Merger of telecom giants a bad idea

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  A MobiFone customer service center in Hanoi. Photo: Bloomberg

The government is considering a plan submitted by the state-run Vietnam Posts and Telecommunications Group (VNPT) that would merge two of its wireless carriers MobiFone and Vinaphone, following a new rule that aims to reduce unfair competition in the domestic market.

The Ministry of Information and Communications has banned a company from holding more than a 20 percent stake in two mobile service providers at the same time, starting August 1.

However, the proposed merger of MobiFone and Vinaphone, which respectively account for around 29.1 percent and 28.7 percent of the market share, runs counter the Competition Law, which bans any merger that creates a business with a market share of more than 50 percent, argues deputy head of the Central Institute for Economic Management, Vo Tri Thanh.

Vietweek: You are against the anticipated merger. Why?

Vo Tri Thanh: I think the government should not allow the merger of Vinaphone and MobiFone. There are two issues to consider. First, we have to review the Competition Law and see if it allows the merger or not.

Competition is the foundation of a market economy. And in some service sectors like finance, telecommunications and taxi services, which now have a limited number of investors, the competition needs to remain.

The principle of competition is to protect competition pressure, not protect investors in the market.

Second, the merger of the two firms is not a good sign in the context of the government speeding up the restructuring of state-owned enterprises.

Could new investors, especially foreign ones, still seek opportunities in the market?

It is actually not easy for new investors to enter the market now. The initial costs for new investors to participate in the market are very high.

Moreover, new investors, in principle, can only participate in a market when it is large enough to ensure their economic viability. Is our market large enough to ensure minimum profits for new investors when three existing operators, Vinaphone, MobiFone and Viettel, account for more than 90 percent of the market shares?

Investors could also face other barriers. For example, Vietnam only needs to open the sector at a limited level to foreign investors under its WTO commitments, which makes it difficult for newcomers to enter the market.

While Vietnam allows a larger ownership cap for foreign investors than those regulated by other developing countries, it does not open up the whole sector to them.

(Editors note: Under Vietnam's WTO commitments, before January 11, 2010, foreign investors were permitted to own up to 51 percent of the charter capital of a joint venture providing telecommunications services that have been duly licensed in Vietnam to provide services not related to infrastructural facilities. After this date, foreign investors can freely select partners and contribute up to 65 percent of the charter capital of a joint venture. In the provision of infrastructure facilities-based services, foreign investors can contribute up to 49 percent of the chartered capital of joint ventures with telecommunications service suppliers duly licensed in Vietnam.)

Vietnam has seen strong development in the telecom sector over the past few years. Will this continue in the coming years if the merger is approved?

It is difficult to say. There is a slowdown happening now. That is the trend. However, it could change if there is a new technology which could create a new service with big market demand.

The demand in high technology fields often changes very quickly. Thus, it is not necessary to have many investors to create competition in the market.

If an investor brings in a new technology to the market, which could create new services for which there is market demand, the structure of the market could be changed. Other investors, even big ones, could fail if they are unable to find another technology to compete.

What is the minimum number of investors that the market needs to ensure competition?

Maybe three or maybe five. Some smaller countries may have four or five operators, while some larger economies have only three. We have to study this carefully before assessing how many operators are needed to ensure competition.

However, the market cannot have too many operators, as it is small for too many operators to gain minimum business effectiveness.

As I said earlier, the interesting thing in the market is that the technology is developing quickly. The market structure can also change quickly if and when a new technology, a new service is provided. This could create competition pressure.

Once again, the most important thing in the market is to protect competition pressure, not protect competitors. This would allow competition in a market which does not have many competitors. It might have few investors, but competition can still be ensured. The issue is how the participation and withdrawal of investors in the market is managed.

How should the case of Vinaphone and MobiFone be dealt with to ensure competition in the market?

It is incorrect to say that keeping the existing market structure with the three big operators can ensure competition. Since there are limited number of operators in the market, one of the ways to create competition now is to privatize Vinaphone and MobiFone.

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. This is also a way to create competition pressure.

Right now, our implementation of the Competition Law is still weak. And the Law on Consumer Protection has also not been well implemented, although we approved it in 2010. We should ensure that all policies protect consumers' benefits.

IT'S GOOD NOW

Tran Dinh Thien, director of the Vietnam Economics Institute, says the competition is better now when the market has Vinaphone, MobiFone, Viettel and other small operators.

Some small operators have already closed. So, the competition will be lost if Vinaphone and MobiFone are merged.

Small operators could fail, while medium ones could retain their business by tapping small segments of the market. The merger could hinder development of the telecommunication market in the future, he said.

He also said the case should be dealt with under the Competition Law and on market principles.

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