EVFTA brings increased telecom opportunities

October 04, 2018 | 10:00
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The EU-Vietnam Free Trade Agreement, after coming into force, will increase and even remove the foreign equity cap for EU telecom companies to expand their business and investment in the Southeast Asian market. Thanh Thu reports.
evfta brings increased telecom opportunities
The EU-Vietnam Free Trade Agreement will see a significant rise in foreign equity caps in the Vietnamese telecom industry, Photo: Le Toan

Denis Brunetti, co-chairman of the European Chamber of Commerce in Vietnam (EuroCham), which represents nearly 1,000 European businesses in the country, is happy that under the EU-Vietnam Free Trade Agreement (EVFTA), Vietnam will further open up its telecommunications industry to European investors, allowing them to increase their presence in its telecom market.

“European businesses see the adjustments [in the EVFTA] as a continuous and positive journey, which will further contribute to increased investment potential across the telecommunications industry,” Brunetti told VIR.

“Telecommunications is a pivotal industry that lays the foundations for socioeconomic development and inclusive prosperity, and European businesses are encouraged by the increased opportunities we have to strategically partner with the government and local businesses in a trusted and secure manner as we jointly embrace the Fourth Industrial Revolution and its benefits,” he said.

Opening the market

After seven years of negotiations, Vietnam and the EU are currently completing the final procedures to sign the EVFTA later this year. The deal is expected to take effect in 2019.

Notably, as part of the deal, in telecommunications, Vietnam will offer broad commitments in all subsectors subject to foreign equity caps and facilitate joint ventures with EU investors. Vietnam will increase the foreign equity cap in many subsectors of interest to the EU, subject to a transition period of five years.

In particular, Vietnam will raise the foreign equity cap in non-facilities-based virtual private network services from 70 to 75 per cent.

In non-facilities-based value-added services, the foreign equity cap will be abolished and for the first time in this sector, EU investors can acquire up to 100 per cent ownership without the obligation to form a joint venture.

In facilities-based value-added services, the current 50-per-cent foreign equity cap will be increased to 65 per cent. In addition, in non-facilities-based internet access, the foreign equity cap will be increased from 65 to 75 per cent, and in facilities-based internet access from 50 to 65 per cent.

“Vietnam’s move up the value chain, its embrace of Industry 4.0, and the ongoing liberalisation of its telecommunications market will continue to attract investment from EU telecommunications companies,” said Brunetti, who is also president of Ericsson Vietnam, Myanmar, Cambodia, and Laos.

European telecommunications companies have been investing in Vietnam for over two decades. Companies like Ericsson, Siemens, and Alcatel have helped to build the country’s telecommunications and mobile networks over the past 25 years.

For example, Ericsson has 25 years of experience co-operating with major Vietnamese telecommunications operators, such as MobiFone, Viettel, VNPT Group, and Vietnamobile.

“By opening up its market, Vietnam has been able to attract not only foreign capital, but also international technical knowledge and expertise. This commitment to further liberalise its markets over and above World Trade Organization (WTO) terms through the EVFTA will help Vietnam go further and attract more foreign direct investment in the future,” added Brunetti.

“European companies remain optimistic about investing in Vietnam, as our latest Business Climate Index shows. In continuing to open its doors to foreign investment – not least through the EVFTA – the Vietnamese government is continuing to make the market more attractive to foreign telecommunications companies,” he continued.

Wishing to invest

Recently, executives of 20 leading Slovakian companies operating in high-tech sectors came to explore investment and business opportunities in Vietnam. Some of them were looking to establish business and investment presence in the country. For example, MicroStep-MIS wants to work with partners in Vietnam, including representatives from airports, seaports, hydrometeorological stations, environmental agencies, and industrial and urban development agencies. MicroStep-MIS operates worldwide and is specialised in the development and manufacturing of monitoring and information systems, the processing of acquired data, as well as research and numerical modelling.

“We see that Vietnam is in critical need of these products, and this is an opportunity for us to export products to Vietnam. First, we want to establish a firm network of distributors here, and then we may think about establishing a joint venture or even build a factory in Vietnam,” said project and system development manager Martin Gazak.

In another case, Asseco Central Europe, one of the biggest software developers in Central and Eastern Europe, signed a memorandum of understanding with the Hanoi People’s Committee to supply smart software sets, helping the city improve its planning in land, governance, and lighting.

It is said that Asseco Central Europe is also looking to establish a joint venture with a Vietnamese partner.

In addition, Sweden-based Comvik Group has for the third time expressed interest in becoming MobiFone’s strategic partner, as the Vietnamese telecom company is in the process of equitisation.

In May 2018, during his meeting with Deputy Prime Minister Vuong Dinh Hue, chairman of Comvik International Vietnam AB M. A. Zaman said that with its strong technological foundations, facilitating 90 per cent of Sweden’s non-cash transactions and currently researching a 6G network programme and non-cash transaction applications, Comvik believes they could successfully support the Vietnamese government in equitising MobiFone.

Apart from Comvik, Norway-based Telenor Group has also expressed interest in purchasing MobiFone’s stakes.

Great potential

At present, the Vietnamese telecom industry is developing from strength to strength. Mobile coverage in the country has now reached 99 per cent of the population, with 3G and 4G coverage not far behind. According to the Ministry of Information and Communications, as of late June 2018, Vietnam had about 136 million mobile phone subscriptions – including 2G, 3G, and 4G services. Some 54.2 per cent of the country’s population use the internet.

Additionally, there is a high rate of fibre-optic cable coverage across the length and breadth of the nation.

Today, Vietnam ranks among the 17 countries with the highest number of internet users. The government aims to elevate Vietnam into the top 10 in terms of software and digital content outsourcing services, enabled by a thriving telecommunications industry.

“Indeed, the government’s vision and strategic focus on the Fourth Industrial Revolution, smart cities, startups, and the National Innovation Network Programme, enabled by state-of-the-art 4G and next-generation 5G Internet of Things mobile telecommunications networks, is clearly helping the ICT sector continue to record strong revenue growth,” said Brunetti from EuroCham.

According to the US Commercial Service in Hanoi and Ho Chi Minh City, Vietnam’s total telecom service revenue in 2017 was estimated to reach $6.9 billion. Mobile data services make up the largest share (36.8 per cent) of the sector. State-owned enterprises like Viettel, Mobifone, and VNPT-Vinaphone continue to dominate the Vietnamese telecom market, with over 90 per cent of the market share. Viettel is the largest player and is forecast to be the market leader through 2020.

A recent Economist Intelligence Unit (EIU) report also shows that spending on IT was estimated at $6.4 billion in 2017 and forecasted to grow to $6.5 billion in 2018, an increase of 2.5 per cent, a lower rate than the 8.1-per-cent growth in 2017 and 2016.

EIU also reported that last year, spending on IT hardware continued to represent the largest share (88.8 per cent) of total spending, with software and services taking up 4.6 and 6.6 per cent, respectively. Key players in the hardware market include suppliers from Taiwan, China, the US, and Japan. Major players in the software market include suppliers from the US, Germany, China, Russia, and Vietnam.

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