SINGAPORE-As Vietnam’s mobile phone market tries to recover from the effects of the Asian economic downturn, increasing damage is being caused by regulations and business practices that heavily favor national carrier Vietnam Posts & Telecommunications (VNPT) at the expense of foreign competitors, industry observers believe.
While VNPT’s 100-percent locally owned Vinaphone GSM network continues to prosper, the foreign-invested market leader VMS-Mobifone is flagging, and Singapore Telecom International’s (STI) Call-Link service with Saigon Postel is effectively dead in the water, said Andrew Marshall, chief information officer of Ho Chi Minh City-based Vietnam Information Communications & Education Consulting (VICEC).
At the end of June, VMS-Mobifone was still the market leader with an estimated 168,500 active subscribers, compared with Vinaphone’s 81,000 and around 10,000 for Call-Link. But VMS’s subscriber growth rate is estimated at 25 percent this year, compared with an estimated 124 percent for Vinaphone, according to VICEC projections, supported by sources inside Vinaphone.
“When we began service in June 1996, neither investors nor customers-especially in Ho Chi Minh City-believed we could succeed,” said a senior Vinaphone executive, who declined to be named. “Now, we have surpassed even VMS-Mobifone’s growth in monthly subscriptions and, while we remain strongest in Hanoi, we are now focusing on the south and quickly catching up with VMS in Ho Chi Minh City.”
VNPT’s success-it is adding 5,000 subscribers per month compared with VMS-Mobifone’s 3,000, according to VICEC figures-is caused as much by VMS-Mobifone’s emerging weaknesses as by Vinaphone’s newly found strength, Marshall believes.
VMS-Mobifone operates in Vietnam under an arrangement known as a Business Cooperation Contract (BCC), which requires its foreign investor Comvik AB to fund all of the initial infrastructure investment and share revenue with its Vietnamese partner over the fixed 10-year life of the BCC.
With the BCC now into its fifth year, Swedish company Comvik is reluctant to invest further in its network and services, causing degraded performance as subscriber numbers rise, a manager at a major handset company said.
“The VMS-Mobifone network is already overloaded, and subscribers are increasingly experiencing `Network Unavailable’ messages when they try to call, busy signals from VMS numbers dialed, spotty coverage especially outside urban core areas and even dropped lines,” the manager said.
The shortcomings caused more than 12,000 subscribers to end their VMS-Mobifone subscriptions in the first half of 1999, compared with about 30,000 new subscribers signed up, the local media has reported.
Comvik declined to comment on any aspects of its operations in Vietnam.
As a further barrier, Comvik’s partner in the BCC is VNPT itself-Comvik’s main rival in the GSM market, and the company that will presumably take over the VMS-Mobifone network when the BCC expires in 2004.
One solution-a merger between VMS-Mobifone and Vinaphone-was proposed late last year, but has not gone ahead.
The outlook for third operator Call-Link is even worse. Constrained to operating an outdated AMPS/TDMA network in Ho Chi Minh City and some surrounding towns, Call-Link is at best holding on to some 10,000 low-end subscribers and may even be losing these to the two GSM rivals, industry analysts said. Foreign partner STI said last year it was close to negotiating a deal with Vietnamese authorities to build a CDMA network, but these plans appear to have stalled.
Despite Vinaphone’s strong position, it too faces difficulty making serious inroads into Vietnam’s largely untapped market of 73 million people, due partly to a fixed pricing scheme imposed on it as a legacy of the original VNPT/Comvik BCC agreement. Under this deal, prices must be kept high to enable Comvik to recover its investment in the VMS-Mobifone network.
As the only operator with a long-term future, Vinaphone is now the market driver, increasing its number of base stations in Ho Chi Minh City from 25 at the end of 1997 to a planned 70 by December, adding microcells to improve coverage in crowded urban areas, and promising to offer international roaming and prepaid-card services by the end of this year.
But with the total subscriber base expected to just top 300,000 by the end of the year, Vietnam’s mobile phone market has yet to fulfill its potential, according to the handset company manager.
“Vietnam’s mobile phone market is still attractive, though it’s not meeting our original expectations,” he said. “The penetration rate of 0.4 percent is still very low compared to others in the region.”
The overall growth in mobile phone subscribers in Vietnam remains strong at an estimated 45 percent this year, although down from last year’s 74-percent growth rate, according to VIVEC figures.
The concern for industry executives from both network providers and handset vendors now is how growth in a technically fast-moving business like mobile phones can be sustained in an opaque and obstructive business environment such as Vietnam’s.
