Vietnamese operators begin high-speed network rollout - Local operators eye foreign investment as market migrates to mobile broadband

Earlier this month, Vietnam became the latest market in the Southeast Asia region to award 3G licenses, allocating spectrum to its three dominant GSM operators and as well as to a new consortium led by EVN Telecom and Hanoi Telecom. The country's first high-speed networks are expected to go live later this year and the government has said it expects the four licensees to invest some VND33.82 trillion (US$1.99 billion) in the new networks over the next three years. Mobifone, for example, said last week that it has signed deals with suppliers Alcatel-Lucent, Ericsson and Huawei and plans to launch its first services in 3Q09.

The rollout of high-speed services in Vietnam comes at a time when the state is beginning to relinquish its control of the country's mobile market and competition is increasing. The country's three largest state-controlled operators - Viettel, Mobifone, Vinaphone - are all existing GSM operators and together account for over 90 percent of Vietnam's market in terms of connections. After many years of state-controlled pricing, all three are now competing on a level playing field and are looking at either private investment or (in the case of Mobifone) an IPO. Major international operators such as France Telecom, Vodafone, SingTel and NTT DoCoMo are rumoured to be looking at entering the market via a strategic investment in one of the large operators.

The country's CDMA operators have benefited less from the strong growth in the market in recent years, mainly due to a lack of compatible handsets and higher equipment costs compared with the GSM operators. Despite only launching services in 2007, HT Mobile - a joint-venture between Hanoi Telecom and Hong Kong's Hutchison - is already in the process of closing down its CDMA network and re-launching as a GSM player under a new brand, Vietnamobile. HT Mobile's existing CDMA subscriber base has been migrated to S-Fone while the GSM network is being built out with the option to return once it has been completed. The development leaves just two CDMA operators in the country, S-Fone and EVN Telecom, the latter a specialist in fixed-wireless services.

A new player, GTel - backed by Russian mobile giant, VimpelCom - is planning to launch as a GSM greenfield operator later this year, becoming Vietnam's seventh mobile operator in the process. VimpelCom is reportedly investing US$1 billion in the new entity. Alongside S-Fone, GTel was reportedly unsuccessful in securing a 3G license in the recent auction, but both have been given permission to offer services in conjunction with the license winners (in GTel's case, in collaboration with Vinaphone). Although the market is growing at almost 50 percent a year and mobile penetration is still low (67 percent by year-end), competition in the market is heating up and the operators are turning to lower-income subscribers to sustain growth. These trends are seeing margins tighten. A report by Frost & Sullivan last year estimated that ARPU in the country fell 41 percent to US$6.5 in 2007 and forecast that it would decline still further to just US$3 by 2013.

Matt Ablott, Analyst, GSMA Intelligence:

The issuing of the new licenses in Vietnam leaves Thailand as the only country in the Southeast Asia region yet to migrate to higher-speed networks. In a country where home broadband penetration is less than 3 percent, the new licenses potentially provide a huge opportunity for the local operators to offer mobile broadband. However, after many years of a state-controlled situation, the increasingly liberalised market sees the three large incumbent operators now facing intense competition not just from new market entrants, but also from WiMAX and VoIP providers. This means that the operators could see margins squeezed while at the same time being required to invest in the new networks. The prospect of foreign investment is therefore an increasingly likely scenario and international operators will be keen to enter a market that still has genuine growth potential.