does not produce its own telecom equipment. We need to import all of the equipment from the US, China, and Japan."

• Expert 4: Telecommunications Engineer at the Vietnamese Ministry of Information and Communication

  Obstacle: Delay in privatization
  
  

  "One of the problems that foreign investors express concern about is the delay in the process of the equitization [privatization] of state-owned telecom enterprises. However, more telecommunications companies are in the process of preparing for equitization. The equitization of telecommunication enterprises will be a driving force in this industry, which will develop more rapidly in the next five years. MobiFone is the first company to pilot equitization. Accordingly, MobiFone will sell 30% of its shares to foreign investors."

Looking Ahead

Although widely heralded as the “next Asian tiger,” Vietnam still presents significant challenges for foreign investors. Corruption and lack of transparency remain major obstacles, but most indications suggest the government is taking direct action to address these issues. In July 2010, a new telecommunications law will take effect which aims to increase transparency and competition by allowing private companies to invest in telecom infrastructure for the first time.

Vast investments into the country’s weak telecom infrastructure will be needed to meet the country’s growing telecom demands. With an annual growth rate of 30%, the Vietnamese telecom market is expected to gain between $6-7 billion of revenue in 2010, according to the Deputy Minister of Information and Telecommunications. As the government fulfills its promise to increase connectivity, several opportunities stand out:

• 3G services offer one clear opportunity for foreign investors. Even though MobiFone and VinaPhone launched 3G services last year and other operators are scheduled to launch in 2010, the country’s current network remains outdated.

• Foreign investors may also find opportunities by partnering with local service providers, equipment providers, infrastructure developers, and IT training and consulting service companies.

While some of Vietnam’s promise as a rising Asian tiger may remain unfulfilled, Vietnam’s telecommunications sector presents unique opportunities for investors who know how to navigate the space.

Ergo has an extensive network of experts in Vietnam and has conducted numerous studies on the telecommunications sector in Vietnam and the region.