A "FIVE-YEAR PLAN" FOR VIETNAM'S TELECOM AND

UNCLAS SECTION 01 OF 02 HANOI 000566

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SUBJECT: A "FIVE-YEAR PLAN" FOR VIETNAM'S TELECOM AND
INTERNET SECTORS


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1. (SBU) Summary: The GVN approved what amounts to a "five-
year plan" for the ambitious development of its
telecommunications and Internet sectors between now and
2010, with an estimated investment of USD 631 million to be
financed by foreign and domestic private sources and
overseas development assistance (ODA). While the plan calls
for increased competition, it only mentions equitization
briefly (and does not mention privatization). Although the
GVN would like to attract foreign capital, it intends to
retain control of the telecom and Internet sectors for both
economic and political reasons. On a positive note, and in
keeping with the WTO Reference Paper on telecom services,
the plan calls for "moving towards the abolishing cross-
subsidization between telecommunications and Internet
services," as well as for allowing telecom and Internet fees
to be determined by the market. Foreign businesses are
waiting for implementation details to identify new
opportunities. End Summary.

A "Five-Year Plan"
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2. (SBU) On February 7, Prime Minister Phan Van Khai signed
the "Master Plan on Telecommunications and Internet
Development in Vietnam Until 2010," which lays out an
ambitious development schedule for Vietnam's telecom and
Internet sectors. According to the plan, the GVN hopes to
develop Vietnam's telecommunications infrastructure to the
level of other countries in the region, to generate economic
growth in these sectors at 1.5-2 times that in the rest of
the economy, and to produce USD 3.5 billion in revenues.
Details and concrete strategies for implementing and
securing funding are lacking, but foreign and domestic
portfolio and capital investment, and ODA are all mentioned
as possibilities. While the plan calls for the creation of
an "environment friendly to new enterprises", it also
appears that the GVN intends to maintain economic and
political control over the telecom and Internet sectors. It
is thus unlikely that the plan in itself will lead to the
kinds of sector reforms that would make it attractive to
significant foreign direct investment, especially for
telecom service providers.


3. (SBU) Although the plan calls for the creation of a "fair
and competitive market", and sets a goal of 40-50% new
entrant market share by 2010, this will not necessarily
translate into significant government divestiture.
Currently, Vietnam Posts and Telecommunications (VNPT),the
largest state-owned enterprise (SOE) operator controls 95%
of the telecom and Internet markets, and all other ventures
in these fields are at least partly state-owned. The GVN
has focused on developing competition between SOEs
controlled by different ministries rather than on
encouraging the development of strong private
telecommunications and Internet sectors.


4. (U) On a positive note, and in keeping with the WTO
Reference Paper on telecom services, the plan calls for
"moving towards abolishing cross-subsidization between
telecommunications and Internet services." Additionally,
the plan states that charges and fees should be based on
production costs and market demand, and that service charges
that have been set below production costs should be
adjusted. The State should intervene only by setting
charges applicable to "public welfare services" and in cases
where monopoly pricing prevents new entrants into the
sectors. (Note: A list of "public welfare services" has
been submitted for GVN approval. These include fixed
telephone and Internet access services. Endnote).

5. (SBU) The plan calls for developing the legal and
administrative system, including a telecommunications law
and implementing regulations to create a regulatory and
market environment favorable to growth and to address, among
other things, information security and safety. The Ministry
of Posts and Telematics (MPT),in coordination with other
ministries, is in charge of implementing the plan. Some
foreign business sources believe that MPT Vice Minister Vu
Vuc Dam may be one of the government officials responsible
for the implementation of the GVN's plans. They consider
him a reliable and progressive thinker with a good track
record for getting things done.

6. (U) Stated development goals are to attain a teledensity
of between 32-42 phones per 100 inhabitants from the current
6.86 (the ASEAN average is 21.40); an Internet subscription

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density of 8-12; Internet access for 25-35 percent of the
population; public telephone service points in all villages;
public Internet access points in 70 percent of all villages;
broadband Internet in all districts and almost all villages
in key economic zones; and broadband Internet connections
and connections to the GVN broadband network in all
ministries, state administrative organizations and local
governments.

Business Offers the Market-Economy Perspective
-------------- -

7. (SBU) Intel reported to ECON HCMC that it met with MPT
officials in Hanoi along with other companies including
Microsoft, Motorola and Cisco, in order to provide input to
the GVN's master plan. According to Intel, the principles
and goals of the plan are laudable and in line with the
needs and goals of the technology sector; however, as is
frequently the case in Vietnam, it will be the execution of
policy that will determine this plan's worth. Foreign firms
have made some suggestions as to what the GVN could do to
achieve its technology goals, such as clearly defining
deliverables in each category of the master plan and
continuing to search out more opportunities for
public/private partnerships. In order to execute
successfully the master plan, the GVN needs to provide the
private sector with concrete incentives to promote the use
of technology. For example, it should make mandatory the
online registration of all new businesses, continue with the
computerization of customs, and provide tax breaks for
companies that invest in and use information technology.

8. (SBU) According to one leading Vietnamese IT businessman,
the plan is an academic exercise. He is skeptical that it
will be executed. He confirmed, however, that Viettel
subsidizes its Internet business, while VNPT, the dominant
Internet service provider, does not.
A Nuanced Understanding of "Competition"
--------------


9. (SBU) Comment: While western economists and policy
makers equate a competitive market with a strong private
sector and the absence of a monopoly, Vietnamese officials
have chosen to interpret competition in the telecom sector
to mean the presence of several service providers regardless
of their ownership. As a response to the need for increased
competition, the GVN has thus encouraged the entry of
enterprises new to this sector that are wholly or partially
state-owned. The ministries that control them may vary, but
the enterprises are still SOEs. A particularly salient
example of the GVN's limited definition of competition is
that the two largest mobile phone companies are owned by
VNPT, the state-owned monopoly telecommunications provider.


10. (SBU) Comment continued: The GVN has identified the
telecom and Internet sectors as promising growth areas that
will generate jobs, revenue, and economic growth, and
intends to retain control of them for economic reasons, as
well as the often cited security concerns. Although the GVN
recognizes the need to attract foreign capital to attain
these development goals, it is apparently not yet prepared
to allow the changes in ownership control that would make
the Vietnamese market attractive to significant foreign
direct investment. This underscores the importance of
improving telecom market access for new entrants in
Vietnam's WTO accession agreement. End comment.

MARINE