Rent Seeking in Telecom industry
Rent Seeking in Telecom industry
Successful story of Viettel
Forerunner: Sigelco,1989, electronics information and equipment company under the MoD.
In 1993, Sigelco became Military Electronics Telecommunications Corporation under the trademark Viettel.
In 1995, the government ended VNPT’s monopoly status and called for more operators in the telecommunication sector.
Viettel was granted a license to provide local and long distance landline service, as well as mobile and Internet services
Revenue (Fig 4.8 p.165) and Income Growth Rate (Table 4.6 p.166)
Viettel successfully expanded its service abroad to: Cambodia (2006), Laos (2008), Republic of Haiti (2010), Mozambique (2012), and Peru (2013) East Timor, Cameroon, and Tanzania.
How has this SOE, in less than two decades, transformed from a relatively small military telecom provider to become one of the two largest conglomerates in Vietnam’s telecom industry?
Viettel did that without foreign help.
Today, Viettel remains 100 per cent state-owned under the MoD.
-->a deeper rent-seeking and rent management story among Viettel, VNPT, and the state
Political Context of Rent Management:
Gov and MoD support for Viettel
Rent Allocation Mechanism
Organization of Telecom Industry
Capital Intensive industry vs. Underdeveloped Credit Market
Extremely high initial fix cost for infrastructure
Underdeveloped Credit Market means private company find it hard to enter the market without government backing to get big loans
Initially, the only way is to cooperate with foreign telecom conglomerate(s)
Viettel: Use Gov and MoD support to get loans + take advantage of military telecom structure for commercial use.
Lack of High-level skill labor
New Graduates lack tacit knowledge and hand-on training
Enough Quantity but not Quality
Dependence on Foreign Technology
import machinary and technology from Foreign country
Only big player can start producing machinery at small scale
Vietnam Post and Telematics (VNPT)
Military Electronics Telecommunications Corporation (Viettel)
Saigon Posts and Telecommunications Service Corporation (Saigon Postel)
Electricity of Vietnam Telecom (EVN)
Hanoi Telecommunications Company (Hanoi Telecom)
GTel Mobile Joint Stock Company (Gtel Mobile)
Indochina Telecom (Dong Duong Telecom)
Vietnam Television Corporation (VTC)
Vietnam Maritime Communications and Electronics Company (Vishipel)
Market share in all telecom service Fig 4.4 (P.136) and in Mobile phone service only Fig 4.5 (P.137)
Telecom Industry Introduction
The Proud Child among Vietnamese State-owned Companies
Oposite to Vinaline Debt scandal in 2012
An industrial success with rapid growth and transformation
Within 15 years, Monopolistic Industry (1 state-owned company VNPT) --> diverse market (9 provider)
2006-2010: 35% growth (according to Ministry of Information and Comunication MIC) Fig 4.1 (P.123)
1 rare foreign exporting industry
Cambodia, Laos, Haiti, Mozambique, Peru, East Timor,
Marketshare of each telecom service Fig 4.2 (P.124)
Stage of Development Fig 4.3 (P.125)
Competition among Provider
Prepaid market means no contract, user can easily switch among provider
Only major barrier is people's hesitant to change contact info
Key factor to attract: Mobile rate and Coverage Range
Beeline network (2009) ¥5/minute of calling to other network
Common promotion: Give 50% of charging value
Call cost: among lowest in the world
Monopoly of VNPT -
When Rent-seeking goes bad
Until 1995, inherited substantial monopoly rent from the government
VNPT being a part of the Vietnamese government during
central economic planning period #communism
For security purpose, telecom sector under state-ownership is politically accepted
VNPT had tremendous monopolistic power, reaping great profit from a lucrative market
VNPT only slowly upgrade its technical, infrastructural and managerial ability
Great market inefficiency
the late 1990s, on average, it took VNPT up to one month to install a fixed phone line for a business or household in very big city.
tariff rates were very high, making phone service inaccessible for the majority of the population (one phone handset could cost more than 1 year-worth of average income - $100, plus high calling charge - 5000 Vnd or ¥25 per minute)
Summary Table 4.4 (p.154)
In 1995, the Vietnamese government broke up the monopoly by giving business licenses to S-Fone and Viettel
Rent management mechanism:
Political will to remove monopoly and maintain competition among state-owned operators
MoD’s support of Viettel and confrontation with VNPT via the prime minister office and local authorities
VNPT and Viettel, SFone dispute.
Caller from other network is blocked when called into VNPT network.
Unreasonable charging fees toward other companies in order to connect into VNPT Network
Indirectly dispute against MoD (over Viettel matters)
New anticompetitive regulations to support Viettel and S-Fone in 2002 (Ordinance and Decree 160)
the institutional structure that supported industrial upgrading for the telecom industry was established via the creation of a number of new government regulations.
Industry organisation in the post-monopoly period
High profit margin from the market
Market competition among state-owned
market competition among VNPT, Viettel, and S-Fone created enormous pressure for Viettel and S-Fone to quickly acquire the capability and necessary technology to organise their telecom operations
Critical Market Transformation
the extension of the backbone network connecting the north and south
development of Vietnamese-manufactured mobile phones (Viettel Mobile),
the opening of high-tech production plants and research centres around the country.
Viettel invested 270 billion dong (USD 13.3 million) (2011 by Vietnam Business News) into smart card (SIM, smart key card) production plant
VNPT-Technology built an R&D and production facility to research, develop, and manufacture electrical, medical, and telecom equipment, digital content, IT, and communications
Table 4.5 (p.163)
First Telelcom Service provider
Dominant in all telecom segment
Own 2 major cellular companies: Vinaphone and Mobifone
In Vietnam, Business and Politics always go together.