VZCZCXRO6329
RR RUEHHM
DE RUEHHI #0566/01 0720751
ZNR UUUUU ZZH
R 130751Z MAR 06
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 1088
INFO RUEHHM/AMCONSUL HO CHI MINH CITY 0698
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 HANOI 000566 
 
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SUBJECT: A "FIVE-YEAR PLAN" FOR VIETNAM'S TELECOM AND 
INTERNET SECTORS 
 
 
SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY 
 
¶1. (SBU) Summary:  The GVN approved what amounts to a "five- 
year plan" for the ambitious development of its 
telecommunications and Internet sectors between now and 
2010, with an estimated investment of USD 631 million to be 
financed by foreign and domestic private sources and 
overseas development assistance (ODA).  While the plan calls 
for increased competition, it only mentions equitization 
briefly (and does not mention privatization).  Although the 
GVN would like to attract foreign capital, it intends to 
retain control of the telecom and Internet sectors for both 
economic and political reasons.  On a positive note, and in 
keeping with the WTO Reference Paper on telecom services, 
the plan calls for "moving towards the abolishing cross- 
subsidization between telecommunications and Internet 
services," as well as for allowing telecom and Internet fees 
to be determined by the market.  Foreign businesses are 
waiting for implementation details to identify new 
opportunities.  End Summary. 
 
A "Five-Year Plan" 
------------------ 
 
¶2. (SBU) On February 7, Prime Minister Phan Van Khai signed 
the "Master Plan on Telecommunications and Internet 
Development in Vietnam Until 2010," which lays out an 
ambitious development schedule for Vietnam's telecom and 
Internet sectors.  According to the plan, the GVN hopes to 
develop Vietnam's telecommunications infrastructure to the 
level of other countries in the region, to generate economic 
growth in these sectors at 1.5-2 times that in the rest of 
the economy, and to produce USD 3.5 billion in revenues. 
Details and concrete strategies for implementing and 
securing funding are lacking, but foreign and domestic 
portfolio and capital investment, and ODA are all mentioned 
as possibilities.  While the plan calls for the creation of 
an "environment friendly to new enterprises", it also 
appears that the GVN intends to maintain economic and 
political control over the telecom and Internet sectors.  It 
is thus unlikely that the plan in itself will lead to the 
kinds of sector reforms that would make it attractive to 
significant foreign direct investment, especially for 
telecom service providers. 
 
¶3. (SBU) Although the plan calls for the creation of a "fair 
and competitive market", and sets a goal of 40-50% new 
entrant market share by 2010, this will not necessarily 
translate into significant government divestiture. 
Currently, Vietnam Posts and Telecommunications (VNPT), the 
largest state-owned enterprise (SOE) operator controls 95% 
of the telecom and Internet markets, and all other ventures 
in these fields are at least partly state-owned.  The GVN 
has focused on developing competition between SOEs 
controlled by different ministries rather than on 
encouraging the development of strong private 
telecommunications and Internet sectors. 
 
¶4. (U) On a positive note, and in keeping with the WTO 
Reference Paper on telecom services, the plan calls for 
"moving towards abolishing cross-subsidization between 
telecommunications and Internet services."  Additionally, 
the plan states that charges and fees should be based on 
production costs and market demand, and that service charges 
that have been set below production costs should be 
adjusted.  The State should intervene only by setting 
charges applicable to "public welfare services" and in cases 
where monopoly pricing prevents new entrants into the 
sectors.  (Note: A list of "public welfare services" has 
been submitted for GVN approval.  These include fixed 
telephone and Internet access services.  Endnote). 
¶5. (SBU) The plan calls for developing the legal and 
administrative system, including a telecommunications law 
and implementing regulations to create a regulatory and 
market environment favorable to growth and to address, among 
other things, information security and safety.  The Ministry 
of Posts and Telematics (MPT), in coordination with other 
ministries, is in charge of implementing the plan.  Some 
foreign business sources believe that MPT Vice Minister Vu 
Vuc Dam may be one of the government officials responsible 
for the implementation of the GVN's plans.  They consider 
him a reliable and progressive thinker with a good track 
record for getting things done. 
¶6. (U) Stated development goals are to attain a teledensity 
of between 32-42 phones per 100 inhabitants from the current 
6.86 (the ASEAN average is 21.40); an Internet subscription 
 
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density of 8-12; Internet access for 25-35 percent of the 
population; public telephone service points in all villages; 
public Internet access points in 70 percent of all villages; 
broadband Internet in all districts and almost all villages 
in key economic zones; and broadband Internet connections 
and connections to the GVN broadband network in all 
ministries, state administrative organizations and local 
governments. 
 
Business Offers the Market-Economy Perspective 
--------------------------------------------- - 
¶7. (SBU) Intel reported to ECON HCMC that it met with MPT 
officials in Hanoi along with other companies including 
Microsoft, Motorola and Cisco, in order to provide input to 
the GVN's master plan.  According to Intel, the principles 
and goals of the plan are laudable and in line with the 
needs and goals of the technology sector; however, as is 
frequently the case in Vietnam, it will be the execution of 
policy that will determine this plan's worth.  Foreign firms 
have made some suggestions as to what the GVN could do to 
achieve its technology goals, such as clearly defining 
deliverables in each category of the master plan and 
continuing to search out more opportunities for 
public/private partnerships.  In order to execute 
successfully the master plan, the GVN needs to provide the 
private sector with concrete incentives to promote the use 
of technology.  For example, it should make mandatory the 
online registration of all new businesses, continue with the 
computerization of customs, and provide tax breaks for 
companies that invest in and use information technology. 
¶8. (SBU) According to one leading Vietnamese IT businessman, 
the plan is an academic exercise.  He is skeptical that it 
will be executed.  He confirmed, however, that Viettel 
subsidizes its Internet business, while VNPT, the dominant 
Internet service provider, does not. 
A Nuanced Understanding of "Competition" 
---------------------------------------- 
 
¶9. (SBU) Comment:  While western economists and policy 
makers equate a competitive market with a strong private 
sector and the absence of a monopoly, Vietnamese officials 
have chosen to interpret competition in the telecom sector 
to mean the presence of several service providers regardless 
of their ownership.  As a response to the need for increased 
competition, the GVN has thus encouraged the entry of 
enterprises new to this sector that are wholly or partially 
state-owned.  The ministries that control them may vary, but 
the enterprises are still SOEs.  A particularly salient 
example of the GVN's limited definition of competition is 
that the two largest mobile phone companies are owned by 
VNPT, the state-owned monopoly telecommunications provider. 
 
¶10. (SBU) Comment continued:  The GVN has identified the 
telecom and Internet sectors as promising growth areas that 
will generate jobs, revenue, and economic growth, and 
intends to retain control of them for economic reasons, as 
well as the often cited security concerns.  Although the GVN 
recognizes the need to attract foreign capital to attain 
these development goals, it is apparently not yet prepared 
to allow the changes in ownership control that would make 
the Vietnamese market attractive to significant foreign 
direct investment.  This underscores the importance of 
improving telecom market access for new entrants in 
Vietnam's WTO accession agreement.  End comment. 
 
MARINE