In early August, a rumor about South Korean-based SK Telecom (SKT)’s farewell emerged. According to a newspaper, the South Korean telecom provider would say goodbye to its partner Saigon Postel after a long time of cooperation.

Since 2001, SKT and Saigon Postel have cooperated via a business cooperation contract with a term of 15 years to offer CDMA mobile phone service. SKT initially invested US$180 million for the cooperation. The CDMA network has been up and running since 2003 and now has nearly 7.3 million subscribers.

Ho Hong Son, managing director of S-Fone, confirmed that it was not a farewell because SKT and Saigon Postel are negotiating to turn the business cooperation form into a joint venture or adjust the BCC contract.

“The information that declared SKT withdrew from S-Fone was incorrect. SKT has not continued investing, that does not mean they have fled from S-Fone. SKT’s role in the project is an open story and the result of our negotiations is a final answer,” Son emphasized.

In 2005, SKT announced to add US$543 million into the S-Fone network. However, the fund has not been disbursed.

According to Son, the initial fund for the S-Fone project was nearly exhausted in 2005 but then SKT and Saigon Postel reached an agreement for additional capital. However, for many reasons, the fund was never disbursed. S-Fone has never operated as a separate legal entity because it is a branch of SPT Telecom and runs under the BCC contract between SKT and SPT.

Son complained that it was very difficult for them to raise funds or borrow capital from banks or other financial institutions. S-Fone has just 7.3 million subscribers and only 150,000 of them are registered to use mobile Internet service after nearly six years of operation.

Although S-Fone is facing difficulties, other telecom providers are keen on the local telecom market that has flung its doors open and is licensing 3G (third generation) network.

July saw Russia invest in the mobile network under the trade name Beeline. Early August saw the Government present a mobile telecom provider for Indochina Telecom Joint Stock Company, to become the eighth mobile carrier in the country. The other five are Viettel, Vinaphone, MobiFone, EVN Telecom, and Vietnamobile.

Vietnamobile is the new trade name of HT Mobile which is operated by Hanoi Telecom and Hong Kong-based Hutchison.

‘Too crowded’ is what telecom industry insiders say about Vietnam’s market. However, Alexey Blyumin, CEO of GTEL Mobile, who owns Beeline, said confidently that there was still much room for growth as the country’s mobile telecom market would rapidly develop in the next two years. Thus, Gtel should not miss the chance. Meanwhile, Indochina Telecom claimed its network would be operational in the first quarter of 2010.

Unsustainable development

Although the market is crowded and is developing at a quick tempo, Vietnam’s telecom sector contains many unsustainable elements due to the high rate of inactive or virtually non-existent subscribers, low average revenue per user (ARPU) and poor value added service.

The Ministry of Information and Communications reported that as of July this year, Vietnam had at least 100 million mobile phone subscribers. Meanwhile, the country’s total population is only 86 million people.

However, 90% of mobile users are using pre-paid services and the number of inactive subscribers accounts for 50% of the total. Meanwhile, the ARPU has declined year-on-year. In 2008, the ARPU reached US$7 per subscriber. Currently, the ARPU is around US$5-6 only. Along with the high rate of inactive subscribers and low ARPU rate, value added services for the telecom industry remain simple because calling and texting are widely used.

According to the Ministry of Information and Communications, value added content turnover is estimated at VND1 billion and comes mainly from advertising. Industry insiders say turnover of value added services remain minimum and come mainly from advertising messages.

“If the digital content market continues developing at a slow rate, the risk of failure of mobile carriers will become bigger. That will put a bad impact on the market,” one insider said.

In the foreign market, calling and texting charges continue to decline. However, telecom providers earn much from value added services. In Vietnam, calling and texting are bringing a huge turnover to telecom providers compared to value added services. In the future, when 3G services are officially launched, telecom providers will need to earn 30% turnover from value added services to compensate for what they invest into network infrastructure, according to industry insiders.

“Prudent and effective pricing strategies would be critical in the low-ARPU environment. Operators must continue to invest in new technologies to differentiate and enhance competitiveness,” Jonathan Dharmapalan, partner and head of Ernst & Young’s Global Telecommunications Center, said in Ernst & Young’s report about Vietnam’s telecom industry which was released in August.

Ernst & Young says local telecom operators must be ready to respond to the heightened competitive environment by implementing strategies to strengthen their competitive positioning, including looking into strategic partnerships that will complement their long term strategy.

The report also confirmed new and attractive opportunities in Vietnam’s telecom industry for domestic and international operators due to the issuance of 3G and the announcement of plans for the equitization of state owned operators.

“Now is an exciting time in Vietnam’s telecom market. The liberation moves will encourage investment. Expanding the value chain can lead to improved infrastructure and systems, innovative business models, services and technologies, which will enable commerce and benefit consumers,” Ernst & Young says.