Beeline Has Quitted The Telecom Hive
By Tuyet An
The exit of Russia’s telecom group Vimpelcom, Viettel’s acquisition of EVN Telecom earlier this year and S-Fone’s lackluster business performances have partly revealed a “step backward” taken by Vietnam’s telecom industry after more than a decade of quantitative growth
A joint venture between Global Telecom Corporation under the Ministry of Public Security and Russia’s Vimpelcom Group, Gtel Mobile, better known to customers as Beeline, was licensed to provide telecom and Internet services. It has been entitled to incentives envied by competitors. The Russian partner had planned to invest US$1 billion in Beeline.
Both partners also reached an agreement which allows Vimpelcom to hold a 65% stake in the project. This is special given that the Vietnamese partner must own a dominant stake in a telecom business as stipulated by the law.
According to Jo Lunder, Vimpelcom general director, the group pulls out due to its strategic orientation on “future added value.” Yet not long ago, a senior Russian governmental official on a business trip to Vietnam said that Vimpelcom would aspire to continue its long-term investment if it was to acquire more resources and the right to use frequency bands to provide more advanced added values.
Despite the “aspiration” and “special incentives,” Vimpelcom has ceased its Vietnam venture. As indicated by official statistics, Vimpelcom has poured into the joint venture US$463 million, including an initial investment of US$267 million which was followed by US$196 million. It can recover, however, a modest sum of US$45 million when disposing of its 49% stake at Beeline. Was it that the company accepted big losses and sells shares at low prices to avoid further risks?
Vimpelcom has withdrawn also because the market it engaged has exposed small mobile communications companies like Beeline to so many risks, thus making them unable to compete on the same footing with giants which are holding a 95% market share. Beeline had to stop halfway its latest promotion campaign following administration bodies stepped in. Although it was able to portrait itself as a youthful, dynamic and convenient mobile communications network, Beeline’s effort finally became futile. The average revenue per user (ARPU) was too low, only US$0.9/person/month in the fourth quarter of 2011, the lowest in the 19 markets where Vimpelcom has committed investment. For comparison, the rates for Vimpelcom in Cambodia and Laos are US$2-3/person/month and US$4/person/month, respectively.
The slowness in connection and new service development as well as a lack of a license for 3G services made it difficult for Beeline to seek partners. To date, the company is the only network not to be provided with a suitable frequency to provide 3G services. To get the best coverage for its telephoning services which require 1,800-MHz frequency, Beeline needed at least 20,000 base transceiver stations, which demands a huge amount of money. Meanwhile, other networks with 800-900 MHz frequency only needed half the number of stations and spent less on each station to get a higher efficiency of coverage.
Concern about a backward step
In a sense, Vimpelcom’s pullout shows the domestic telecom market is not attractive enough as expected. This also raises a question about the existence of smaller service providers. Foreign investors have therefore expressed concerns over investment in Vietnam’s telecom sector, an expert said.
The mobile communications networks owned by the State currently seize a 95% market share, and other investment projects with a State stake have led to unhealthy competition for many years. As a result, ARPU has continuously dropped, resulting in a market which is saturated with telephoning services but does not have additional services. According to an assessment released by the UK-based Business Monitor International (BMI), if ARPU on the Vietnamese market in 2007 and 2008 were US$6.5 and 6/subscriber/month, it declined to US$5.52 in 2009, US$5 in 2010 and is forecast to go down to US$3.51 in 2015. However, companies in the sector say ARPU has been under US$4. If all are taken into account, the figure might be below US$3/subscriber/month.
According Hoang Ngoc Diep, an expert in the telecom industry, only when there is a mobile communications network which is actually strong, from frequency bands to networking infrastructure, and from management system to business models can the telecom sector develop actual quality services. All the three major networks, including MobiFone, Vinaphone and Viettel, have so far mainly operated low-price services, with a focus on basic services and prepaid market segments. They have yet to provide quality services for businesses and State organizations. These are the foundation for the quality-based competition. “Such competition has contributed little to the common development of the telecom and information technology sectors. It has done more harm than good by gradually exhausting the players,” Diep said.