Equitisation of telecom firms still distant

While foreign investors hope to accelerate the equitisation progress in telecommunications industry, insiders still think there is no need to be in a hurry.

Since late 1997, Orange France Telecom (OFT) has penetrated Vietnam’s telecommunications market through Business Cooperation Contract (BCC) valuing more than $140 million with the Vietnam Posts and Telecommunications Group (VNPT). The contract is to build 540,000 fixed telephone lines in Vietnam, aiming to develop telephone network of VNPT.

However, with this type of investment, the foreign partner as OFT only receives a percentage of revenue and does not have any right on the share capital. Therefore, in 2005, after the government announced the equitisation of leading telecommunications firms including MobiFone, VinaPhone and Viettel, OFT has keened on pursuing greater objective, which is to purchase shares of these network providers, with top priority is MobiFone.

To March 2010, ST Telemedia Company from Singapore has announced the purchase of 10 percent of VNPT Global shares and become its second largest shareholder after VNPT. VNPT Global specialises in international telecommunications investment with activities such as providing telecommunications value added services, contact centre services and building a network of international connections for VNPT.

However, more noteworthy information is that the Vietnam Mobile Service Company (VMS), owner of MobiFone brand, also holds a five percent stake in VNPT Global. Thus, the above business deal could also be considered as the first move of ST Telemedia to carry out its strategy to become larger shareholder of MobiFone in the future.

A month earlier, in the meeting with deputy minister of Information and Communications Tran Duc Lai, Thomas Frisanco, Strategic and Financial Cooperation Managing director at Investelecom consulting company (Germany) said that its two clients Orascom Telecom Holding (Egypt) and Etisalat (Saudi Arabia) are very interested in Vietnam’s telecommunications equitisation process and would like to become strategic investors in MobiFone. Orascom and Etisalat rank the 11th and 14th, respectively, in the world in number of mobile subscribers.

In the White Book 2011, which was recently published, the European Chamber of Commerce in Vietnam (EuroCham) continued proposing the government to accelerate the process of equitisation of telecommunications companies by announcing a firm roadmap, in which specific equitisation time should be included. Nevertheless, to date, all the three network providers, which hold nearly 90 percent of the domestic market share, including MobiFone, VinaPhone and Viettel, have not yet released a specific schedule or time frame for the implementation of their Initial Public Offerings.

While some foreign investors continue to wait patiently for the equitisation process of the domestic telecommunications industry, the three mobile networks having foreign elements, including Vietnamobile, Beeline and S-Fone still continue sharing market share of less than 10 percent.

Participating in Vietnam’s mobile market since 2009 in the form of BCC with domestic partner Hanoi Telecom, Hutchison (Hong Kong) has committed to invest in Vietnamobile up to $656 million. To date, this network provider seems to hold a little more market share than Beeline and S-Fone, with about 10 million subscribers, accounting for five to six percent of the market share.

Meanwhile, after a rather long time being quiet, Beeline wants to re-launch some marketing activities, while S-Fone is still aggressively looking for partners to sell shares after SK Telecom (Korea) withdrew from the BCC signed with the network in November 2010.

The latest signal, which makes foreign investors hope telecom equitisation process could be speeded up, was the confirmation of minister of Information and Communications Le Doan Hop in February 2011. Accordingly, MobiFone was requested to carry out equitisation in 2011, in order to restructure businesses, improve competitiveness of telecommunications industry in the country as well as attract foreign investments.

Nevertheless, in fact, the equitisation process of telecom industry in the last six years shows that is a relatively difficult route and insiders need to overcome challenges including both objective and subjective factors.

First, according to the WTO commitments of Vietnam’s telecom sector, foreign investors are allowed to hold up to 49 percent of the shares of businesses having network infrastructure and 65 percent of shares of businesses without network infrastructure. However, under the drafted decree guiding the implementation of some articles of the Telecommunications Law, a foreign investor is not allowed to own more than 30 percent charter capital of a telecommunications business.

Representative of Russin and Vecchi law firm questioned that what would happen if a foreign investor establishes some branches abroad and those branches would in turn cooperate with Vietnam to set up joint ventures? The 30 percent limit, therefore, would not work.

In addition, information from VinaPhone network mentioned that the biggest difficulty for the equitisation process is this network provider is not an independent accounting unit, because the business must rely on the local postal system. Therefore, VinaPhone needs time to conduct separate accounting, delimit revenue, traffic and management responsibility for each locality.

This task often takes time and a uniform method is needed. However, although it has been three years, this network provider has not announced how this task has been resolved.

Furthermore, the subjective reason coming from insiders contributes to further slow the process of telecom equitisation. Vo Tri Thanh, deputy director of Central Institute for Economic Management said that although the minister requested MobiFone to complete equisitation in 2011, it still depends on whether this network provider thinks it is ready or not.

Both MobiFone, VinaPhone and the management agency of these two businesses VNPT choose to keep silent to the related issues.

However, Thanh still affirmed that telecom equitisation is irresistible, as with the participation of foreign investors, the technology and management levels, and competitiveness of domestic telecommunications firms would increasingly be enhanced.

With this opinion, the British market research firm BMI said that although the equitisation process is slower than expected, some foreign investors such as Telenor (Belgium), Vodafone (UK), NTT DoCoMo (Japan) and OFT (France) are still patiently waiting for long-term investment opportunities in telecommunications industry in Vietnam.

Nevertheless, if this process is carried out too slowly, the market would approach saturation and the development potential would be narrowed. At that time, the attractiveness of domestic telecommunications businesses would be less under the view of foreign investors. Latest report of BMI showed that the number of mobile subscribers surged to over 150 million in late 2010, inversely with the decline of average revenue on each subscriber in Vietnam, which is currently 63,000 dong per subscriber, compared to 126,000 dong per subscriber in 2008. – Dautu

Tags: Vietnam Telecom, Vietnam telecom maket