Telstra rubbishes exit rumours, looks for new opportunities

9 Jul 2003

Australia’s dominant telco Telstra [TLS.AX] has countered local newspaper reports suggesting it is ready to pull out of Vietnam’s telecoms sector by saying that it is currently holding discussions with local companies with a view to exploring new investment opportunities in the nation’s underdeveloped mobile phone market. Telstra was one of the first overseas companies to invest in Vietnam’s telecoms sector when it signed a USD15 million contract with state-owned fixed line operator VNPT in 1998. Under the deal Telstra built two satellite earth stations, which were later expanded and upgraded, taking Telstra’s total capital investment to over USD200 million. Its local subsidiary NDC has also completed a number of network design and construction projects.

The involvement of foreign companies in Vietnam’s telecoms sector is restricted to business cooperation contracts (BCCs), which allow overseas operators to invest in a state-run enterprise and receive a share of its profits for between five and 15 years. Rumours that Telstra was planning to exit the sector began to surface after the Australian company’s BCC contract recently expired. Although Telstra has admitted that it is not interested in signing a new BCC agreement, labelling the contracts ‘no longer attractive to investors’, the operator has admitted that it is currently exploring a range of opportunities in the mobile arena. Telstra’s business manager in Vietnam, Nguyen Thanh Quang, recently admitted ‘We find it [investment] feasible in the mobile phone sector, which requires big investment and is our strength.’

Vietnam’s cellular market is dominated by state-owned VNPT, which holds controlling shares in the country’s three active mobile operators Mobifone, Vinaphone and CallLink. A new entrant to the market, joint stock company Saigon Postel, plans to launch services later this month, marking what is hoped to be the beginning of the true liberalisation of the sector. The majority of cellular services are supplied to the country’s corporate sector which accounts for five times more customers than the residential market.

With a combined share of 99.03%, incumbents Mobifone and Vinaphone dominate the market having a combined customer base of 1.82 million. However, despite their best efforts, the two companies are unable to meet network demands, resulting in call congestion and poor quality service. The government, which is slowly embracing a market economy, has singled out the telecommunications market as one of high priority for growth, and is opening up the sector to meet a target mobile penetration rate of 6.5% by 2005, up from 1.8% in 2002; the world average is 16.6%. The MPT has estimated that the industry will need to have capacity for an additional five million subscribers in order to achieve this goal, while Mobifone and Vinaphone will be able to cater for just four million.

Vietnam
CIT's Datafile of Asia-Pacific Telecommunications