Tougher Telecom Charge Competition

Major market players in the telecom industry like Vinaphone, Viettel, Mobifone, Beeline and S-Fone are sending more signals of a fiercer competition. In that context, consumers will benefit from the record reduction in service charges.

Authorities change the rule

Recently, the Ministry of Information and Communications has issued many policies to crack down on network operators. The most important are six regulations on new telecom charge. Accordingly, internetwork connection fee will be slashed by an average of 30 percent. Deputy Minister of Information and Communications, Le Nam Thang, pointed out that the interconnection fee will be at the same rate at any time in the day. Service providers with controlling market shares like Viettel, Mobifone and Vinaphone seem to be at a disadvantage compared with smaller networks like S-Fone and Beeline, Vietnamobile and EVN Telecom as they have to pay VND50 per minute higher than the amount they receive from smaller players. Specifically, a mobile network will pay VND500 per minute of interconnection fee to operators with controlling market shares (30 percent or more of market share) while controlling players will have to pay VND550 per minute to small operators. The connection fee from local fixed networks to mobile networks is VND415 per minute and the rate for connecting international fixed network with local fixed network is VND550 per minute, etc.

Reactions from operators

A Vinaphone official said his network is considering the plan, time and rate of service charge reduction. “In the near future, the cost of external network connection of mobile calls can be reduced up to 30 percent and the validity was on January 15, 2010,” he said. This means that Vinaphone subscribers will enjoy a 30 percent discount of call charge when they ring other networks.

Two other market-controlling networks, Viettel and Mobifone, have taken no action. An official from Mobifone said his network did not react because the charge rebate took place just more than half a year ago (June 1, 2009) and the service charge is very close to the cost price. “It is a difficult decision to reduce the charge or not at present,” he added. However, when Vinaphone announced the cut in internetwork connection fee, Viettel and Mobifone will surely follow the step. Smaller mobile service providers like S-Fone and Beeline said they would not think of charge reduction at this time. Instead, they will launch more attractive service packages to attract users. Mr Ho Hong Son, Director of S-Fone, said: “Big networks can reduce their charges thanks to their nearly full asset depreciation and this makes their cost per user lower. Small networks like us, the cost remains high and a charge cut will send us to dilemma.” However, Son said: “If other networks make slash cut, S-Fone must follow up.”

In early January, Viettel Group proposed the Ministry of Information and Communications to apply floor price for mobile phone charges at VND800 per minute. Mr Tran Minh Huy, Director of Viettel Telecom in Ho Chi Minh City, explained that new companies normally offer low price rates to attract customers. However, if this “dumping” continues with proper control, the telecommunication market will disorder, leading to unwanted subsequence. Thus, the Ministry of Information and Communication’s issuance of a new regulation [on the floor phone call rate] is extremely rational. Viettel Group suggested the floor price be based on cost price which depends on operating scale and asset depreciation; thus, the rate will vary from time to time. At this point of time, Viettel proposes the floor price at VND800 per minute, which is strongly supported by two other market-controlling networks, Vinaphone and Mobifone.

Many telecommunications experts pointed out that big companies with strong financial capacities and many customers will not be adversely, or very little, affected by the new policy. It is important to know that they only face a rising number of blocked subscribers while this is the method to increase the market share and revenues of smaller players. Anticipating the trend, since the start of January, Viettel Group pioneered in asking the Ministry of Information and Communications to add another digit to the mobile phone number with the prefix starting with 090, raising all mobile numbers to 11 digits. To date, Viettel’s proposal has not been answered by the Ministry of Information and Communications. According to experts, if Viettel’s request is approved, other powerful networks will apply for the same move.

Meanwhile, Beeline said the new price policy, if enacted in 2010, will lead the Vietnamese telecommunications market back to the state of monopoly and the application of floor price will raise difficulties to new mobile networks in attracting subscribers. Several experts said, due to low percentage of existing users, newcomers still have room for development. When the market reaches the saturation point, network operators need to introduce value-added services and customer care services. Hence, the price is only a means to attract customers.

At a recent review conference on telecom industry, Minister of Information and Communications, Le Doan Hop, said the Ministry would weigh on floor price management applied to mobile services, not ceiling prices as now. Accordingly, the management of telecommunications charges is only applied to businesses with controlling market shares to prevent them from slamming the brake on the development of new players. If the floor price of mobile services is high, small enterprises will face challenges in developing their customer network as well as expanding their operations.

Posted by VBN on Mar 7 2010. Filed under Telecommunication. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry