Equitization of telecom giant to boost market development

By Bao Van, Thanh Nien News (The story can be found in the February 21 issue of our print edition, Vietweek)

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A mobile phone seller installs a SIM card in a new phone

State-run Vietnam Posts and Telecommunications Group (VNPT) has submitted a plan to separate wireless carrier MobiFone from the group and equitize it. The government is expected to approve the plan this quarter.

Equitization - the word used in Vietnam to describe the partial privatization of a state company - is a reasonable measure that will help MobiFone lure strategic investors raise the companies competitiveness, forcing other telecoms to provide better services, economist Nguyen Minh Phong told Vietweek in an interview.

How will MobiFone’s equitization affect Vietnam’s telecommunications market?

Nguyen Minh Phong: In the current business environment, enterprises are following two trends: either merging and acquiescing to become bigger ones with better competitiveness, or separating into smaller ones to ensure flexibility and avoid a monopoly in the market.

In Vietnam, three state-owned telecommunications firms,  MobiFone and Vinaphone (both owned by VNPT) and Viettel account for more than 95 percent of the market share, thus there is not real competition in the market.

MobiFone should be separated from VNPT and equitized to increase the competition in the local telecommunications market.

The equitization of state-owned firms will help cut the state budget investment in some sectors, and improve their business effectiveness. In some other countries, private firms participate in many sectors, even national defense. The state can invest in sectors that private firms are not capable to invest in. But, it should withdraw its investment and let private firms participate in such fields once they develop strongly and are able to invest in the sectors. This would help accelerate our country’s economic development.

Equitization will help MobiFone lure strategic investors with good capacity and technology, increasing its business effectiveness. It would also raise the competition between the firm and other telecoms in the market, forcing them provide better services to customers.

The equitization process should be carefully implemented to avoid big fluctuations in the market, losses to the state, and a situation in which the state monopoly is turned into private monopoly in the telecommunications field.

Would there be, in the future, a private telecommunications firm dominating the market?

In principle, the existence of such private firms is not allowed. Both state-owned and private firms should not hold a monopoly. We could have strong private firms, but should not allow monopolistic ones. The telecommunications market can develop smoothly when it has a state-owned firm alongside some private and foreign-invested ones. At that time, there will be sound competition in the market, benefiting local consumers, and accelerating the market’s development.

How has the telecommunications market been able to develop despite the monopoly?

We cannot say this. The market’s development in the initial stage was different from the way it is now. State-owned telecommunications firms were able to develop strongly over the past decade because the market was still very big.

More than 10 years ago, when the market had 1-2 investors, customers had to pay high rates of VND2,000-3,000 (9.5-14 US cents) per minute for domestic calling. The rate has sharply decreased, as the market has more mobile operators.

When MobiFone is equitized, operators in the market will have better competition, benefiting consumers. In addition, a competitive market requires investors from different economic sectors. If all investors are state-owned firms, that will not create competitiveness in the telecommunications market.

How will MobiFone’s equitization affect VNPT?

MobiFone has contributed a large part to the group’s revenues. Thus, the firm’s equitization will cause losses to VNPT.

The equitization, in principle, will open more opportunities

for MobiFone to expand its business, better serving customers and contributing more to the state. However, the effectiveness of the equitization will depend on the firm’s business management.  Not all private firms do good businesses.

How do you asses the attractiveness of MobiFone to investors?

It is difficult to say, as the detailed equitization plan has not yet been announced. However, MobiFone is a good brand name, so it could be attractive to investors.

What investors are interested in is how much stake in MobiFone will be sold to private and foreign investors, and how many will be held by the state. MobiFone has made great contributions to VNPT’s revenues for many years. The firm may attract the interest of many local and foreign investors.

 
HEALTHY COMPETITION

There has not yet been sound competition on the local telecommunications market, said Mai Liem Truc, a former Deputy Minister of Posts and Telecommunications. In principle, three operators held by one owner does not constitute “competition,” he said.

“In fact, the telecommunications market has not seen healthy competition. It is managed by administrative decisions of relevant state agencies,” he said.

To improve the market’s development, it is necessary to have several private operators, he argued.

“We should not plan to separate MobiFone from VNPT to form a new state-owned telecommunication firm. It should be equitized.”

The privatization does not simply aim to attract more investment, but create more strategic partners, which can help companies improve their management capacity and create new services, according to the former official.

This is also a way to create competition. The equitization of MobiFone should have been implemented 7-8 years ago, as the government had planned to do it, he said.

The equitization of MobiFone will cause losses to VNPT in the first 1-2 years, he predicted. 

However, VNPT could overcome the difficulties and see better business in the following coming years.

“If VNPT has good plan on restructuring its business and improving its business management, VNPT will rebound because its has still good advantages.”

Telecommunication operator Vinaphone, also run by VNPT, is also good firm, he added.

The local market has Vinaphone, MobiFone, Viettel and other small operators. Some small operators have already closed.

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