VZCZCXRO5663
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #0573/01 1370020
ZNR UUUUU ZZH
R 160020Z MAY 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 7837
INFO RUEHHM/AMCONSUL HO CHI MINH 4730
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 HANOI 000573 
 
STATE FOR EAP/MLS and EEB/CIP WWITTEMAN 
DEPT PASS TO USTR DAVID BISBEE AND JONATHAN MCHALE 
COMMERCE FOR OTEC/ITA CDICKSON 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECPS ETRD ECON KPRV VM
SUBJECT: CAN YOU HEAR ME NOW? VIETNAM'S MOBILE PHONE SECTOR 
CONTINUES TO GROW RAPIDLY 
 
REF: A) 06 Hanoi 3096 (Mobile Phone Sector's Strong Growth); 
B) 07 Hanoi 2098 ("Vietnam's Young and Richer Population") 
 
HANOI 00000573  001.2 OF 003 
 
 
¶1. (SBU) Summary: Vietnam's telecommunication market continues its 
rapid development, underpinned by the strong performance of the 
mobile phone sector, which surpassed 35 million subscribers in 2007. 
 New market entrants and more flexible government regulations helped 
to drive down costs and increase investment in the sector.  The race 
to get official go-ahead to provide new technologies (3G and WiMAX) 
has begun, with the losers facing the threat of marginalization. 
Privatization of the state-owned mobile companies remains a 
Government of Vietnam (GVN) objective and makes the sector a 
promising one for U.S. investors, but the process continues to hit 
bureaucratic delays and may run up against powerful entrenched 
interests.  End summary. 
 
PLUGGING IN 
----------- 
 
¶2. (U) Vietnam's telecommunications market, ranked as the world's 
second-fastest growing in 2006 by the International 
Telecommunication Union (ITU), continues to develop rapidly on the 
strength of its mobile phone sector.  According to the Ministry of 
Information and Communications (MIC), Vietnam's seven mobile phone 
networks had more than 35.44 million subscribers by the end of 2007 
- a 61 percent increase over 2006.  Fierce competition among 
providers led to lower fees and improved service quality, which 
attracted nearly 14 million new mobile subscribers in 2007, more 
than double the number of new customers in 2006.  The telecom market 
is among the fastest growing sectors of Vietnam's economy, and is 
attracting increasing attention from foreign investors, particularly 
after Vietnam's 2007 accession to the World Trade Organization 
(WTO). 
 
LIKE SHARKS TO CHUM... 
---------------------- 
 
¶3. (U) The potential for future profits in this sector, driven by 
Vietnam's young, tech-savvy population, continues to fuel 
competition among Vietnam's seven service providers, all of which 
are wholly or majority state-owned.  Former telecom monopoly Vietnam 
Posts and Telecommunications Group (VNPT) owns two of the three 
largest networks - Mobifone and Vinaphone - and has 54 percent of 
the market share with a combined 19 million customers.  The third 
major player, military-owned Viettel Corporation, is the largest 
single operator in Vietnam with a reported 15 million subscribers at 
the end of 2007.  These three major players all use GSM technology. 
 
 
¶4. (U) The three CDMA technology-based providers, S-Phone, EVN 
Telecom (run by state-owned Electricity of Vietnam) and HT Mobile, a 
joint venture between Hanoi Telecom and Luxembourg's Hutchison 
Telecom, have been unable to keep pace with the competition in the 
race for new subscribers.  The three providers have a total of 1.5 
million customers.  Local experts cite the lower initial quality of 
service of CDMA technology in Vietnam and consumers' desire to 
frequently change their handsets (which GSM technology makes 
possible) as the main reasons for CDMA's relatively limited success. 
 HT Mobile sought and received approval from MIC to switch from 
CDMA2000 to GSM based mobile services in 2007, citing its 
lower-than-expected sales and the limited popularity of CDMA. 
 
¶5. (SBU) Joining the fray in 2007 was new market entrant G-Tel, a 
joint venture between the Ministry of Public Security (MPS), 
Russia's second biggest telecom operator Vimpelcom and U.S.-based 
Millennium Global Solutions Group.  G-Tel is expected to begin 
providing services by the end of 2008.  G-Tel's emergence presents a 
new competitive challenge for the incumbent carriers; combining the 
forces of a powerful MPS which holds a significant voice in 
government policy-making and the resources and technical know-how of 
a multi-national like Vimpelcom. 
 
NEW TECHNOLOGIES 
---------------- 
 
¶6. (SBU) MIC approved G-Tel's business license in "near record 
speed," according to an industry contact involved with the deal. 
The approval came as MIC prepares to issue a limited number of third 
generation network (3G) trial licenses.  3G is seen by many as the 
future of Vietnam's mobile market.  The same contact noted that the 
timing of G-Tel's licensing approval was "not coincidental" and is 
"very telling" of G-Tel's potential to secure one of the four highly 
sought-after licenses (it is limited to four due to limited 
frequency availability).  Recipients will be determined by a 
technical "exam" MIC will administer.  Administration of the exam 
 
HANOI 00000573  002.2 OF 003 
 
 
has been delayed several months (it is now slated to occur in May), 
enabling GTel time to participate. 
 
¶7. (U) In addition to 3G technology, Vietnam is also testing WiMAX 
(Wireless Interoperability for Microwave Access) as a means to 
provide wireless data connections nationwide, which would hook up 
many of Vietnam's rural communities and more closely draw them into 
the country's economic development.  In early March, 2008, the 
ministry granted EVN Telecom, Viettel, VinaPhone, and MobiFone 
permission to test WiMAX, on a trial basis, in selected localities 
nationwide. 
 
LOWER PRICES 
------------ 
 
¶8. (U) In 2007, MIC also relaxed its tight grip over the mobile 
phone sector by giving service providers greater leeway to determine 
their own prices.  Phone rates, which once used to be completely set 
by the government, can now vary within a given price range.  Phone 
operators must still get MIC to approve their pricing.  This move 
has led to lower prices for consumers, and has spurred the telecom 
companies to redouble their investments in network expansion to 
capture new subscribers - with Viettel doubling the number of its 
base transceiver stations (BTS) in 2007, while Vinaphone and 
Mobiphone increased the number of their BTS by 50 percent. 
 
BLASTING INTO THE NEXT FRONTIER 
------------------------------- 
 
¶9. (U) Vietnam launched its first Satellite, VINASAT-1, in French 
Guyana on April 19 2008, bringing to fruition a long-standing plan 
for Vietnam to establish itself in space.  VNPT signed a $200 
million contract with Lockheed Martin in May 2006 to manufacture and 
launch the satellite.  VINASAT-1 will improve telecommunications in 
Vietnam by transmitting radio, television and telephone 
communications to all corners of the country.  The satellite will 
enable Vietnamese to use new services such as mobile broadcasting, 
direct-to-home television, video conferencing and data transmission. 
In addition, VINASAT-1 will improve the nation's communication 
infrastructure by removing dependence on ground networks and 
equipping 100% of Vietnam's rural communities with telephones and 
televisions.  Vietnam now joins fellow ASEAN nations Thailand, 
Malaysia, Indonesia, Singapore and the Philippines in space. 
 
EQUITIZATION 
------------ 
¶10. (SBU) One of the most closely watched developments in Vietnam's 
mobile market is the planned "equitization" (partial privatization) 
of leading operators Vinaphone, Mobifone and Viettel.  This 
long-awaited process has been delayed numerous times due to unclear 
technical regulations and difficulties in valuing the companies' 
assets (REF A).  MIC is urging Mobifone to avoid further delays and 
accelerate its planning in order to equitize before the end of 2008. 
 Mobifone's Director of Planning and Sales, Mr. Nguyen Dinh Chien, 
told Econoff that the company will equitize in two phases - first 
selling approximately 20 percent via a domestic initial public 
offering, and then selling up to 30 percent to a single "strategic 
partner" of their choosing.  Mobifone claims that it has more than 
10 foreign companies interested in becoming the strategic investor. 
 
¶11. (SBU) Vinaphone is also expected to equitize, although some 
quarters of its parent company VNPT remain hesitant to sell off 
significant ownership.  VNPT brass recently told MIC Minister Le 
Doan Hop that they would like to retain total control of Vinaphone 
to use it as the firm's "technology incubator."  They also appear 
loath to let go because mobile services provide the lion's share of 
VNPT's  revenues.  Viettel's Deputy Director General Mr. Le Dang 
Dung told Econoff that Viettel will likewise wait to see how 
Mobifone's equitization goes before it begins to sell off its own 
shares. 
COMMENT 
------- 
 
¶12. (SBU) Vietnam has a young, numerous (85 million) and 
increasingly affluent population (REF B) -- all signs pointing to 
continuing growth in the telecom sector.  With such rapid growth in 
recent years, mobile services have filled the coffers of companies 
like VNPT and Viettel, and senior officials in these companies do 
not appear to be in any hurry to relinquish control over those 
revenue streams.     The GVN's commitment to equitize the sector 
offers opportunities to U.S. investors, if only it can overcome the 
reluctance of entrenched interests.  The emergence of G-Tel and the 
rush for approval of new technologies may leave several of the 
service providers in the cold, thereby limiting the potential 
domestic partners for foreign investors, and increasing the stakes 
 
HANOI 00000573  003.2 OF 003 
 
 
for the equitization of the "big three." 
 
MICHALAK