VNPT on horns of a dilemma

Governmental Decree No.25/2011/ ND-CP, which was issued on April 6, specifies new guidelines on the implementation of the Telecom Law relating to ownership ratio, commercial rights fees and foreign investment in this lucrative sector.

One of the key components of the new decree, which will come into force on June 1 this year, is Article 3. This article states that any institution or individual with over 20 per cent ownership in a telecom company will be not allowed to hold more than a 20 per cent stake in another telco providing similar services.

It is a ruling which presents the state-owned VNPT Group with a dilemma. It either must merge MobiFone and VinaPhone or conduct long-delayed equitisation of the two affiliates.

With these affiliates being the second and third largest mobile services operators in Vietnam, VNPT Group is reluctant to take any action which would jeopardise the juicy profits they have contributed to the group. MobiFone and VinaPhone contributed around 80 per cent of VNPT’s pre-tax profit last year.

In 2010, MobiFone alone with around 6,000 employees earned pre-tax profit of VND5.8 trillion ($297 million). This accounted for a whopping 52.3 per cent of its parent VNPT Group’s pre-tax profit in 2010.

“We understand that VNPT’s current 100 per cent ownership of its two affiliates of MobiFone and VinaPhone is against the Law, but we have yet to make any plan to make it compliant and we are waiting for guidelines for dealing with our situation,” said a VNPT Group source. The new regulation aims to prevent a teleco from purchasing majority stakes of other telecom firms.

The Ministry of Information and Communication, meanwhile, twice reminded VNPT last year to prepare a proposal on how it plans to comply with the new regulations. But VNPT executives are yet to draw up their plans.

Meanwhile, the ownership stake that foreign investors will be permitted to hold in a Vietnamese telecom operator has yet to be spelled out clearly.

Vietnam’s World Trade Organization (WTO) commitments allow foreign investors to hold up to a 49 per cent stake of any company engaged in providing telecoms network services. Meanwhile, foreign stake in non-facilities based service companies can be as high as 65 per cent three years after Vietnam joined the WTO.

The government will collect commercial right fees from all licensed local and foreign telecom and internet operators in Vietnam. Telecom service operators and those with the biggest revenue will pay a maximum 1 per cent of their revenue towards this fee.

Vietnam had 112.6 million mobile subscribers including 2G and 3G users by the end of last year. Viettel was the market leader with 40.9 million mobile subscribers. MobiFone and VinaPhone followed with around 32 million subscribers each. EVN Telecom was bottom of the pile with 1.6 million mobile subscribers.