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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.

The national flag carrier, Vietnam Airlines, which is state owned and managed, operates domestic and international flights. Last year, Vietnam Airlines carried more than 4 million passengers and transported 66,300 tons of cargo (a year-on-year increase of 18% and 15% respectively). For the fiscal year 2002, the company made a turnover of USD 715 million and declared a USD 37 million profit (an increase of 3% comparing to 2001). There is another carrier, Pacific Airlines, mainly owned by Vietnam Airlines. No private and/or foreign competition has yet been allowed for domestic flights. A number of European countries have civil aviation agreements with Vietnam for international flights only. Regarding airport infrastructure, the new terminal at Noi Bai International Airport, which has a 4 million passengers per year capacity, has been opened to traffic in October 2001. In Ho Chi Minh City, Japan’s Bank for International Cooperation has granted a soft loan of USD 220 million to finance the construction of a new terminal at Tan Son Nhat International Airport, which will have the capacity to cater for 8 million passengers per year. Other major airports, such as Da Nang, Phu Bai (Hue)and others are subject to be upgraded and these projects are under consideration by the authorities concerned.

At this point in time, there is only a one-track railway system, connecting Hanoi with Ho Chi Minh City, as well as Hanoi with Hai Phong and lines up to the Chinese border. The railway was built mainly in the 1920s and the 1930s and was heavily bombed during the Vietnam War. Despite a large programme to upgrade the main track from North to South, the express train takes roughly 30 hours between the two major cities (approx. 1,700 km). There are plans for the rehabilitation and modernisation of the Kunming-Hai Phong line and to connect the Vietnamese railway system to a new line from Thailand, both in the framework of the Trans-Asian railway project (Singapore-Kunming). The ADB and some bilateral donors support this programme. Last year, Vietnam Railways Corporation carried 11.9 million passengers and transported 7.8 million tons of cargo. Its turnover for the fiscal year 2002 was of USD 102 million, a year-on-year increase of 10%.

Roads, tunnels and bridges
Road No 1 goes through the whole country and has been mostly upgraded, together with some major regional roads connecting major cities with ports, as well as the highway between Vinh and Laos. The construction of the Hai Van Pass tunnel between Hue and Da Nang has started in 2000. The completion of this project, funded by Japan, is expected by the end of 2004. Major bridge projects are also under way as well as the construction of feeder roads in remote areas, supported by the World Bank.

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
Mass transportation in the major cities is very underdeveloped and dilapidated. The transportation by bus is not practical for commuters due to the lack of bus-stops and the irregularity of buses which are mostly in poor condition. Nevertheless, since last year, three experimental bus lines, including modern buses, regular schedules and stops, have been implemented in Hanoi. These lines are very successful among the public. Bicycles, an increasing number of motorbikes and taxis are still the most common means of transportation. In several major cities there are plans for comprehensive mass transportation such as a metro system in HCMC, a sky-train line combined with a tramway network in Hanoi, and others, but few of these plans have yet materialised, mainly due to lack of funds. However, in order to face traffic congestion in big cities, a number of measures have been taken by the Vietnamese authorities, e.g. the implementation of a modern transportation system by bus (with new buses) in Hanoi and Ho Chi Minh City, and the restriction of new registrations of individual vehicles.

Harbours and marine transports
Several harbours have been upgraded in the last few years and there are plans to further enlarge some major harbours including the extension of the harbour near the new oil refinery in Dung Quat. The construction of the Cai Lan deep sea port in Ha Long Bay area is ongoing. A number of shipyards already have European partners and there are plans for construction of coastal vessels connecting the northern and the southern part of the country. There are no passenger ships between the major ports, and the coastal vessels are usually not in a condition that may be called safe. Major shipyards and transport companies have approached European partners for joint ventures concerning maritime transports.

Inland waterway transport
About 8,000 km of rivers are used for inland waterway transport in Vietnam. Transport services are mainly provided by SOE operators in the North and by private operators in the South. Although inland waterways play an important role in the deltas, navigability is reduced due to a substantial dredging backlog and lack of navigational facilities. Moreover, facilities and equipment of river port are mostly in poor condition.

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.

Fixed lines

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.

Mobile Network
The number of mobile phone subscribers (both pre-paid and post-paid) totalled some 1,800,000 as at the end of 2002. There are currently two operators in this field, namely Vinaphone (a subsidiary of the state-owned giant VNPT) and Mobiphone (BCC between the Swedish Kinnevik/Comvik and VNPT). The market shares of these two companies are 60% and 40% respectively. To date, the services available include international and domestic roaming, general package radio services, voting, call diverting and account checking services.

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.

The Internet
Vietnam is a relative newcomer to the world of Internet, obtaining its first permanent connection in December 1997. Since being connected, high fees and slow connection have kept the total number of Internet subscribers at a modest number of 250,000 (250K) out of a population of more than 80 millions. The majority of subscribers are businesses.

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.

Satellite business
To save the leasing money and to improve the independence and efficiency of its telcos industry, Vietnam plans to launch its own satellite, named as Vinasat, in 2005.

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 market for mobile phones in Vietnam is very lucrative. Like many other countries in Asia, in the eye of local people, mobile phones are used not simply as a tool for communications but somewhat more importantly as a way to show off their prosperity and fashionability. As a result, they local people are willing to spend considerable amounts to keep themselves up-dated with new phones.

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:

- Vietnam's agreement to implement the WTO regulatory reference paper;
- Vietnam-U.S. joint ventures (with 50% cap on US equity participation) will be allowed locally in many higher end areas such as e-mails and voice mails within two to three years (2003-2004);
- In four years, joint ventures (with 49% cap on US equity participation) should be able to enter the mobile and satellite services market (2005); and
- In six years (2007), the market for long distance and international voice telephony services should be liberalised for the establishment of JVs with US firms.

Fixed Line Market
In spite of the fact that the telecom industry in Vietnam had achieved a miracle over the last decade, the country’s telephone density is still well behind other regional peer.

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
To stir up the Internet market, several solutions have been put into practice. For example, MPTIT has studied a preliminary plan in which an additional IXP will be licensed. If this plan comes into reality, then the bandwidth will be expanded substantially and ultimately end-users will enjoy higher connection speed at lower costs. In addition, MPTIT in concert with the Ministry of Education and Training will popularise Internet access to all senior high schools in Vietnam.
In collaboration with Korean Telecom (KT), VNPT has introduced the high-speed ADSL Internet service in Vietnam. At the moment this service is still unaffordable for household usages.

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.

3. Recommendations

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:

- Liberalising the market in accordance with BTA terms and WTO proposals.
- Enhancing the legal environment to create an even playing ground for all operators.
- Continue to invest in telecom infrastructure to cope with the demand growth
- Adjustment of the call charges in line with the regional levels.
- Allocating more resources to R&D activities.

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