Vietnam is an interesting country for telecoms. In the mobile space, it counts seven (yes, 7!) operators:
- the three giants ‘Viettel’ (controlled by the Ministry of Defense), Mobifone and vinaphone (both controlled by incumbent fixed line operator VNPT);
- the four ‘battling’ challengers S-Fone (controlled by Saigon Postel, now that SK Telecom has pulled out of the market), EVN Telecom (controlled by the Electricity of Vietnam EVN), and Vietnamobile (majority controlled by Hanoi Telecom) and Beeline (majority controlled by GTel); the later two are joint ventures with foreign companies Hutchison and VimpelCom, and seem to be struggling.
Source: INVESTAURA, 2010
So in short: 5 out of 7 operators are directly controlled by state companies. Does this have to be? OK, private companies in Vietnam were only introduced in 2001, but still, does the government needs to control, directly or indirectly, 5 out of 7 mobile operators?
Back in the year 2007, when Vietnam joined the WTO, there was great expectation that the country would finally privatise many of its state-owned, not always well-managed companies. In recent years, two candidates were often mentioned in the telecom space: Mobifone and EVN Telecom. So what happened to both privatisations?
In 2010, the government (sorry, the EVN management) invited interested parties to bid for EVN Telecom (well, only 30% of its equity). Not necessarily an easy case for interested parties, as the company only has a few percent market share, mostly on its CDMA 450 MHz WLL network (fixed or semi-mobile), it does not own GSM (2G) spectrum but only UMTS (3G) spectrum, which it shares with Hanoi Telecom (so no full ownership of the UMTS licence), in what is believed to be a difficult relationship. The press has reported that only two interested parties decided to bid in the end: STT from Singapore, and Axiata from Malaysia. For both parties it would also have been very tough to gain management control. In the end, negotiations with those foreign groups must have failed: towards the end of 2010, the EVN management announced that it was in discussion with FPT Telecom, a Vietnamese fixed line operator, with a view of FPT acquiring up to 49% of the equity of the company. A price of about USD 20m was quoted in the press – which sounds dead cheap.
In the spring of 2011, FPT announced that it was withdrawing its offer as it thought that the acquisition was too risky. Shortly afterwards, VTC, the TV and media company and would-be MVNO (it officially received its MVNO licence from the regulator MIC back in June 2010), announced that it was investing in EVN Telecom and becoming its strategic partner. A stake of 13% was mentioned in the press.
Notwithstanding the quality of the VTC management, it is very sad for EVN Telecom, its parent EVN as well as the country as a whole that the privatisation to a foreign group – the original plan of the government – was not successful. It would have brought much needed capital injection, know-how transfer and last-but-not-least value creation for the remaining Vietnamese shareholders – the value of EVN Telecom under the management of its electricity company parents can’t have been very high. Everybody would have benefited – including the state in the form of increased taxation revenues. And it would have been a clear sign that Vietnam is on target to open the country to the rest of the world, and on its way to a much-needed catch-up.
As for Mobifone, the privatisation of the company by its parent VNPT (who owns 2 mobile operators!) has been a topic of discussion at least since 2005. Six years later, in May 2011, VNPT announced that it had completed plans to divest its stake in Mobifone and Vinaphone. Well, that was about time!
Based on the recent, failed privatisation of EVN Telecom, we have reason to believe that the privatisation of Mobifone is not going to be an easy one either:
- For a start, it comes rather late: the Vietnamese market is, at least for voice, fairly mature with more than 100% penetration (if you count SIMs) and about 70% human user penetration.
- Competition in the Vietnamese mobile market is intense due to the large number of players, and the track-record demonstrated by Viettel in Vietnam (they are also successful in Cambodia. So is the lesson that army officers make good telecom managers?)
- The two mobile JVs with foreign groups have not been particularly successful in recent years – whatever the reasons might be
- Large, non-Asian telco groups including Vodafone, France Telecom, MTN, Etisalat and the likes, might not be interested, as they would have to project themselves into a part of the world and time zone where they have not been particularly active in the past, and they will be insisting on majority control – which is not given
- Large Asian telco groups like STT and Axiata would already be in Vietnam if they really wanted to be there. And they are not there today, probably because the market conditions are too tough and the perspective to make a profit are too low for them.
So although we would not completely rule out that VNPT will be successful in the privatisation / de-merge of one of its mobile operators, it is unlikely to be an easy ride. It might end-up remaining in the hands of another Vietnamese group, as happened with EVN Telecom.
Vietnam has a large, young, dynamic and motivated population. But its still have much to do to catch up with its Asian neighbours like China and Malaysia (who might be 30 years ahead), not to mention its other even more developed neighbours like South Korea. To achieve this goal, the country needs to demonstrate that it is doing what it takes to attract foreign investors, implement best international business practice and raise the standard of living for all.
Based on recent development in Vietnam in the telecom space, we are not convinced (yet).
Vietnam, wake up! The world is waiting for you.