Vietnam’s telecommunications market: the efforts to catch up with the latest trends

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Introduction Along with the continuous development of the global digital era, Vietnam's telecommunications sector is undergoing significant changes, which can be considered to help Vietnam promote socio-economic development over the past 15 years. Smartphone penetration and the Internet have increased dramatically over the past few years. In addition, operators are constantly improving service quality and investing in building physical infrastructure, significantly expanding coverage area and providing diverse service packages at flexible prices. In addition, Vietnam successfully trialed 5G networks in some major cities and plans to commercialise 5G in 2020, opening up plenty of business opportunities for related industries and fostering socio-economic development. The article focuses on clarifying the reality of market competition and foreign participation as well as introducing the development of telecoms infrastructures and services. It also gives analysis of many constraints Vietnam has to face, from which we can give general solutions to accelerate the development of the telecommunications sector of Vietnam. Overview of reference and basis theory There has been a lot of research on telecoms sector in the world, especially developing countries like Vietnam. In theory, Roller and Waverman [2001] find that telecommunications investment significantly increases economic growth by offer substantial positive externalities to the rest of the economy by, among other things, increasing the information flow and reducing transaction costs in the economy. In practice, the outstanding research is “Features of the development of telecoms services in Russia” by D.A. Larichkina [2015] which analyzes the features of the telecommunications market in Russia impact on the development of the market itself and the development of the territory as a whole. Another research “Competition in the telecommunications industry: the network market amid product differentiation” carried out by N.M Rozanova, D.A. Bulichenko [2011] analyzes key characteristics of competitive interactions in telecom industry, including world experience and Russian economy practice. Although there is no analysis of Vietnam, the articles above show some lessons that Vietnam can learn. In Vietnam, some notable domestic works can be mentioned such as “Trade Liberalization and Development in Information and Communication Technologies (ITC) Sector and its impact on household welfare in Viet Nam” by Tran Quoc Trung et al [2007]. The authors provide a more dynamic picture of the sector in a transition economy and discuss constraints in the current ICT policies and regulations and implementation in practice. In general, the related researches have yet not updated the current situation of the Vietnamese telecoms industry as well as not analyzed a specific direction for 5G development. Recognizing these limitations, this article not only provides information on telecoms market and its development in some recent years but also discusses the early stages of on the road towards commercial 5G deployment in Vietnam. Thereby, it points out the difficulties for Vietnam to analyze the orientation and propose specific solutions. The main research method used in this article is qualitative research. In particular, the information is gathered from other scientific studies and official information, data from the Ministry of Information and Communications. In the most comprehensive way, telecommunications is considered as ‘‘any transmission, emission, or reception of signs, signals, writings, images, and sounds; or intelligence of any nature by wire, radio, visual, or other electromagnetic systems’’ [ITU: 30.12.2020]. The slightest change in regulatory, technological and economics factors can impact importantly on the sector and many its challenges coming from these factors. In the history, the invention of telegraph in the 1830s marked the beginning of the telecoms industry. In contemporary time, technology has gone mobile. Wireless digital technology is becoming the primary form of communication. Advancement in telecommunications technology is one of the dynamic strength of globalization and the rapid growth of the world’s economy. Reality of market competition and foreign participation Market concentration and competition The three largest telecoms providers (Viettel, VNPT and MobiFone) have been vying for dominance in the country’s domestic market for many years. Those three firms usually dominate more than 90% of the total revenue of telecoms services [MIC 2016-2019] (Fig. 1). Military Industry-Telecommunications Group (Viettel) - a 100% state-owned military enterprise - is the largest telecoms provider in Vietnam with its revenue and profit (2019), reaching US$ 9 billion and US$ 1.6 billion respectively, accounting for 60% of the total revenue and 70% of the total profit of the telecoms industry [Minh Châu 2019]. Fig. 1. Market shares (by revenue) of terrestrial fixed-wired broadband services (2019) and Market shares (by revenue) of terrestrial mobile cellular broadband services (2019) [MIC 2021] Vietnam Posts and Telecommunications Group (VNPT) is the second-largest telecoms group with an increase of 25% in its profit, hitting about US$ 313.41 million in 2019. VNPT has achieved impressive profit growth of more than 20% for the fifth consecutive year. In 2019, the third-largest company - MobiFone witnessed an increase of 5.36% in after-tax profit compared to 2018, reaching US$ 281 million [Thảo Miên 2019] Fig. 2. Market shares (by subscriptions) of terrestrial fixed-wired telephone service providers (2019) and Market shares (by subscriptions) of fixed-wired broadband services providers (2019) [MIC 2021] The above statistics illustrate the subscription share of terrestrial fixed-wired telephone and broadband services in Vietnam in 2019. In that year, VNPT far outnumbered other rivals in terms of fixed-wired telephone service with a market share of approximately 65.94%, followed by Viettel having a share of about 31%. Regarding fixed-wired broadband, both earned approximately equal shares, far surpassing the third significant player - FPT who held only about 15% (Fig. 2). Regarding mobile-cellular subscriptions, Viettel is the largest mobile-cellular network operator in Vietnam with more than 50% market share (2018), followed by VNPT (via Vinaphone-its child company) and MobiFone. It is also the first telco to pilot 4G and 5G services. It is also worth noting that 2019 is the first year in operation of Indochina Telecoms - the first mobile virtual network operator in Vietnam and operating on the VinaPhone network with its neglible market share (Fig. 3). Fig. 3. Market shares (by subcriptions) of terrestrial mobile cellular broadband services (2019) [MIC 2021] Despite remarkable growth in broadband subscriptions, the rise in mobile data revenue could only compensate for the reduction of traditional telecoms to keep the growth rate at a stable level but was not able to make a real breakthrough. This is mainly due to the “race to the bottom” price war of domestic mobile service suppliers in attempting to retain and gain more customers [Thủy Diệu 2020]. Foreign participation Under the Vietnamese Investment Law of 1992, foreign companies were only allowed to provide services to Vietnam’s telecoms market if they enter into Business Cooperation Contract with local state-owned companies, and income was shared among them [USAID 2005]. Foreign firms are permitted to provide financing and infrastructure deployment but have neither an equity claim on the assets nor any project managerial control. Until now, there are more than nine BCCs that have been signed, in which, only Telstra-VNPT and Comvik-VNPT are viewed as successful cases. Vietnam’s accesion to the WTO in 2007 and the government’s realization the short-lived success of the BCCs marked the second milestone. At that time, the Law on Telecoms, which was formally passed at the end of 2009 and put into effect in mid-2010, provided not only domestic but also foreign investors a legal basis to participate in the telecoms sector without further specification on the maximum foreign capital contribution to each service category. In return, through the introduction of the “Telecom Business Service Licensing" regime , foreign operators have to obtain an additional Investment Certificate. European Union - Vietnam Free Trade Agreement (EVFTA) coming into effect in early 2020 marked the third milestone. According to this FTA [Nguyễn Thị Thu Trang 2020], Vietnam shall make its door open wider to EU stakeholders to invest in its telecoms sector. For value-added facilities-based services, EU enterprises can contribute up to 65% capital.For value-added non-facilities-based services, after 5 years, 100% EU-invested capital shall be permitted. Besides, some of the world’s top telecoms companies have already established representative offices in Vietnam, such as AT&T Mobility and China Mobile. In the long term, domestic telecoms companies may face major challenges due to increasing competitive pressure from foreign companies and customer requirements on better service delivery in terms of price and quality. Telecoms infrastructure and service development Overview of telecoms development recently Vietnam’s telecoms industries have firmly developed over the last four years. According to the Ministry of Information and Communications (MIC), the total revenue of telecoms sectors in 2019 soared 18.06% compared to the same period last year, reaching a new high of VND 472.3 trillion (about US$20.2 billion) [MIC 2019a]. A closer look at telecoms services, the turnover of this sector in 2019 was recorded at US $5. 608 billion, declining 1.15% over the same period previous year [MIC 2021]. Fixed-wired broadband comprises the major share of the revenue from the terrestrial fixed-line service, rising from 65% in 2017 to 72% in 2018 [MIC 2021]. Within the mobile-cellular telecoms space itself, the traditional 2G service, namely voice calls and SMS, is still dominant with a share of 76.6% in terms of revenue in 2019 [Việt Nga 2020] (табл.1). Table 1. Revenue of Main Telecoms Services in the period of 2015-2019 (million US$) No. Indicator 2015 2016 2017 2018 2019 1 Terrestrial Fixed-line Services 1176.78 1142.52 1337.59 1474.89 1593.63 2 Terrestrial Mobile Cellular Services 4882.4 5013 4539,34 4195.60 3991.63 3 Satellite Mobile Cellular Services 2.79 2.35 2.28 3.02 3.15 4 Coast Mobile Cellular Services 0.178 0.174 0.14 0.10 0.08 Source: [MIC 2021] The year 2019 also marked a notable transition of Vietnamese telecoms from a pure “telecoms operator” to “digital service and solution provider”. Viettel and VNPT are two pioneers investing heavily in various digital platforms. They have investigated many of the world's current mainstream technologies such as artificial intelligence, blockchain and cloud computing. As the digital market is still in its infancy, the turnover is still relatively small. Fixed-broadband development Regarding telecoms infrastructure, Vietnam currently has six international submarine cable systems (AAE1, AAG, TGN-IA, SJC2, APG, SeaMewe3) and a 120-gigabit overland channel running through Cambodia, Laos and China. The proportion of fixed-line subscriptions hit an all-time high of 20% in 2009, followed by an gradually decline, was only 4.5% by the end of 2018. This reduced trend is in accordance with the general trend of other surrounding countries in the region, except for Malaysia [Vietnam Teledensity 2020]. Regarding the fixed-broadband subscription, Vietnam experienced a strong year-on-year average growth rate for the period 2008 to 2018, reaching a record high of 13.6 per 100 inhabitants [World Bank 2020] (equivalent to about 13 million subscriptions). 92% of which are fixed-wired broadband Internet via Fibre to the home with the speed of 10 Mbit/s or more. This data almost equals the world average, outperforming Thailand and Malaysia to register the highest number among selected countries. Mobile-cellular broadband development In general, the number of mobile phone subscriptions has fluctuated since 2012 after a nonstop increase during the 2000s, revealing a sign of market saturation. According to VNTA [VNTA: 30.12.2020] the total number of mobile subscribers at the end of 2019 reached 126.15 million, mostly using prepaid plans. This data is 3.25% lower than in 2018 due to the fact that the mobile-cellular service market has become saturated as well as MIC tightened its management over pre-activated SIM cards. In early 2020, about 17 million trash sim-cards were eliminated, which helps to reduce complaints about spam messages by 90% [Thái Linh 2020]. The share of mobile broadband substantially rose over years and obtain 62.6 million subscriptions as of 2019, accounting for almost 50% of the total number of mobile subscriptions. As of January 2020, there are about 64.6 million 3G and 4G data subscribers (equal to a share of 51.5%) Fig. 4). Fig.4. Vietnam’s mobile-cellular telephone subscriptions in period of 2015 - January, 2020 [VNTA: 30.12.2020] As of 2018, 99.7% Vietnamese population lived within reach of at least 3G mobile signals while the figure for 4G was around 95.3% [MIC 2019b]. However, the number of active 3G-4G mobile subscriptions per 100 inhabitants in 2018 was only about 61.4%, much lower than the world average (70%) and the Asia-Pacific region (71%), ranked 90th worldwide and 9th in the region [Năm 2019 tổng doanh thu: 28.12.2019; ITU 2020]. The number of 3G and 4G subscriptions in Vietnam is predicted to continue its rising trend, primarily due to the largest network operators’ promotion of the use of 4G and the booming e-commerce market as well as the considerable prevalence of OTT services. GSMA (2019) [The Mobile Economy: 30.12.2020] projects that as of 2025, the share of 2G subscriptions will reduce to only 2% whereas those of 3G and 4G will soar to 53% and 36% respectively. Therefore, the government plan shut down 2G in the near future. Regarding the quality of mobile broadband services supplied by domestic providers, Opensignal’s survey from May to July 2019 showed that Viettel particularly stood out, providing the customers with wider availability of 4G, higher video, download speed and less latency than any other rivals. Vinaphone came in a strong second in several categories, followed by MobiFone. Meanwhile, Vietnamobile fell far below others in every metric [Vietnam Mobile Network Experience: 30.12.2020]. Compared to other Southeast Asian countries, Vietnam has around average performance in most aspects [Boyland 2020], far better than many countries such as Indonesia, Laos, Cambodia and the Philippines, although it still has a long way to compete with Singapore. Mobile Connectivity Index 2019 ranked Vietnam among the most improved countries in Asia-Pacific. Vietnam’s improvement in its infrastructure score was driven by exceptionally enhanced network coverage of 4G rolled out in 2017 and improved service quality offered to mobile users in terms of download and upload speeds latencies [MIC 2019c]. 5G network development In September 2019, Vietnam signed Resolution 52-NQ/TW outlining a number of policies and guidelines to promote active participation of businesses in the 4.0 Industrial Revolution. It also aims to cover 5G networks nationwide by 2030 and provide all citizens with affordable broadband Internet access. Regarding the implementation, Vietnam has awarded 5G testing licenses in some of the largest cities to the three major mobile carriers, Viettel, VinaPhone and MobiFone. Their goal is to open commercial 5G networks by 2020, making Vietnam one of the earliest Southeast Asian members successfully deploying 5G networks (Fig. 5). The tests of three major mobile carriers in Vietnam get some positive results with connection speeds ranging from 600 to 700Mbps - equivalent to the speed due to Verizon's 5G network supplying to US customers [Trọng Đạt 2019]. These results indicate a fierce technology race among large enterprises. Fig. 5. ASEAN's expected projected 5G penetration percentage and total 5G subscriptions by 2020 [Venkataramani, Dobberstein 2020] According to A.T. Kearney (2019), the growth of 5G subscriptions in the first 5 years is expected to stay at only 6-7% (more than 6 million subscriptions) in 2025, a much lower than other country members [Venkataramani, Dobberstein 2020]. There are a number of limiting factors. First, since the proportion of the population using only 2G/3G devices is still very large, they must change their devices to be able to access 5G networks. For business users, to adopt 5G technology, they need to shift from outdated to advanced technologies which are costly whereas SMEs account for 97% of all businesses operating (2019) [GSO 2020]. In addition, Vietnam lacks verticals, e.g. virtual and augmented reality, self-driving cars, AI and other data-intensive services, which will hamper businesses' motivation to take steps towards adopting 5G in their day-to-day operations. However, from 2025 onwards, the growth rate of 5G adoption is likely to increase at a faster rate than in other countries. If the price of 5G-compatible devices are affordable, local businesses may be more interested in investing and building ecosystems. Although Vietnam will need a substantial investment, estimated to be around US$ 1.5-2.5 billion over 5 years [Các nhà mạng Việt Nam: 17.10.2019], the availability of 5G will fuel the rapid growth of many industries, based on enhanced power connectivity, much greater speeds, much higher throughput and lower latency than 4G networks. Research by A.T. Kearney (2019) shows that although the number of 5G subscribers in Vietnam may only reach about 6 million by 2025, the annual revenue of Vietnam's telecoms may increase to US$ 300 million since then. B2B will reap the biggest benefits of up to US$ 155 million, followed by fixed-line B2C access. Major constraints Although Vietnam is one of the countries with the fastest growth in telecoms infrastructure and services in the region and in the world, its telecoms sector faces a number of hurdles. First of all, the management and construction of telecoms facilities are considered ineffective. This not only reduces the return on investment, increases costs and impedes the proper implementation of critical infrastructure, but also pollutes the vision and threatens the safety of the people. Passive telecoms infrastructure sharing is then suggested to reduce duplication, but very few concrete measures have been taken due to conflicting benefit-sharing and lack of regulatory guidelines. Remarkably, there are larges differences in terms of the development of telecommunications services, especially the availability of broadband Internet between urban and rural in Vietnam. More than two-thirds of rural population own smartphones, but devices that are compatible with 4G are not widely available. In addition, the rugged mountainous terrain causing the long distance between cable towers, so wired Internet access is weak and unstable. Due to Vietnam's commitment to FTAs, Vietnamese government is gradually divesting its capital from state-owned enterprises. However, because adjusting the growth of the market is not an easy task, until now, it seems to be very slow progress. In the past, regulations related to data security were dispersed under various laws, i.e. the Telecommunications Law and the Information Technology Law. The new Law on Information Security was issued and came into effect from 1 July 2016, giving regulations on ensuring safety, keeping personal information confidential, protecting information and preventing customers from spam, malware and computer viruses. However, the illegal collection, usage, distribution and sale of personal information is still common. Technical failures occur frequently with broadband Internet connection fixed and portable. Although the 4G network covers up to 95% of Vietnam's territory, the connection quality is not stable due to the lack of adequate bandwidth. Although the telecom carriers announced they would increase the number of BTS stations and focus on expanding the connection capacity to accommodate large data traffic and prevent network congestion during major holidays, but power outages can still happen locally. The internal 5G development plan of domestic telecommunications will reduce Vietnam's dependence on foreign technology. However, its feasibility is still questioned due to the lack of key factors such as finance and qualified human resources. Not enough information on the reliance of Vietnam on foreign technology and equipment In conclusion, Vietnam's network operators are still largely dependent on traditional services. However, with the decreasing trend of traditional mobile services and the increase in data income, Vietnam is considered to be doing well on the road towards commercial 5G deployment with some basic principles, including relatively developed telecom infrastructure, nationwide 4G coverage, successful outdoor 5G testing as well as solid support from central government. Therefore, it is recommended to have healthy competition and promote equitization state-owned enterprises to open up new business opportunities for both private enterprises and foreign investors. The provision of telecoms equipment and infrastructure appears to be promising, particularly pay-TV infrastructure and satellite-based telecommunications services (e.g. broadcast media) which is undeveloped in Vietnam. In addition, the strong connection between telecommunications services and other economic sectors such as financial services and e-commerce activities will increase the current pressure on growth, enhances technical stability, provides protection against sophisticated fishing schemes, network attacks, and consolidates data and information. Therefore, Viet Nam is recommended to regularly review and update the legal system, strengthen law enforcement and soon produce strategies and guidelines for mobile broadband development as well as a roadmap for 5G deployment. Last but not least, Vietnam needs to expend efforts to encourage private investment, the development and application of 4.0 technology, and promote vertical industries to capitalize on the availability of 5G services.

About the authors

Hoang Linh Dang

Vietnam Diplomatic Academy

Email: dhlinh13@gmail.com
Ph.D (Economics), Assistant Professor, Dean of the International Economics Faculty

References

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