Vietnamese telecom market Essay Example for Free

Vietnamese telecom market Essay Introduction Together with breakthroughs in technology, mobile telecom has been showing great innovations and bringing enormous benefits to consumers. Vietnamese mobile telecom market, through only a few decades of development, has proven to be an extremely potential industry. With analysis from the microeconomic standpoint, I would like to clarify some notable matters seen in Vietnamese mobile telecom market today. This essay is organised in three parts: * Part I: Market Overview. This part provides brief information about development history of the market and what the situation of the market is nowadays. * Part II: Market Trends. This part deals with recent movements in Vietnamese mobile telecom market. * Part III: Consumers: Gain or Lose? The final part of this essay analyses the benefits and losses that consumers face as a result of recent changes in the market. PART I – Market Overview 1. Vietnamese Mobile Telecom Market: A Brief History As a developing country, Vietnam has its mobile telecom market started quite late. Though the demand for mobile services arose in the beginning of the 1990s, the first mobile telecom company of Vietnam – MobiFone – did not come into operation until 1994. This year marked the foundation of Vietnamese mobile telecom market. Following steps of MobiFone, two more company joined the market: Vinaphone (1997) and Viettel Telecom (â€Å"Viettel† for short) (2004). However, before 2000, the use of mobile phones seemed to be restricted for urban and rich people. At that time, only the rich could afford the cost of using mobile service. The cost for a postpaid subscription reached almost VND1,000,000 and the money consumed in one minute’s mobile phone call could cover the cost of food in a day for a rural family. One of the reasons for this extremely high cost was that the market at that time was highly monopolistic. Until 2000, there were only two mobile service providers in Vietnam, MobiFone and Vinaphone – both of which are subsidiaries of Vietnam Posts and Telecoms Group (VNPT). Most consumers were not wealthy enough to access mobile service, so they stuck to the use of landlines, which, in fact, were also not very popular especially in the countryside. The emergence of Viettel as a mobile service provider in 2004 was one of the biggest jump in the history of Vietnamese mobile telecom market. Viettel started to provide mobile services at a shockingly low price: a mobile phone user might pay as little as VND50,000/month only. This low price encouraged the quantity demanded for mobile services to increase sharply. As time goes by, the cost of using mobile phones has become cheaper and cheaper, causing the number of mobile subscribers to soar: at the end of January 2012, there were 118. 5 million mobile subscribers compared to only 0. 3 million in 2000. The number of service providers has also increased to 7: MobiFone, Vinaphone, Viettel, S-Fone, Vietnamobile, EVN Telecom and Beeline. Over 19 years of development, from a market exclusively for high-income consumers, the mobile telecom market has been recognised as one of the most active market in Vietnam and almost everybody, rich or poor, is capable of owning and maintaining a mobile phone. Why do service providers seek to increase their number of subscribers by lowering prices and giving big promotions? The answer is, in the short run, most costs incurred by a telecom firm are fixed costs, such as costs for infrastructure and bandwidth. Average total cost, as a result, decreases as the number of subscribers increases, thus making larger profit for the firm. Hence, firms have strong motivations to attract more and more people to use their services. 2. How the Market Pie Is Divided Today The current mobile telecom market in Vietnam can be seen as a typical monopolistic competition. Three biggest suppliers in the market are the ones with longest histories: MobiFone, Vinaphone and Viettel. All these companies are state-owned; MobiFone and Vinaphone are under control of VNPT, while Viettel is a subsidiary of Vietnamese Military Telecom Corporation. Together they control almost the whole mobile service market. According from statistics of the Ministry of Information and Communications, in 2011, Viettel was the leading firm with a market share of 36. 72%. MobiFone and Vinaphone stood at the second and third positions with 29. 11% and 28. 71%, respectively. In total, the three state-owned companies took up nearly 95% of the mobile service market, leaving just over 5% for the remaining service providers, namely EVN Telecom, Vietnamobile, Beeline and S-Fone. The reputation of these firms is so huge that once a person starts using a mobile phone, his first thought of what provider’s service to use that crosses his mind would generally be one of them. Three leading firms in the market pursue different business objectives. Aiming at low-income consumers, Viettel has applied low-cost packages to meet the needs of the majority of consumers. On the contrary, MobiFone and Vinaphone focus mainly on providing high-quality services to people with higher income. Below are the ranks in market shares and service quality of the three biggest providers of mobile services in Vietnam according to an examination conducted by Department of Information Technology and Communications Quality Management (under the Ministry of Information and Communications) in 2009: Provider| Market Share| Service Quality| MobiFone| 2| 1| Vinaphone| 3| 2| Viettel| 1| 3| Overwhelmed by big firms in the market, small firms such as S-Fone, EVN Telecom, Beeline and Vietnamobile have had to struggle to survive. Sharing only 5% of the market, these providers have been facing enormous difficulties in increasing the number of subscribers and profits. Two of them, EVN Telecom and Beeline, are eventually sold to other firms. These MA’s will be analysed in the following part. PART II – Market Trends The three leading firms in Vietnamese mobile telecom market – MobiFone, Vinaphone and Viettel – now possess great market powers, and naturally they desire to take over the small firms in order to have more control of the market. Below are three notable events that have occurred recently in the market which would have lasting effects on its path of development in the future. 1. Viettel’s Acquisition of EVN Telecom EVN Telecom is a company belonging to Electricity of Vietnam Group (EVN). Joining the mobile telecom market in June 2010, after just over one year of operation, EVN Telecom faced the risk of being acquired due to poor business outcome (slow subscriber growth, unsatisfactory revenue, pressure on EVN to focus on its major field, etc. ) and substantial liabilities to Viettel and VNPT. Some telecom firms had the intention of acquire EVN Telecom, such as Viettel, FPT Group and Hanoi Telecom (the owner of Vietnamobile). After many speculations about what firm would take over EVN Telecom, it was officially announced that EVN Telecom was going to be sold to Viettel. However, the acquisition was not smooth right from the beginning. In November 2011, Hanoi Telecom expressed its view that Viettel’s acquisition of EVN Telecom might violate Competition Law, emphasising that it would probably make Viettel a monopolistic firm in the market. Until December 2011, Government eventually agreed on Viettel’s plan as in this case, Viettel was merely a market leader, not a monopolistic firm. 2. Beeline Disappeared in the Market. In 2009, GTel Mobile Company, a joint venture of GTel Global Telecom Corporation of Vietnam and VimpelCom Group of Russia, brought Beeline mobile telecom service into operation in Vietnamese market. However, after three years, VimpelCom decided to sold all of its 49% of shares in the joint venture at US$45 million to GTel â€Å"in order to focus on our key markets†, said the Vice President of VimpelCom. Of course this is not the real answer to the question of why VimpelCom withdrew from Vietnamese market while it had not broken even, regarding its total investment of up to US$463 million. Right after its debut in the market, Beeline conducted many discount programmes and promotions to raise the number of subscribers, such as Big Zero and Millionaire’s Cost Package. These policies thus lowered its ARPU to less than US$1. Moreover, its shockingly low prices cannot help them surpass the â€Å"giants† in Vietnamese mobile telecom market whose brands have been set in minds of consumers though its subscriber growth was exceptional: about 15,000 new subscribers per day in 2011. The fact that Beeline’s profit did not live up to its VimpelCom’s expectation caused it to constrain Beeline’s operation and eventually to sell out its shares to GTel, making Beeline a completely domestic brand. Many people would doubt whether Vietnamese mobile service market has become â€Å"immune† to foreign investment as VimpelCom has failed to make profit here while it has been extremely successful in Russian and Eastern European markets. Is the market so saturated that no new firm could possibly achieve a market share from the hands of established firms? Will VimpelCom’s failure warn foreign investors against entering Vietnamese telecom market although we have been a member of WTO for five years? 3. MobiFone and Vinaphone to be Merged March 2012 was a month of vibrancy in Vietnamese mobile telecom market when rumour had it that MobiFone and Vinaphone, two out of the three biggest service providers, would be merged as a step to restructure VNPT. MobiFone and Vinaphone have followed different development directions despite being subsidiaries of the same group, which has been an enormous waste in infrastructure. A merger of the two companies is expected to improve service quality and efficiency, thus lowering the prices charged on consumers. This information was confirmed by VNPT’s management though an official decision of Government has not yet been made for fear that this merge might violate Competition Law. If the merger of MobiFone and Vinaphone is successful, the new company will constitute almost 58% of the market, threatening the survival of other companies, especially small firms like S-Fone and Vietnamobile. Earlier in 2011, according to the regulations of Telecommunications Law – an individual or organisation is not allowed to own more than 20% of shares in each of two telecom firms operating in the same telecom market – VNPT stood between two options: equitising either of MobiFone and Vinaphone or merging the two. If choosing to equitise MobiFone, VNPT still could not own more than 20% of shares and might have to sacrifice a large amount of profit as MobiFone contributed to over 50% of its profit while taking up only about 4% of human resources. The second option – a merger – would subject VNPT to violation of Competition Law. On the other hand, according to the Vice Head of Department of Competition Management (Ministry of Industry and Trade), market share is not the only criterion to examine VNPT’s merger scheme as it may vary from year to year. Competition power, market access capacity, opportunity seizure, etc. are vital elements to be considered. The cornerstone of the merger, if successful, is a close supervision and control of Ministry of Industry and Trade as well as Ministry of Information and Communications. 4. What Are the Trends? Along development steps of the market are the shifts showing what its trend is. Overall, Vietnamese mobile telecom market, although service quality has been greatly improved and price never stop falling, has hardly ever been viewed as a competitive market. At first, it was a complete monopoly, and then reached the peak of competitiveness with 7 suppliers; now it is getting closer and closer to an oligopoly. (For illustration purpose only) The market now is the race between VNPT and Viettel. Nevertheless, this is a counterfeit competition as both are state-owned firms. Government ought to study this matter intensively since it has both advantages and disadvantages. If it continues to let the two compete with each other, consumers will benefit while state funds invested in them will be partly wasted due to self-competition and vice versa. PART III – Consumers: Gain or Lose? 1. Competition Makes Consumers Better off Most mobile phone users would agree that they are benefiting more and more from service providers’ policies. Ten years ago, only wealthy people could own a mobile phone and afford the use of mobile telecom service, which is a completely distinct from today’s situation where mobile technology is nothing strange to most people, regardless of their income. The shift of the market from a monopoly to a more competitive one enables consumers to choose the service provider which suits them best in quality and price. Landlines services are being outnumbered by mobile services and will probably soon become obsolete as now they cannot compete with mobile services in price, let alone in convenience, diversity and flexibility. In addition, telecom services are the only items whose prices have constantly decreased, moving against the storm of inflation in Vietnamese economy. D2 S11 S2 D1 E1 P1 P2 E2 Q2 Q1 (For illustration purpose only)| The increase of quantity supplied is greater than the increase of quantity demanded, making the equilibrium point move from E1 to E2. At E2, P2 is lower than P1 and Q2 is larger than Q1, which makes consumers better off. | 2. The Trend of Monopolisation: Would Consumers Suffer? Monopoly causes deadweight losses – this is undeniably true. Though consumers have been enjoying more and more benefits from service providers at least in the past few years, we may wonder if this could last for long when it comes to the trend of monopolisation which is becoming clearer and clearer in the market. After EVN Telecom and Beeline, will there be another acquisition that makes another small brand disappear? Will big firms take over all the small ones to rule the whole market? If someday there are only state-owned companies providing mobile services, will they agree with each other to raise service prices and prevent new firms from entering the market, which undoubtedly shrinks consumer surplus? Suppose that day would come, consumers may try to constrain their use of mobile services. However, the amount of reduction would be negligible since mobile services are now so necessary that the demand for them is relatively inelastic. Consumers today are richer and much more dependent upon mobile services than they used to be; therefore, it would not be easy for them to cut down on using mobile phones to save money. Service providers would keep earning more and more profits from consumer welfare. In general, monopolisation harms the benefits of most people while benefiting only a small group of people. Monopolisation is a two-edged trend, so it is important to balance the benefits between suppliers and consumers. An ideal mobile service market may be one with a small number of firms, i. e. three or four, but with comparatively uniform market shares. This enables infrastructure to be effectively exploited as well as market power to be evenly distributed among suppliers, reducing the probability of a monopoly arising. Conclusion There would be not enough space to discuss all factors of a market within a short essay; however, I have tried to apply microeconomic theories to analyse notable features and remarkable changes in the market that have had significant influences on consumers, together with given personal evaluations and opinions about the development trend of the market. I hope that eventually I have achieved a clarification of economic principles hidden in daily-life matters such as behaviours of firms and consumers in the mobile telecom market in Vietnam. Due to time pressure as well as inexperience in researching and writing, my essay may contain errors and misunderstanding. I would like to receive your feedbacks and suggestions to help me improve its accuracy and quality. Reference * Gregory Mankiw, Principles of Microeconomics (5th Edition). * VnExpress. net, Development of Vietnamese Telecom Market. * CafeF. vn, Viettel’s Aquisition of EVN Telecom Might Violate the Law. * Tuoitre. vn, Beeline Is to Disappear. * Tienphong. vn, Merging MobiFone and Vinaphone: Good and Harm. * Vcci. com. vn, Telecom Market: Back to Monopoly? * National Assembly, Competition Law, 2005.