VimpelCom of Russia has agreed to sell its 49% interest in Vietnamese mobile network operator GTEL Mobile as it no longer sees any opportunities to meaningfully grow its profit in this overcrowded market. Its local partner in the venture, Global Telecommunications Corporation, will buy the stake. While BMI believes consolidation and rationalisation in the Vietnamese market is urgently needed, we see this development as further proof that foreign or private investors have little room to benefit from Vietnam's economic growth. Rather, it is state-owned investors that are the real beneficiaries.
In Q411, VimpelCom booked an impairment of US$527mn relating to its operations in Vietnam and Cambodia, after a detailed review of these businesses revealed "significant downward growth perspectives". Despite serving 2.957mn mobile subscribers in Vietnam in Q411, up by 73.9% q-o-q, the company accounted for just 0.2% of the total market of more than 117mn subscribers. And with mobile ARPU struggling to reach US$0.9 in Q411, it is clear GTEL is unlikely ever to deliver a good return on investment in spectrum and network infrastructure.
|A Crowded Market Stymies Profits|
|Vietnam Mobile Market Trends, 2009-2016|
The Vietnamese mobile market has grown rapidly in the last five years, driven mostly by ultra-low pricing initiatives that make it difficult for the country's seven mobile operators to fully profit from the services they offer. State-backed VinaPhone and MobiFone may be amalgamated to cut costs. While this would remove one player for the market, it would consolidate the state's direct and indirect influence over the market, and provide little incentive to stabilise the pricing climate. As the state is also an indirect investor in market leader Viettel, the problem is likely to be compounded (see our online service 'Merger Detrimental To Competitive Landscape', March 29 2012).
Another foreign investor has already exited the Vietnamese mobile market, citing unfavourable competitive pressures skewed in favour of local and state-owned investment vehicles. In September 2011 SK Telecom of South Korea agreed to exit sixth-ranked S-Fone, after it effectively withheld investments in the company for a two-year period. It, too, was concerned about the opaque and fluid regulatory regime which appears to favour state companies over independent operators. Now that VimpelCom is also withdrawing from the market, fourth-ranked Vietnamobile is the only operator with a foreign investor, namely Hong Kong's Hutchison Whampoa. The latter may now be considering a strategic withdrawal after Viettel swallowed up rival EVN Telecom and moved to undercut Vietnamobile's already low-priced subscription rates.
BMI expects state-owned powerhouses Viettel, VinaPhone and MobiFone will continue to drive growth in the mobile market, from 117.6mn subscribers at the end of 2011 to 132.4mn at the end of 2016. This is a result of flawed business models built on heavily state-subsidised investments and on low-cost service plans that will merely add tens of millions of inactive or sporadically active accounts, generating little revenue. It will therefore be hard for operators to upsell premium value-added services, a view underscored by anecdotal evidence that the country's 3G and mobile broadband networks are significantly underutilised. We are, therefore, not surprised by VimpelCom's decision to retreat.