Customers cool as telecom merger debate rages

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Some experts worry two giants coming together could stifle competition in the future

A man uses his mobile phone in Lenin Park in Hanoi. Experts worry that a planned merger of two giant networks in Vietnam could stifle competition in the future.

The plan to merge VinaPhone and MobiFone, which together hold a major share of Vietnam's mobile phone market, has raised concerns among industry insiders, but customers like Nguyen Thu Hang are none too bothered.

"The merger is one of the normal activities of companies. It does not affect customers like me," said Hang, an administrative clerk with a construction firm in Hanoi.

"I'm only interested in prices and quality of their services. I think they are quite good now. Prices are much lower compared to years ago," she said as she bought a top-up card.

Hang said she uses the pre-paid service of MobiFone, and often waits for sales promotions to buy cards.

"The sales promotion is offered every several weeks. So, if you pay during the promotion, you can use the service for half the normal price," Hang said. She spends less than US$20 a month on her mobile phone.

Hang might be more worried if she was aware of some experts' concerns, especially that customers might not benefit from competitive prices once the merger is approved.

The merger of the two mobile phone operators run by state-owned Vietnam Post and Telecommunications group, also known as VNPT, would create a giant company that could hurt competition in the market, as they now together hold more than half the market share, experts said.

The Ministry of Information and Communications is considering the merger proposal before making a final decision.

The move is a part of the state group's restructuring process to consolidate its strengths and expand its business. It comes on the heels of a new regulation on ownership of telecom firms that took effect last June. The regulation stipulates that an investor holding more than 20 percent stake in one telecom firm cannot own more than a 20 percent stake in another.

Some experts have said the merger is an inevitable market trend and a positive move for the telecom sector. It could help optimize the strengths of both firms, they say, noting that Vinaphone has high quality technology infrastructure, while MobiFone has good management capacities.

Dang Quoc Tien, a corporate finance official at the Ministry of Finance, said it is a waste to have both MobiFone and VinaPhone under the same group operating independently, using separate infrastructure.

"A group shouldn't have two networks operating in two different ways like that," he said.

One inefficiency of the current situation became evident with the advent of the high-speed 3G technology. Despite the limited number of customers, both VinaPhone and MobiFone had to pour huge investments into developing their own, separate 3G networks.

One industry insider said that for 3G services to run smoothly, each operator invests in the construction of tens of thousands of base transceiver stations. However, the number of users switching to 3G services has been much lower than expected at about 8 million, against the total 120 million mobile subscribers in Vietnam.

Monopoly threat

Military-run wireless carrier Viettel controls more than 36.7 percent of the domestic market, followed by MobiFone with 29.1 percent and VinaPhone with 28.7 percent. The rest is held by four other firms, according to an official statistics book released last year.

Nguyen Van Nam, director of Nam Hung, a law firm in Ho Chi Minh City that specializes in the competition law, said: "In theory, the merger could cause a monopoly in the market, reducing the benefits for consumers."

With the merger, small operators would see no chances for further growth. They may have to change their business or become service agents of the merged firm, he said.

"Consumers would not be able to enjoy benefits of sound competition, which brings in good telecommunication services at low prices, as is the trend the world over," Nam said.

Vu Ba Phu, deputy head of the Vietnam Competition Authority under the Ministry of Industry and Trade, said the country's Competition Law bans any merger that creates a business with a market share of more than 50 percent.

However, if the merger is deemed necessary, it can be approved by the government, he said.

Phu said market share is not the only issue that needs to be taken into consideration, noting that the share may change every year. Whether the company can become more competitive and grow after the merger is also important, he said.

Nam said the merger does not benefit the economy in the current context, even if it does not violate the competition law. "After the merger, no new firms will want to invest in the market."

The move also shows that economic activities are not controlled by the market, but administrative fiat, creating a bad impression on foreign investors, he said.

Delay of privatization

According to market analysts, the best way is for VNPT to privatize MobiFone, which would help the group increase investment and improve services.

VNPT has submitted to the government three restructuring plans, including the merger of VinaPhone and MobiFone, the privatization of one of the two operators, or privatization of the whole group.

The proposal to privatize the two firms has received a great deal of attention from foreign investors. The European Chamber of Commerce in Vietnam has asked the Vietnamese government to come up with a roadmap for the privatization process of telecommunication firms.

According to Vietnam's World Trade Organization commitments, foreign investors are allowed to hold up to 49 percent of shares in telecommunications firms with network infrastructure, and 65 percent in those without the infrastructure.

The sale of MobiFone shares had been scheduled for the second quarter of 2009, but has been delayed since.

Analysts said both VinaPhone and MobiFone are too lucrative for VNPT to give up. The latter in particular contributes half the profit that the telecom group earns.

VNPT said on its website that revenues last year rose more than 20 percent from 2010 to VND120 trillion (US$5.8 billion).

Strong development

Vietnam's telecommunications sector has seen tremendous growth over the past 12 years. Initially, there was not much competition in the market because most of the services were provided by VNPT. The number of mobile phone service providers now has increased to seven.

With more competition, prices have fallen, and lower than average world prices, according to the Ministry of Information and Communications.

Vietnam, which has 90 million people, had 134 million phone subscribers at the end of March. The number of mobile phone subscribers grew 3.6 percent to 118.7 million from a year earlier, government statistics show.

Net revenue from the post and telecom sectors at the end of last month jumped 21.4 percent from a year earlier to VND22.1 trillion ($1.06 billion), following annual revenue growth of 19.3 percent in 2011 to $8.03 billion, the government has said.

Growth in Vietnam's telecommunications industry is expected to slow in the next five years as it becomes a more "mature market," according to a PricewaterhouseCoopers report.

However, the rural market remains relatively untapped, with limited mobile and fixed line access, the firm said.

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