1. Vietnam: Promising Macroeconomics but a Regulatory Mess
November 20, 2012
Transitioning from a centrally planned to a market-driven economy, Vietnam has achieved middle-
income status in less than 20 years. The country's growth is heavily dependent on its low-cost labor in
attracting foreign direct investment, which contributed 8% to GDP. The economy maintains a healthy
growth rate as GDP has been growing consistently over the last five years.
The government has set a target to transition from an industrialized nation to a modern society by 2020.
The country's latest social-economic strategy includes identifying its main priorities in meeting the above
target. To achieve this, the government will be laying out plans to stabilize the economy, establishing key
infrastructure, enhancing labor-force productivity and strengthening market based institutions.
The Vietnam mobile industry comprises seven operators, with the top three controling 90% of the market.
Although the telecom regulator has not placed any cap on the number of mobile licenses to award, foreign
investors face challenges reaping growth as a result of state-owned dominance. Vimpelcom and SK
Telecom have announced their exit from the Vietnam mobile market, thus depriving the industry of much
needed capital from foreign investment. Hutchison Telecom is the only foreign operator that has renewed
its confidence in the market.
Regulatory intervention
In June 2011 the telecom regulator announced that an investor that holds more than a 20% stake in a
telecom entity will not be permitted to hold more than 20% stake in a competing firm. Nevertheless,
VNPT has recently obtained government approval to merge its two subsidiaries, Mobifone and
Vinaphone, and it will effectively monopolize the market. VNPT and Viettel were ordered by the telecom
regulator earlier in the year to reduce their circuit leasing fees to the level charged before they increased
them sharply in early 2011.
The mandate was in response to complaints that the state operators had increased rental prices by 276%.
However, we have yet to see significant reduction in the revised prices.
More than 95% of the mobile market is dominated by prepaid subscribers. The market is price sensitive
and customer loyalty is weak. As consumers are constantly looking out for big promotions, mobile
operators are constantly under pressure to compete aggressively on price and promotions in the form of
free talk time and messaging to protect market share. The telecom regulator has not adopted any
significant measures in mitigating downward price pressure.

2. The MIC remains open to issuing more mobile network operating licenses. On top of the existing players,
MVNO licenses have been awarded, for example to Indochina, which will contribute to further price
pressure on the existing operators.
Mobile penetration last year hit 130%. With few subscribers to sustain growth, direct price competition
has been the main strategy of mobile operators.
Blended ARPU stands at $3.68. Postpaid ARPU was significantly higher at $15.87. However, only 5.8%
of the total subscriber base could afford postpaid services.
VietnaMobile and Gtel are known for using low rates as their primarily strategy to increase their market
share. As a result, Viettel had to succumb to price pressure to sustain its appeal to the mass market.
Data as a percentage of ARPU is moderately high. However, a large proportion is from low value data
messaging using USSD technology rather than high-speed broadband.
Annual churn rate was significant at 59.8% in 2010 where aggressive price undercutting by a large
number of players has resulted in a constant switching of service providers. Improvements can be
expected with the acquisition of EVN by Viettel and the planned merger between Mobifone and
Vinaphone.
Heavy dominance by state-owned enterprises, a lack of support from the regulator and a lack of
innovative services to drive revenues are significant factors contributing to the present state of the
Vietnam telecom market.
(Source: Ajay Sunder is senior director of Frost & Sullivan's ICT practice in Asia Pacific, Frost &
Sullivan. For more info please contact djeremiah@frost.com or jessie.loh@frost.com)