1. Current situation
The Vietnamese Government has approved the strategies of several transport sub-sectors (railway, inland waterway, port and shipping…) proposed by the national transport master plan, named Vitranss, which is realised jointly by a Japanese consultant and the Ministry of Transport of Vietnam. The latter expects that the Government would approve the whole master plan in the first quarter 2003. The Vitranss plan suggests a medium (5 years) and long term (10 years) strategic plan for the development of a modern, competitive and diversified transport sector. The cost to achieve this master plan is evaluated at 2.5% of the GDP. There will be ample opportunities for European companies to participate. Below follows a brief presentation of some key sectors.
Roads, tunnels and bridges
The construction of the second trans-Vietnam highway, called the Ho Chi Minh Road, is ongoing. This road is very strategic for Vietnam as it will ease the actual congested traffic on the Highway No. 1 and ensure the road connection between the North and the South during the flood season. This road will also contribute to the economic growth in central highland regions. This project is totally funded by the State budget.
Mass transportation and public transport
Harbours and marine transports
Inland waterway transport
2. Prospects and Recommendations
Once deregulation of the aviation sector takes place there should be ample opportunities for European companies to enter the market, either as supplier or as a partner through BOT or in other forms.
In the railway, roads, tunnels and bridges sectors, the strength of European companies may not primarily be in the construction part itself, e.g. rehabilitating the Kunming-Hai Phong line, building Thailand-Vietnam line or the second track of the railway, or Highway N°1. In this field neighbouring countries usually have a comparative advantage with considerably lower labour costs. There is however a potential for European companies when it comes to feasibility studies, calculations and specifications, quality control, signal systems, evaluation of projects etc. Heavy construction equipment and specialised construction materials are other areas where European companies would probably have an advantage.
As for mass transportation, several studies show that as long as the Vietnamese Government chooses to subsidize petrol, the prospects for a BOT or similar project for mass transportation will not prove very profitable. Experience has shown that private companies operating in a mass transportation system have proven to be more efficient than those owned by cities or municipalities. Until deregulation takes place the prospects of entering the mass transportation field are very limited, but if and when deregulation takes place, this could become an interesting sector for European companies.
Marine transportation and sea freight as well as passenger services may become an interesting field for European companies. The enlargement of major harbours could also provide opportunities for European businesses.
The prospects for growth of inland water transport are fairly modest. There are plans to improve ports, inland waterways and navigational safety. These investments would involve new projects to which European companies could participate.
1. Background/Current situation
Vietnam is one of the merging markets in the ASEAN region. Telecommunications and related-industries are currently among the fastest growing industries in Vietnam. Over the past 5 years, Vietnam has sustained an average network growth of 26.8%, one of the highest in the region. If the current rate continues, the country is in good pace to reach its target of 10 million subscribers by 2006 and a tele-density of 30% within the next decade.
Despite these promising statistics, the country’s telecommunications still lags far behind its regional peers in many aspects. Fully aware of this fact, the Government of Vietnam has directed special attention to the development of the telecommunication and IT industries in order to meet the demands of industrialising and modernising the country. The telecommunications sector in Vietnam is a typical case for state monopoly. There is no place for private firms to play in this ground. With regards to foreign companies, the most feasible mode of entry is BCC (Business Co-operation Contract) with a local state-owned telcos (telecommunication companies) partners.
The administrative power has just been handed over from DGPT (Department General of Post and Telecommunications) to the newly established MPTIT (Ministry of Post, Telecommunications and Information Technology). MPTIT will be responsible for developing the national information infrastructure, popularising telecom services and making contributions for socio-economic development.
In 2002, telecommunications costs still hamper the national economic development. Vietnam is one of the most expensive places from where to call abroad. Although reductions of IT and telecommunication costs have already taken place, additional reductions are crucial for further economic development and for the enhancement of the business environment. Recently, some members of the National Assembly have complained about the costs of telecommunications in Vietnam, and have asked publicly for a large cut on the rates.
The year 2002 again observed a two-digit growth rate in the fixed line telephone market in Vietnam. According to VNPT announcements, as of end 2002, the total number of telephone lines in the country was 5,567,140, reaching a tele-density of 6.92 lines/100 inhabitants. The increasing popularity of telephone services is majorly due to continuing cut in establishment fees and call rates. The target for 2005 is at least 9 phones per 100 inhabitants.
Due to the state monopoly nature of this market, at present only four international telecom companies have entered the market via signing BCC with VNPT on telephone line expansions.
The Vietnamese Government has recently announced that 5 new companies will be created without any VNPT involvement. The goal is to prepare the Vietnamese market to the conditions of an open market, when Vietnam joins the WTO.
The Government has set a target to increase the number of mobile subscribers from 1.8 per hundred people to 6.5 per hundred people by 2005. To reach this target, the Ministry of Telecommunications estimates that mobile phone networks will need to add capacity for additional five millions subscribers by 2005. As a result, four other state-owned companies have been successful in getting licenses to operate in the mobile network markets. They are (1) Saigon Postel (SPT) who proposes to implement a CDMA (Code Division Multiple Access) project; (2) Vietel; (3) Electricity of Vietnam (ETC) and (4) Vietnam Maritime (Vishipel). The newly created Hanoi Telecom Company has proposed to launch a third generation mobile network in Vietnam by presenting a development plan to the historical operator VNPT. In addition, VNPT has introduced Citiphone, an intra-net, low-price service in major cities such as Hanoi and Ho Chi Minh City.
It is said that 3 more companies could be interested in the mobile telephone market. If true, this information would mean a very fragmented and diluted market: 2% of the population only is currently equipped. All the mobile operators are working on an improvement program for their own networks. They will invest in new technologies and reception equipments. In 2003, there are 2 millions subscribers for mobile phones services in Vietnam, obviously this number is anticipated to grow at a quick pace in the near future.
As of September 8, 2001, all Internet activities in Vietnam are subject to the new Internet Regulations enacted under Decree No 55. The regulations opened up the ISP business to the private sector and foreign investors. Internet exchange provision business is still reserved only for state-owned enterprises or enterprises in which the Vietnamese state holds absolute majority of shares. Internet exchange providers are defined under the regulations as those businesses that are responsible for Internet infrastructure and gateways to worldwide Internet. They also provide connection between local Internet service providers and with the worldwide Internet via their international gateways. Internet service providers are defined as those businesses that provide users access to the Internet and other online applications or services.
At the moment, the Internet market in Vietnam is highly concentrated with one Internet Exchange Provider (IAP) and nine Internet Service Providers (ISP). All of these players are state-owned firms and private sector is still the layman playing no role in the Internet market.
At present, this project has attracted the attention of many big companies. VNPT are studying the feasibility plan in launching the satellite. As estimated, after being launched, Vietnam will only use 15% of the total capacity of this satellite, so other partners can lease the rest from Vietnam.
Until now, VNPT does not still decide who are its partners in producing and launching the satellite. But many experts think that Vietnam will choose one partner in producing, and the other in launching.
Mobile phones sets
The major players in the market are Nokia, Sam Sung, Motorola and Siemens (in order of market share). These manufacturers have made greater commitments to this market by setting well-structured sales and customer service networks.
Due to a rather high tax rate, mobile phones trafficking is a very profitable grey business. This have hampered the sales growth of officially imported mobile phones. Also, this results in some warranty issues.
2. Trends and prospects
It is presumable that in the near term VNPT will surely maintain its position as market leader. VNPT will enjoy favourable conditions to keep that role. But it is also required to carry out renovations to increase its ability and competitiveness to prepare for international economic integration in the future.
The monopoly of state corporations will be reduced in the longer term. Goals have been set for the abolition of other fields of corporate monopolies, enabling rapid movement into a competitive market. According to the strategy, enterprises from all economic sectors would be able to take part in post and telecom services supply. The non-state sector is expected to increase its service market share in post and telecom markets by 25-30 percent by 2005 and 40-50 percent by 2010.
At this moment, BCC is the preferred method by the Vietnamese Government for foreign companies to enter this market. However, taking a longer term view, the less-than-inviting environment of Vietnam's telecom market for foreign investment and foreign participation is going to experience unprecedented change with the signing of the U.S –Vietnam bilateral trade agreement on July 13 2001 and the race of Vietnam for an official WTO (World Trade Organization) membership.
As abstracted from the BTA, the main elements related to telecommunications and Internet are:
Fixed Line Market
VNPT has announced plans to invest USD 522.8m into its network development. Priority will be given to public telephone booths and satellite-link communications network developing. This global investment should facilitate the introduction of new technologies, like NGN (Next Generation Network) or IP Protocol to VNPT .
The increase of the bandwidth capacity to 20Gb/s will allow VNPT to fulfil its 2003 new lines installation commitments. 95% of the national territory will be covered.
Other new technologies like DSL (Digital Subscriber Line) will undergo some trials, starting in 2003.
Mobile Network, GSM/Third Generation Mobile Network
One of the global trends in telecom is that mobile phones exceed fixed lined phones. In 2003, the world is estimated to have 1.2 billion fixed line subscribers and 1.3 billion mobile subscribers. Vietnam is the country whose rate of mobile phone compared with fixed line phone is very low (29.1%). As a result, the scope for doing business in mobile networks is very large.
The MPTIT plans to set up a third national mobile network to meet the rapidly growing demand for mobile phones. Although at present the country is strongly committed to GSM technology it is possible that the new network will employ CDMA technology to offer better voice quality and lower call fees. Saigon Postel has signed a USD 230m BCC with a Korean company, in which it anticipates the introduction of CDMA to Vietnam.
Also, in the near future, it is not very likely that the so-called Third Generation Network, which enables multimedia and mobile Internet, will materialise. This is quite in line with the global trend that the 3-G network has been introduced much slower than expected.
Internet and E-commerce
E-commerce was launched at the end of 1998 in Vietnam when dot com stocks were on the verge of bursting. After almost 5 years, it shows very modest growth and no rapid expansion is to be seen in the next 3 years.
The Vietnamese Government, however, has recently announced that an E-Business project will be launched on a trial basis with an investment of 16 MEUR. In the same way, Internet costs for connections are due to drop.
A well developed telecom network is very important for any country’s socio-economic development. Vietnam is not an exceptional case. There is very wide scope for doing business in this telecom market. From the perspective of VNPT, the state-owned giant, continuing to invest is needed to sustain its position as the market –marker. From the perspective of foreign companies, BCC is no longer viewed as a good way to enter the market. They want to directly put their money at work in Vietnam. For the sake of developing the telecom industry in particular and the whole country in general are important and the following strategic actions should be carried out: