Group assignment topic monopoly and competition in the vietnamese telecommunications industry

Data ismainly from official articles.I.4 Research structure- Analyzing monopoly state in telecoms market 1996 – 2004- Analyzing competition in telecoms market 2005 – present- Suggesting

TRƯỜNG KINH DOANH KHOA KINH DOANH QUỐC TẾ - MARKETING

GROUP ASSIGNMENT

TOPIC

MONOPOLY AND COMPETITION IN THE

VIETNAMESE TELECOMMUNICATIONS INDUSTRY

Order Full name Student ID Role Distribution

2 Nguyễn Hoàng Bảo Châu 31231023123 Member

To support the argument made in this essay, the monopoly of VNPT andcompetition among telecom companies including Viettel, MobiFone, and VinaPhone,etc are investigated The study indicates that monopoly and competition cause bothhuge positive and negative impacts on the society and economy For competition, itincreases productivity, creates economic strength, and encourages research andimplementation of scientific and technical activities to enhance the competitiveness ofproducts, while having a monopolistic market results in damaging the businessenvironment as well as consumers’ demand coupled with doing harm on the socialwelfare Thereby, the group is going to suggest some possible measures to deal withthe drawbacks of each market structure.

TABLE OF CONTENTS ABSTRACT I LIST OF TABLES III LIST OF ABBREVIATIONS IV

I INTRODUCTION 1

1.1 Reason for research 1

1.2 Research objectives 1

1.3 Research methodology 1

1.4 Research structure 1

II CONTENTS 1

2.1 Table of previous research 1

2.2 Telecommunications status in Vietnam 3

2.2.1 Vietnamese telecommunications market (1996 – 2004) 3

2.2.2 Vietnamese telecommunications market (2005 – now) 8

III CONCLUSION AND SUGGESTION 13

3.1 Conclusion 13

3.2 Suggestion 14

3.3 Limitation 15

REFERENCES 16

LIST OF TABLES Figure 1 Table of previous research

Figure 2 Viettel Revenue 2000 - 2012 (trillion VND) Figure 3 Market share of firms in telecoms

LIST OF ABBREVIATIONS

GTel Global Telecommunications Corporation

IoT Internet of Things

FPT The Corporation for Financing Promoting TechnologyNGN Next Generation Network

SPT Saigon Postel Corporation

VAT Value-added Tax

VNPT Vietnam Post and Telecommunications

I INTRODUCTION

I.1 Reason for research

Humans always need to connect and exchange information with each other, andthat need is growing exponentially Thus, telecommunications are considered one ofthe most distributed industries to the development of the world in general and Vietnam

in particular, which helps improve social life as well as the economy Under the impact

of the 4.0 revolution, the telecoms’ opportunity to transform becomes much brighterwhen several new concepts relating to technology have appeared such as Big Data,IoT, Artificial Intelligence, etc The continuous rise of telecoms industry will beevidence of the modernity of a country

Having realized the importance of telecoms in the national innovation process,

the group decided to research the topic “Monopoly and Competition in Telecommunications industry” This study will give an insight into the formation and

development of Vietnamese telecoms industry as well as how its market structure haschanged through the period Thereby, what benefits and drawbacks of each structurewill be known

I.2 Research objectives

This study aims to understand the characteristics and influence of monopolyand competition in the telecoms industry as well as others Then, the solutions can besuggested to minimize the negative effect of monopoly and competition in the market

I.3 Research Methodology

- Linking theoretical microeconomics basis with practical knowledge

- Collecting data from the Internet, books, articles and previous research Data ismainly from official articles

I.4 Research structure

- Analyzing monopoly state in telecoms market (1996 – 2004)

- Analyzing competition in telecoms market (2005 – present)

- Suggesting solution for the weakness of monopoly and competition in themarket

II.1 Table of previous research

Figure 1: Table of previous research Ordinal

numbers Name of research

2011)

The study as a whole seeks tocatalogue many of thesubstantial, tangible benefits forconsumers and for small andmedium businesses arising fromAPEC members’ structuralreform efforts in recent years,focusing on the transport, energyand telecommunications sectors.One of the case studies of theresearch related to theVietnamese telecoms industry

2

Learning, Upgrading, and

Innovation in theTelecommunicationsIndustry in Vietnam: A

Rent ManagementAnalysis(Christine Ngoc Ngo,

2014)

The empiricalevidence for thisstudy is primarilybased on 42 semi-structuredinterviews withgovernmentofficials, firmmanagers,suppliers, workers,and industryexperts from 2010

to 2012

This paper analyzes theindustrial success of thetelecommunications industry inVietnam using developmentalrent management analysis(DRMA) Moreover, itexplained the failure of theVNPT monopoly and the rise of

Sector (Nguyen Thanh Ha,

Pham Quang Thanh,

2005)

previous market structure of theindustry, highlights some events(VNPT dominant role) and theirimpact and reviews keystructural elements –government, operators andconsumers As a point ofreference, where applicable, thisreport provides international andregional comparisons

II.2 Telecommunications status in Vietnam

II.2.1 Vietnamese telecommunications market (1996 – 2004)

 The establishment and development progress of VNPT

During the 27 years of formation and development, VNPT has always been apioneer in the telecommunications revolution with many outstanding achievements Itcan be said that the advent of VNPT contributed to a more promising digital life forVietnamese people On June 26, 1996, VinaPhone (VNPT’s subsidiary) - the firstmobile network of Vietnamese people - was opened It was not only reflected in thefact that 100% of this enterprise's capital was from domestic sources but also in human

resources (VinaPhone: Hành Trình 25 Năm Tiên Phong Về Công Nghệ Và Chuyển Đổi Số, n.d.) More importantly, VinaPhone was also the first mobile network to

deploy fixed-to-mobile messaging From 1996 to 1997, mobile phones were unfamiliar

to people; However, VinaPhone has contributed significantly to the telecom revolution

in Vietnam when making mass customers know more about mobile

Additionally, throughout those 2 years, VinaPhone network only covered 18provinces and cities, but by 1999, owing to the rapid quality development and thediversity of services, VinaPhone became the first mobile network to cover 100% ofprovinces and cities nationwide This was a great achievement and also a great effortthat VinaPhone mobile network had after nearly 3 years, making VinaPhone the

number one telecommunications service provider in Vietnam (Chi Tiết Tin Tức

-VNPT, n.d.) As part of the rapid development of new services to increase the number

of subscribers and the quality of customer service, the prepaid subscription servicelaunched at the end of 1999 had created a boom in subscriber growth and created newadvantages for the VinaPhone mobile network With this event, VinaPhone continued

to mark the milestone as the first mobile network to deploy prepaid service packages,accelerating the roadmap to popularize mobile services in Vietnam Also in the sameyear, VinaPhone was the first operator to launch international roaming services to 4

countries and territories, namely Australia, Singapore, Taiwan and Hong Kong (Chi Tiết Tin Tức - VNPT, n.d.) With the above achievements and several more, from the

first time it was launched to the next 8 years, VNPT was a state-owned company anddominated the telecoms market

 VNPT was a price maker in telecoms market

As the sole supplier in the market, VNPT was given a right to influence theprice of its output in the telecom industry The company gained a huge profit fromconsumers since they had no other choices except for VinaPhone or MobiFone (bothunder VNPT) when making calls and messaging Some may ask why no telecomcompanies entered the market to break the monopoly and be in a price competitionwith VNPT; However, constructing a whole new telecom network at that time required

a great cost that was not easy for any firms to handle Whereas, if they insisted onlaunching another telecom service, they had to mutually use the VNPT network whichonly brought more money to their rival In its glorious time, VNPT had adjusted pricesignoring the government’s regulation More specifically, in the period 1993-1997,VNPT made a profit from the disparity between the actual phone installation price and

its list price, which was nearly 1,480 billion VND (Hưng, 2004c) The Supreme

People’s Procuracy of Vietnam appealed to VNPT over this as it violated the price law.Nevertheless, the government closed its eyes and allowed VNPT to use that money toinvest in its basic infrastructure The public expected that after this scandal, VNPTwould adjust the installation fee, yet in 1997, the company was brought to light that itstill kept the price 500,000 VND higher per phone According to the GeneralDepartment of Post and Telecommunications, there were 745,000 phones installed in

1997 and 1998, multiplied by the difference in price above (nearly 500,000 VND), theprofit VNPT earned amounted to trillions of VND But it is unreasonable that in

VNPT’s 1999 plan submission to the Ministry of Planning and Investment, the fee

difference was 0 (Hưng, 2004b) It can be seen that VNPT, relying on the monopoly

state, caused frustration among the public by padding the cost to increase the surplus.The inspection results published in newspapers showed that the interest rate onVNPT's freight rates was about 20-30%, even over 40% while the allowed profit rate

was only 5.4% (Hưng, 2004a) As reported by the interdisciplinary working group in

2004, for domestic mobile service, VinaPhone charged consumers 49% higher thantariff price (2001), 54% and 58% higher in 2002 and 2003 respectively Similarly,MobiFone charged consumers 58%, 59% and 57% higher than the tariff price in 2001,

2002 and 2003 respectively (Hưng, 2004c) Thus, users seemed to lose half of the

amount paid for the aforementioned service In a short period from 1997 to 2004, theprice elasticity of demand of VNPT’s customers seemed to be approximately zero Inother words, despite dissatisfaction, they were insensitive to changes in price because

of the necessity of digital communication

 Monopoly state brought a huge profit to VNPT

As VNPT had complete control over the provision of telecommunicationsservices, it was allowed to reap significant profits With VNPT's significantinvestments in technology and network development, in August 1996, Vietnam had 1million telephone subscribers and became one of 60 countries with a telephone

network of over 1 million subscribers (Những Mốc Phát Triển Quan Trọng Của VNPT, n.d.) Two years later, total revenue of VNPT service increased by 20% In this

year, Vietnam continues to be ranked second in the world in terms of phone

development speed and over 2000 billion VND were paid to the state budget (10 Sự Kiện Nổi Bật Của Bưu Điện Việt Nam Năm 1998, n.d.) Moreover, VNPT had a record-

breaking year in 2003 with nearly 25 trillion VND in total revenue (equivalent to 1.6

billion USD) and over 4 trillion VND in state budget payments (VnExpress, n.d.).

More importantly, year 2004 witnessed an event that VNPT officially launched thenew generation telecommunications network (NGN) for the first time using packetswitching technology, allowing support for providing a variety of services fromtraditional to a series of high- quality broadband services Thus, VNPT's total revenuereached 30,662.77 billion VND, surpassing the plan by 2.38% - a 15.65% increasecompared to 2003, which was 25 trillion VND Also, VNPT developed 2,631,836 new

subscribers, with mobile phone subscribers increasing by 71.36%, while landline

phone subscribers increased by 17.12% (VNPT Sẽ Là Tập Đoàn Kinh Tế Mạnh, n.d.).

All of the above numbers have proved that the monopoly state not only brought to thebusiness a potential market power but also made it more embattled in the industry

 Monopoly market was a safe choice at that time

Though there were some price-related troubles in a monopoly market, itseemed to be the most suitable market structure to be chosen for Vietnam at that time.Given the historical context of the time, the government wanted to maintain controlover the telecommunications sector to ensure national security In the Vietnamesegovernment’s economic reform agenda, the telecommunications industry was one of

the most important sectors to national defense and development (The Telecommunications Industry | 4 | a Leap of the Giants | Christine, 2020) Two

longtime government officials working in the industry explained that Vietnam’sleaders stated the need to retain complete control over the telecommunications industry

in order to sustain the nation’s security and social stability, which was primary to

economic development (interviews, Ha Noi; June–July 2011) (The Telecommunications Industry | 4 | a Leap of the Giants | Christine, 2020) In other

words, monopoly, at that time, was the most optimal solution to prevent our countryfrom leaking information and other related issues Therefore, the industry at that timeconsisted of just one state-owned provider: VNPT, a government unit (and later astate-owned monopoly)

Another advantage that makes countries, including Vietnam, apply monopolypower in the telecommunications industry is the potential for economies of scale.Especially in the stage of developing a socialist-oriented market economy, grantingmonopolies to businesses helps control the entire market and achieve maximumoperational efficiency by allocating fixed costs to a large number of customers Thiscan lead to lower average production costs and increased profits, allowing businesses

to invest in infrastructure and innovation Moreover, VNPT employed a subsidization strategy, utilizing the profits from its more lucrative services to subventits less profitable services Traditionally, VNPT has been the only operator to embracethe obligation to provide universal services in both the cities and rural areas Newoperators have chosen to provide services only in areas that are profitable, such as

cross-Hanoi and Ho Chi Minh City (The Impacts and Benefits of Structural Reforms in Transport, Energy and Telecommunications Sectors | APEC, n.d.) By applying this

strategy, VNPT not only helped the outback expose itself to telecoms but also gainedmore for its own Hence, the more profitable the business is, the larger the tax it pays

to the government And in terms of social benefit, the monopoly helps the authoritywith some welfare projects as well as maintaining public constructions

 Monopoly inevitably raised issues

However, it is undeniable that monopoly was believed to bring moredrawbacks to the industry than benefits It must be the consumers who were negativelyaffected the most when the telecommunications market was a monopoly because thefirm can charge unpredictable prices That is called price-fixing This is due to the factthat the monopoly sold essential goods and services that were hardly substituted.Hence, consumers had no alternatives but to continue buying the product though theprice was high It would be especially true when the demand for telecommunication isinelastic, which means consumers are less sensitive to price changes An example ofthis case is the telecommunication industry in Vietnam from 1996-2004, where themarket was dominated by VNPT In 2001, while the General Department of Post andTelecommunications had a policy of reducing mobile phone and Internet fees, VNPTdecided to increase Internet access fees via mobile phones which caused frustrationamong the public The average rate that could bring profit to business was only from

600 to 900 VND/minute (including mobile phone and Internet charges) However,VNPT chose to charge higher fees, for instance, at 1,750 VND/minute (with VAT) for

prepaid subscribers (VnExpress, n.d.) If the network was slow, customers had to pay

more because checks were calculated on an hourly basis As a consequence, the userswould be negatively affected by the inflated bills, causing chagrin in society

Moreover, despite the fact that consumers were charged a high fee, the productquality that they received sometimes did not meet their needs and was incompatiblewith the price This is attributed to the fact that monopolistic companies often focus oninvesting in what they want to enhance their revenue considering the absence offluctuation in monthly customers Furthermore, customer service by monopolies isfrequently dreadful as they are not accountable to the same forces as competitive firms.For example, VNPT’s customers during 1996-2004 bear with many dropped calls and