VIETNAM TELECOMM

Wea|so|ookat thedebt that theVietnamesegovernment iscarry ingonagainst theseofothercountnes.

Vietnam has borrowed as much as the us in terms of percentage of GDp. we are in the opinion that as

an emerging market, Vietnam should keep the nation,s debt not exceeding 40% GDP at this point in time

noting several factors such as: growth rate of GDP' level of contribution of FDI enterprises' foreign

reserves, and liquiditY of assets'

7 REGULATORYAND LEGAL CONTEXT

7.T TELECOMMUNICATIONS REGULATION IN VIETNAM

7.1.1 BASIS

Thefo||owing|ega|documentsconstituteabasisforte|ecommunicationsregu|ationinVietnam,

.Theord inanceNo.43/2002/PL-UBTVQHl0dated22May2002onPostsandTe|ecommunicat ions;

. The Decree No. 160/2004/ND-C' dated 3 september 2004 detairing the imprementation of a number

of articles on telecommunication of the ordinance on Posts and Telecommunication;

o The Decree No. 121l2''g/ND-Cp dated 3 December 200g on investment activities in the posts and

telecommunications sector;

o The Telecommunications Law No' 41120091QH12;

. The Radio Spectrum Law No' 42l2009/QH12,

7. , | .2AH|sToR|cALDEVELoPMENToFREGULAT|oNANDMARKETL|BERAL|ZAT|oN

Ab igp i c tu reonah i s to r i ca l deve |opmen to f regu |a t i onandmarke t l i be ra | i za t i ono fV ie tnamese

telecommunications industry can be provided as below'

SourcerciA & Factbook

ffip" NNMT Advisor, nguyenngocbien@yahoo'comPage 1.5

VIETNAM TELECOMMUNICATIONS SERVICES MARKET REPORT UP TO 2O1O AND BEYOND

Figure 6: HTSTORICAL DEVELOPMENT OF REGULATION AND MARKET LIBERALIZATION

PERIOD REMARKS

Before 1992 . VNpf was the regulator and only service provider until 1990'

. Ministry of Transport and Communication was the policy maker in 1990 and

VNPT was the only service provider.

r Department General of Posts and Telecommunications (DGPT) was the policy

maker and regulator and VNPT was the only service provider in 1992.

. Telecommunications services were mainly for public services. Telephone density

was as small as 0.2%. Analog was replaced by digital technology.

Telecommmunications construction was liberalized. Tariffs were strictly under

control of the government.

1 992-1 995 f f i ake rand regu |a to randVNPTwas theon | yse rv i ceprovider belonged to VNPT.

Network deployment was started to accelerate. Capital was injected from

overseas investors. Some BCCs were established including BCC between VNPT

and Comvik. Two new companies Saigon Postel (SPT) and Viettelwere formed'

Business and regulator were separate but there was still monopoly' Tariffs were

strictly under control of the government.

1 996-2002 e telecommunications market was developed

rapidly. Teledensity reached 5% by 2000. Both GSM and CDMA were deployed"

competition was very limited. The government held more than 50% in

telecommunication FBOs.

DGPT decided tariffs of most services. lnternational call was among the most

expensive one in the world.in 2001.

2002-2007 f f iun icat ionsord inancewaSapproVedin2002'Vietnam

entered Bilateral Trade Agreement with the US, cooperated within ASEAN, and

entered the World Trade Organization with commitment to open up the

telecommunications market in phases.

o There were 10 FBOs and about 60 SBOs licensed'

. Competition was fiereced in mobile, leased-line, and Internet sectors. Fixed-line

business was suffering.

. The state has only controlled the retail tariffs of significant market power (SMP)

operators. Other operators can set their own tariffs. MIC has annually issued the

list of services and operators under SMP regime.

2007-now

Mtc

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VIETNAM TELECOMMUNICATIONS SERVICES MARKET REPORT UP TO 2O1O AND BEYOND

7.1.3 KEY GOVERNMENT AGENCIES

A specific issue in the telecommunications industry is regulated by several key government entities

whereas MIC is the main agency in charge. We will describe the roles of relevant agencies in brief as

below.

. The Ministry of Information and Communications (MlC)

Unlike other countries where there is an independent regulator, the Ministry of lnformation and

Communications in Vietnam also functions as a regulator in addition to its traditional role of being part

of the administrative arm in the current regime'

r The Ministry of Finance (MOF)

The Ministry of Finance supports the Ministry of Information and Communications by participating in

relevant financial issues such as universal services funds or fees against commercial rights under

licenses. Further, the Ministry of Finance will give advice on challenging issue such as valuation of

intangible assets such as licenses, spectrum, and numbering plan, when needed.

o The Ministry of Police (MOP) and the Ministry of Defence (MOD)

The Ministry of Police and the Ministry of Defence supports the Ministry of Information and

Communications in the area of protecting the public and national telecommunications network and

national security. These two Ministries are responsible for establishing the private networks for the

use of the police and army forces. MOP and MOD are also participating in the industry in another

way: They strongly support their enterprises to participate in the industry as aggressive investors.

. The Ministry of Planning and Investment (MPl)

The Ministry of Planning and Investment supports the Ministry of Information and Communications in

the area of licensing overseas and domestic investments.

r The Ministry of Trade and lndustries (MTl)

The Ministry of Trade and Industries supports the Ministry of Information and Communications in the

area of regulating pricing, promotions, and anti-competitive practices.

. The Ministry of Science and Technology (MST)

The Ministry of Science and Technology works with the Ministry of Information and Communications

in setting up national standards for equipments, services, and environment protection.

. The Ministry of Culture, Sports, and Tourism (MCST)

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VIETNAM TELECOMMUNICATIONS SERVICES MARKET REPORT UP TO 2O1O AND BEYOND

million numbers while each other province has a capacity of 7 million ones. Below is the list of prefixes

used for each operator.

FIXED-LINES PREFIXES ASSIGNED TO OPERATORSre 7iOperator Fixed-line prefixes

EVN Telecom 2

VNPT 3

VTC 4

Saigon Postel 5

Viettel 6

FPT 7

VNPT I

To be reserved 9

Source: MIC

According to the current national numbering plan, Vietnam has a capacity of 800 million mobile numbers

among which 200 million were given to operators. We however estimate that the usage ratio is just about

20%-25% out of the given numbers due to a mass number of virtual subscribers caused by aggressive

promotions and loosen controlled prepaid services. MIC has been trying the best to promote Mobile

Number Portability (MNP) approach to the market. Also, operators were encouraged to frequently filter

unactive subscribers in their network. Below is the list of prefixes used for each mobile operator.

PREFIXES ASSIGNED FOR MOBILE OPERATORS8:Operator Mobile prefixes

VinaPhone 091 , 094, 0121, 0123,0125, 0127 , 0129

MobiFone 090, 093, 0120, 0122, 0124, 0126, 1028

Viettel 097, 098, 0168, 0169, 0166

Saigon Postel(S-Fone) 095

EVN Telecom 096

VinaMobile 092, 0188

GTel(Beeline) 0199

Source: MIC

7.1.7 UNIVERSAL TELEGOMMUNICATIONS SERVICES FUND

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VIETNAM TELECOMMUNICATIONS SERVICES MARKET REPORT UP TO 2O1O AND BEYOND

The regulator has launched an universal telecommunications services fund ('the Fund') in order to 1)

distinguish the gap between making profits and providing universal services to remote areas and 2) close

the digital devide among different regions in the country. The Fund is operated under a very simple

approach. Operators will contribute a certain percentage, depends on the nature of services, of their

annual revenues to the Fund's budget and this budget will be re-allocated for those who plan to provide

services in a planned pre-approval rural and remote area where profit making is not yet possible.

7.Z TELECOMMUNICATIONS LICENSINGFRAMEWORK

Like many other countries, telecommunications is a conditional business area in Vietnam.

7.2.1 TELECOMMUNICATIONSLICENSES

There are two categories of telecommunication licenses in Vietnam. First, the licenses for doing

telecommunications businesses which include a) infrastructure-based telecommunications licenses

granted to those enterprises which provide telecommunications services utilizing the telecommunications

infrastructure networks and b) services-based telecommunications licenses granted to enterprises which

provide telecommunications services without the need of utilizing infrastructure network. Infrastructure-

based licenses normally have terms not exceeding 15 years while services-based licenses have those

not exceeding 10 years. The second license category is for performing telecommunications work such as

a) licenses for setting subsea cables with terms not exceeding 25 years, b) licenses for private network

with terms not exceeding 10 years, and c) licenses for establish pilot networks and provide trial services

with the terms not exceeding 1 year.

7.2.2 BASIC PRINCIPLES FOR TELECOMMUNICATIONS LICENSING

The following principles are used when considering an application for a specific telecommunications

license.

o The license is appropriate and matches with the nation's development strategy and master plan.

. The license is having a priority in consideration if the project is feasible and fast to deploy, commits to

long-term benefits of end users, or reaches the remote areas where having disadvantage socio-

economic conditions.

. The application for a license, if relevant to the telecommunications' resources, is only considered if

the allocation of such resources is feasible and in place with the approved usage plan in addition to

the effectiveness of using telecommunications resources.

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VIETNAM TELECOMMUNICATIONS SERVICES MARKET REPORT UP TO 2O1O AND BEYOND

B INVESTMENT FRAMEWORK IN VIETNAM TELECOMMUNICATIONS8.1 LEGAL BASIS

The followings laws and regulations documents are the basis for any investment activity in theVietnamese ICT industry.

o The Law on lnvestment No. 59/2005/QH 11 in 2005;. The Decree No. 108/2006/ND-CP dated22 September 2006 providing guidelines for implementation

of a number of articles of Law on lnvestment;

. The Ordinance No. 4312002/PL-UBTVQH10 dated 22 May 2002 on Posts and Telecommunications;o The Decree No. 160/2004/ND-CP dated 3 September 2004 detailing the implementation of a number

of articles on telecommunication of the Ordinance on Posts and Telecommunication;o The Decree No. 121l2008/ND-CP dated 3 December 2008 on investment activities in the posts and

telecommunications sector;

. The Telecommunications Law No. 41120091QH12;

r The Radio Spectrum Law No. 42120091QH12;

e International Treaties on telecommunications sector that Vietnam is a party.

. Vietnam's WTO accession commitments.

8.2 FORMS OF FOREIGN INVESTMENT

Under Vietnam's Investment Law, one or more of the following vehicles are available to a foreign investor:o A joint venture company ("JVC");

. A wholly foreign-owned enterprise ("WFOE");

. A business co-operation contract ("BCC");

. A BOT (build, operate and transfer);

o A branch office (Banks, Law Offices and trading companies only)

There are significant differences among forms of foreign investment vehicles allowed under the Law onInvestment as follows.

re 9: MAJOR DIFFERENCES BETWEEN FORMS OF FOREIGN INVESTMENT VEHICLESJoint Venture (JV) 100% foreign-

owned

enterprises

BCC Branch

Use in BOT contract Yes Yes No No

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VIETNAM TELECOMMUNICATIONS SERVICES MARKET REPORT UP TO 2O1O AND BEYOND

9

9.1

TELE COMMUNI CATI ONS SERVICES MARKET IN VIETNAM

AN OVERVIEW

The telecommunication development in Vietnam follows a leap-frog strategy of renovation in phases: (1)

Acceleration and modernization (1990-2000), (2) No corporate monopoly and approaching competition

(1995-2003), (3) Integration, development, and ownership diversification (2000-2020), and (4)

Achievement of the telecommunication roadmap of a developed country $rom 2002 onward).

The total revenue for the post and telecommunications sector in Vietnam for the first six months is

estimated atVND 87,000 bi l l ion. By end of May 2010, there are 19 mil l ion new subscribers. Among such

new subscribers, there are 18 million mobile subscribers. Accumulatively, there are about 149 million

subscribers among which 129 million mobiles subscribers by end of May 2010. VNPT is the incumbent

one who contributed up to 75 million subscribers out of the 149 million subscribers. VNPT had 64 million

mobile users in the Group's subscriber base. On a recent report conducted by MPl, there were about 22.8

mil l ion new subscribers among which 22.1 mil l ion are mobile ones. By end of June 2010, there were

about 1b1 million subscribers among which mobile subscribers account for 89.8%. Teledensity is about

174.7 over 100 residents. Also, by end of June 2010, there were about 25 million Internet users in

Vietnam. The number of broadband Internet subscribers is about 3.5 mil l ion and VNPT has 2.5 mil l ion

ones.

Some basic statistics are provided in the below figures. 2009 was an outstanding year for

telecommunications when revenues grew more than 60%. We estimate that the telecommunications

revenues of 2010 will be reaching the level of $9 billion the first time. We also note that mobile

communications plays a leading role in contributing to the total telecommunications revenues: This sector

contribute about 60% of total industry revenues in the past couple of years.

Fiqure 10: TELECOMMUNICATIONS SERVICES REVENUES

TELECOM REVENUES (MILLION USD)

10000

8000

6000

4000

2000

0

2006 2007 2008 2009E 2010F

Source: MlG, White Book on ICT Vietnam 2009, 2010, NNMT ADVISOR's estimates and forecasts

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VIETNAM TELECOMMUNICATIONS SERVICES MARKET REPORT UP TO 2O1O AND BEYOND

ProvinceGomputer pergovernment

officer

Percentage ofcomputers having

access to the lnternet

Percentages ofgovernment offices

havinq LAN

ln Averaqe 55,87Vo 71,47%Mrc

10 KEY TELECOM COMPANIES

1.0.1 VNPT

STRENGTHS

. VNPT is the incumbent and is assigned key infrastructure projects of the country and therefore

receives most favorable support from the government in terms of licensing, telecommunications

resources, commercial rights, and financial assistance.

r VNPT has gained years of experience. As a result, the incumbent can maintain an excellent

workforce and has deep pockets.

o VNPT has maintained a solid telecommunications infrastructure which helps provide most available

ICT products and services.

. VNPT has a strong brand and largest customer base.

. VNPT can influence most, if not all, national policies toward the industry.

WEAKNESSES

o The incumbent carries a huge, but not effective, organization structure and infrastructure networks.

Productivity is quite questionable. The ability to quickly adapt to the changing business environment

is st i l l in the dark.

r VNPT has to provide universal services to remote areas where profits are not realized.

COMPANY OVERVIEW

On January 9, 2006, the Prime Minister signed Decision 06/2006iQD-TTg on the establishment of the

parent company - VNPT Group, on the basis of restructuring the Vietnam Posts and Telecommunications

Corporation and turning it into a strong economic group of Vietnam with improved power &

competitiveness in the process of regional & international integration.

VNPT Group will now have a new.mission & stature, involved in multi-businesses of which posts, lT and

Telecommunications are major fields. VNPT will mobilize all economic sector to joint its process of

development with a diversified ownership structure and flexible business scheme in order to renovate &

develop to reach the targets: modernizing the posts, telecoms & lT infrastructure with high speed, high

capacity and high quality; popularizing all kinds of services to meet social demands; driving the national

course of industrialization and modernization in the new era of development, integration, knowledge

Bien Nguyen, NNMT Advisor, nguyenngocbien@yahoo.com Page 61