Telecom market enters fierce competition

Domestic telecom giants, Viettel, Mobilefone and Vinaphone, recently proposed that the Ministry of Information and Communications (MoIC) fix a ‘floor’ price level for mobile phone calls in an effort to nip in the bud a possible price war between service providers.

Return to monopoly?

It’s worth remembering that Beeline and Vietnamobile’s decision to offer free calls within their networks in July 2009 caused a headache for Viettel, Mobifone and Vinaphone – the three mobile phone service providers, which currently hold the lion’s share of the country’s telecom market.

Facing a sharp fall in revenue, service providers launched promotions for pre-paid card users who enjoyed another 100 to 150 percent of the face value of the cards. The fierce competition prompted the Trade Promotion Agency to restrict promotions by limiting the bonus level to less than 50 percent of the card value.

The giants’ proposal has not been supported by other service providers. Vietnamobile Deputy General Director Nguyen Xuan Quan explains that luring users is a combination of elements: product, price, distribution, advertisement and promotion, and that fixing a ‘floor’ price level is an administrative intervention.

The State intervenes only when problems arise in the market, i.e. either the market collapses or businesses provide products and services of low quality and high prices, says Mr Quan.

In his opinion, the State should not intervene in the mobile phone market through a ‘floor’ price level.

A telecom expert says that the application of such a single price level will benefit a number of service providers, but do harm to users. He explains that newcomers such as S-Fone, Vietnamobile and Beeline will lose out in the competition, since the combination of competitive factors such as product quality and service will not be effective when prices are ‘fixed’.

Beeline Deputy General Director Nguyen The Binh says such a proposal will eventually lead the domestic telecom market to a monopoly position.

“Obviously, newcomers cannot compete against the giants,” says Mr Binh. “A single price level will prevent businesses from developing service packages for users who are in a disadvantaged position.”

He proposes that the move be applied only to the giants such as Viettel, Vinaphone and Mobifone, reasoning that the smaller businesses cannot do srious harm to the bigger ones.

Against market law

Dr Vu Dinh Anh, Deputy Director of the Price and Market Research Institute under the Ministry of Finance, says the application of such a ‘floor’ price level will beat off competition and the fruit that the telecom sector has gained so far.

The Vietnam Post and Telecommunications Group (VNPT) claimed before Viettel entered the market several years ago that businesses would face a loss unless call charges were fixed at US$3 per minute, says Mr Anh.

As for the view that the application of a ‘floor’ price level prevents dumping prices in the market, Mr Anh says anti-dumping measures are only applied internationally to safeguard domestic production.

“The proposal is irrational. Let the market regulate itself, and let the State intervene only when problems arise. We need State regulations to govern competition and fight monopoly,” he says.

Mr Anh adds that it is a common occurrence in a market economy for businesses to accept a loss in order to gain market share.

“We should have taken into account the scope and scale of the telecom market in Vietnam to determine the number of service providers, 5 for instance. Now when 10 such providers have been licensed, we have to accept fierce competition,” he concludes.

Pham Hong Hai, Head of the Telecom Department under the MoIC, says his ministry has no intention of fixing or managing a ‘floor’ price level. The ministry will consider the giants’ proposal in light of current law, including the Ordinance on Price and the Commerce Law.

Tags: Vietnam Telecom, Vietnam telecom market