Improving marketing strategy for Vietnam Mobile Telecom services company (MOBIFONE)

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATIONPROGRAM CAPSTONE PROJECT REPORT IMPROVING MARKETING STRATEGY FOR VIETNAM MOBILE TELECOM SERVICES COMPANY MOBIFONE G

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATIONPROGRAM

CAPSTONE PROJECT REPORT IMPROVING MARKETING STRATEGY FOR

VIETNAM MOBILE TELECOM SERVICES

COMPANY (MOBIFONE)

Group No: 8 Student’s name: Tran Thi Mai Van

Dang Manh Thang Nguyen Manh Huan Nghiem Xuan Thu

Le Duc Tuan

HANOI, 2009

ACKNOWLEDGEMENTS

Our special thanks to Vietnam Electricity for the opportunity to study in this course

of Griggs University

Our sincere thanks to members of Appraisal Board

We also would like to express our appreciation to all lectures, friends and organisations involved in this project who are not mentioned here for their input, helps and cooperation

TABLE OF CONTENTS

ACKNOWLEDGEMENTS

Table of contents

LIst of Abbreviations

LIst of Tables tha LISt OfFIBUF€S 2.2222222222222 nh nh neo CHAPTER 1: INTRODUCTION 1.1 Rationale ofStudy Tú n2 2s 1.2 Problem Statement

1.3 Objectives ofthe study eee 1.4 Research Framework

1.5 Research methodology 2

1.5.1 Scope oƒreseqrch ì cuc 1.5.2 Data collection

1.6 Organization of the research report T221 12s CHAPTER 2: LITERATURE REVIEW 2.1 The necd for strategy

2.2 Levels of strategy ““ ' `

2.3 StratepIc AnalySIS 22 222202 2.3.1 External analJ§iS 2 2 21222221 yu 2.3.2 Imternal AnaÌWSiS 5522121222121 22222 2.4 Core Concepts of Markcting

2.5 Marketing straf€gy cece cect teecceeteeeevesnue 2.6 Developing a marketing strategy

2.6.1 Marketing targeting

2.6.2 Marketing mix (4P)

2.6.3 Additional marketing mix strategies

2.7 Customers" behavior

2.8 Customer satisfaction

CHAPTER 3: MOBILE PHONE MARKET IN VIETNAM 3.1 Country AnalySIS 2 0202 reeh 3.2 Market Analy§Is 2 2222020222 rae 3.3 PEST Analy§Is 2.22222 222222 eeeei 3.3.1 Political ƒq€ÍOF§ S225 111 21211111121221211111211 2 uag S2 nan ee Ẽ— 3.3.3 ECONOMIC ƒqCÍOFS 5 5 2221122210122 212121222212 sng 3.3.4 Social ƒqCÍOFS à s2 2222122222222 àu 3.3.9 TechHoÏOBV 22222 02 nu sài 3.4 Competitive Analysis (FIve forces)

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3.4.1 Threat of new entrants is low The

3.4.2 Threat of substitute produe€fS iS lOW

3.4.3 Bargaining power Oƒcustomers is high

3.4.4 Bargaining Power of Suppliers is high

3.4.5 Imtensity oƒrivalry is hígh

35 Major competitors analysis

36 Threats and Opportunities Analysis ete 2 221g Be OP ie ccinnemcn evinced anaes tou os SL etre terror 729/20 n6 ằ 5Ý

CHAPTER 4: VIET NAM MOBILE TELECOM SERVICES COMPANY AND ITS MARKETING STRATEGY 41 Company Background Ta 4.1.1 History oƒthe COIMĐNV

4.1.2 ViSỈOH 222222 2222 nh nuee nh man n ÔỎ “ñn ccổ 1n 4.1.5 Organizational structure 4.16 Existing Services and Produets

4.1.7 Subscriber by Package and SeFViee

4.1.8 Revenue oŸ Prepaid and Postpaid

4.19 Revenue by Package T2 H222 xe 4.110 Revenue by S€rViC€ s 25 2 5121211212211112222111 na 4.1.11 Tariff of Voice and SMS SerViCe$ cette cee 4.1.12 Subscriber Data 5 5 25 21221212112122221812211212 ng 4.113 Average Revenue per Lser (ARPU)

42 Marketing Strategy "

4.2.1 Product SIrdl€8y ee ce eect tees evteeesteseecs 4.2.2 Pricing SIrqf€gy 200cc 4.2.3 Distribution SÍrqf€8V 2 222 cee 4.2.4 Sales promotions and Advertising strategy TH 12 2H nhe 43 Findings on customer satisfaction based on the results of MobiFone’s market research Y2008

44 Strengths and Weaknesses Analysis Lennon ms Semin: Re SN MC on Hn 4.4.1 Strengths 22 22 0n nnnee 22/

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 5] ConcÏuSIOPS 2.22222222220222 HH nhe 5) RecommendatiOnsS 2222222 na 3.2.1 POSIHOHINĐ Q.2 22c nh HH2 2 nhung 5.2.2 SØg1m€HIQfÏOH 2.202222222 202 nhai 3.2.3 Marketing Mix for MobiFone

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3.2.4 Mobile Markeling

5.2.5 Social networks making viral marketing ne 5.3 Summary ofrecommendations

5.4 Recommendations for further research

APPENDIX A: MobiFone current products

APPENDIX B: MobiFone market research proJect Y2008 In brIef

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LIST OF ABBREVIATIONS

3 | Table 4.2: MobiFone Subscriber Development 2004-2008 46

| Figure 3.13: Viettel Profile 31

| Figure 3.14: Viettel SWOT Analysis 32

| Figure 3.17: EVN Telecom Profile 34

| Figure 3.18: EVN Telecom SWOT Analysis 34

Figure 4.1: Vietnam Mobile Telecom Services Company- Organization 39

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In order to keep the current leading position and develop in the near future, MobiFone has to be very competative by continuously differentiating its brand, expanding coverage area, improving the gap of services price and leading in value added services That is why the company needs to review and improve its existing marketing strategy, which this research will focus on

1.2 Problem statement

This research attempts to explore MobiFone’s approaches and strategy towards Vietnam market, its competitors and customers in terms of marketing and sales The study will find out these issues by answering following questions:

— Ql1: What are strengths and weaknesses of MobiFone’s marketing strategy?

— Q2: Are the existing strategic marketing approaches by MobiFone in Vietnam telecom market effective enough?

— Q3: How should MobiFone improve its marketing strategy to compete with other competitors?

1.3 Objectives of the study

To examine the existing competitive marketing strategy of MobiFone in Vietnam

To evaluate the consumer’s behaviour and _ satisfaction towards MobiFone marketing strategy

To find out the aspects that would help MobiFone improve its marketing strategy

Finding & discussion Customers’ satisfation

Primary data was get from interviews of MobiFone’s managers and staffs

Secondary data was collected from Company’s reports and profiles

Research findings are collected from Marketing research report made by Indochina

Research Limited

1.6 Organization of the research report

The research consists of six chapters and structured as follows:

Chapter 1: Introduction

This chapter explains the rational of study, problem, objectives, framework, scope and methodology

Chapter 2: Literature review

This chapter describes briefly concepts and theories used to inform this study

Chapter 3: Overview of Vietnam mobile phone market

This chapter introduces the Vietnam mobile phone market by using the PEST (political, economic, social and technology) and Competitive analysis (Five forces framework) MobiFone’s opportunities and threats are analysed

Chapter 4: MobiFone and its marketing strategy

This chapter introduces MobiFone and its existing marketing strategy Result of a significant survey done by MobiFone’s consultant are presented along with discussion to evaluate MobiFone customers’ satisfaction Base on that, strengths and weaknesses analysis is carried out

Chapter 5: Conclusions and Recommendations

This chapter provides a summary of conclusion and recommendations to improve MobiFone’s marketing strategy

CHAPTER 2

LITERATURE REVIEW

This chapter explores the basic concepts and approaches on how the research was developed and which theory was used to build the research framework

2.1 The need for strategy

The need for strategy arises because an organization needs to take into account of thousands of external variables, which could affect it It also needs to make choices over thousands of decision variables which are taken by many people under conditions of uncertainty and incomplete information Only through the existence of

a commonly understood strategy, an organization can achieve consistency in the decisions it takes across different organizational members and across time Hence, strategy could be seen as a heuristic, a set of guidelines or rules, which assist day- to-day decision making

Strategy sets parameters for an organization in terms of defining the business it is in and the way in which it will compete An important role of strategy is to give coherence and direction to the actions and decisions of an organization Through formulating and implementing effective strategies, the business performance can be enhanced In a changing world, detailed planning cramps_ initiative and opportunism, which may eventually result in rigidity Strategy also provides the stability of consistent direction and orientation while permitting the flexibility to adapt to changing circumstances Figure 2.1 illustrates the importance of strategy and the key role it plays in business

simple and agreed competitive Objective appraisal

objectives environment of resources

Figure 2.1: Elements of a successful

(Source: Craig and Grant, 1993)

Bisiness unit strategy which is a division, product line, or other profit center that cin be planned independently from the other business units of the firm In this context, business unit strategy is about how to compete successfully in a particular market The concerns are therefore what advantage over competitors can be

achieved; what new opportunities can be identified or created in markets; which

poducts or services should be developed in which markets; and the objectives of tke organization for example: long term profitability, market growth or measures of eficiency Michael Porter identified three generic strategies (cost leadership, dfferentiation, and focus) that can be implemented at the business unit level to create a:ompetitive advantage and defend against the adverse effects of the five forces

Operating or functional strategies are operational strategies, which are concerned with how the component parts of the organization in terms of resources, processes, people and their skills effectively deliver the corporate and business-level strategic

direction

2.3 Strategic Analysis

It is concerned with the understanding of strategic position of the organization in

terms of its external environment, internal resources and competences, and the

expectations and influence of stakeholders

2.3.1 External analysis

An external analysis involves scanning and evaluating various sectors outside the organization to identify positive and negative trends that may affect its performance The positive trends are opportunities that may improve performance These usually lead to market opportunities that the organization has not yet tried The negative trends are threats that may hinder the organization's performance The organization is an open system that interacts with and responds to its external environment There are two perspectives that strategists can take regarding the external environment:

2.3.1.1 PEST Analysis

Pest analysis (Table 2.1) is used for considering the environmental influences which affected the organization in the past and which may also affect in the future It involves identifying the political, economical, social and technological influences towards the organization

Table 2.1: A PEST analysis of environmental influences

I What environmental factors are affecting the organization?

2 Which of these are the most important at the present time? In the next few _ years?

Government spending on research Government and industry focus on technological effort

New discoveries /development Speed of technology transfer Rated of obsolescence

(Source: Johnson and Scholes, 2002)

2.3.1.2 Five forces analysis

For ai industry to be economically viable, one basic condition is to add value to its services The product produced needs to have a value to customers which is greater than ‘he cost of production If the industry becomes viable, the next step is to consiler how competition takes place and how to obtain competitive advantage in the irdustry The competition of the industry depends on its structure and Porter’s (198() competition model describes the structure very clearly

Michiel Porter’s ‘five forces of competition’ model can be used to analyze systenatically the structural features of an industry which determines the intensity

of competition and the level of industry profit Porter’s frame work (Figure 2.2) identifies five sets of competitive forces One set is within the domain of the industry itself which is the ‘competitive rivalry’ while the other four are outside the industry, namely, ‘threat of new entrants’, ‘bargaining power of suppliers’,

‘bargaining power of buyers’ and the ‘threat of substitute products’ Porter’s five forces model shares same similarities with the tools of environmental audit, like the PEST analysis

Suppliers —————> Existing firms ——— Buyers

Figure 2.2: The five forces model of competition

(Source: Adapted from Porter, 1980)

— Threat of new entrants

In most industries, new entrants cannot enter on equal terms with established firms

Principal sources of entry barriers are economies of scale, brand identity, capital requirements, product differentiation, switching costs, low-cost product design, government policy, proprietary learning curve, expected retaliation, access to distribution and necessary inputs

— Bargaining power of buyers

Buyers could be distributors, consumers or other manufacturing or service organizations Two primary factors important in determining strength of buying

power are buyers’ price sensitivity and relative bargaining power Other factors include the buyer concentration, buyer volume, switching costs, buyer information, buyer profits, substitute products, pull-through and total purchases

— Bargaining power of suppliers

Suppliers are powerful to the extent that they are large and concentrated and they supply an input for which there is no alternative and where switching costs are high for the firms in the industry Other factors could be differentiation of inputs, importance of volume to suppliers and presence of substitute inputs

— Threat of substitutes

If there are close substitutes available, there is a limit to the price that customers are willing to pay The threat of substitutes depends on three factors: the extent to which substitute products are available, relative price performance characteristics of the alternatives and costs which customers face in switching between substitutes In the mobile phone service industry, the product substitutes could be telephone fix services, public phone services or chatting

— Industry competitive rivalry

The main determinant of the overall state of competition and the general level of profitability is competition between the firms within the industry Factors determining the nature and intensity of competition between firms are industry growth, concentration and balance, high fixed costs, diversity of competitors, corporate stakes, informational complexity and exit barriers

2.3.2 Internal Analysis

The value chain is a graphical representation of a firm’s activities arranged in a special way to show its sequence of activities The value chain provides a powerful framework for identifying and appraising the resources and capabilities of a firm in parts It emphasizes the linkages between different activities, facilitates comparisons between firms regarding both individual activities and structuring activities The simplest chain activity is McKinsey business system value chain (See Figure 2.3)

Tecanology Manufacturing Distribution Marketing Service

Tie value chain is an important tool for understanding how a company positions

Marketing is a social and managerial process by which individuals and groups o)tain what they need and want through creating, offering and exchanging products

o value with others The definition of marketing stands on the following core

cmncepts: needs, wants and demands; products; value, cost, and satisfaction;

e:change and transactions; relationships and networks; marketers and prospects (ligure 2.4)

Figure 2.4: Core Concepts of Marketing (Source: Kotler, Ang, Leong and Tan, 1999)

pice, distribution outlets, sales force, service, advertising, sales promotion, research aid development

Marketing strategy comprises broad principles by which marketing management expects to achieve its business and marketing objectives in a target market It consists of basic marketing expenditures, marketing mix and marketing allocations (Xotler, Ang, Leong and Tan, 1999) In putting this to practice, firstly, the company neds to decide what level of marketing expenditures is necessary to achieve its O)Jjectives Since, companies typically establish their marketing budget at a p:rcentage of the sales goal Secondly, the company must decide how to divide the tctal marketing budget among the various tools in the marketing mix, since marketing mix is one of the key concepts in modern marketing theory

Narketing strategy also gives marketing managers a focused opportunity to think aout marketing strategy on three levels—markets, segments, and customers—and

tc examine how diverse firms are coping and competing effectively In order to uiderstand customer’s needs and wants and to achieve competition, marketing mix isan effective tool for a company

26 Developing a marketing strategy

Leveloping a marketing strategy involves two related tasks, selecting a target narket in which the company operates and developing marketing mix in each trget When you target a market you need to develop a differentiation and position strategy for that market Once the company decides its product positioning, it must iitiate new-product development, testing and launching Different decision tools aid controls are needed at each sate of the new-product-development process After lunch, the new product strategy will have to be modified at different stages in the poduct life cycle which are introduction, growth, maturity and decline Firthermore, strategy choice will depend on whether the firm plays the role of a narket leader, challenger, follower, or nicher Finally, strategy takes into account in cianging global opportunities and challenges

1]

2.6.1 Marketing targeting

A target market consists of a group of customers In targeting a consumer market, the company needs to segment the market first There are two bases of segmenting consumer markets, consumer characteristics and consumer responses These market

segments should be measurable, substantial, accessible, differentiable and actionable

Once the company has identified its market-segment opportunities clearly, it must evaluate various segments and decide how many and which ones to target

2.6.2 Marketing mix (4Ps)

Marketing mix is the set of marketing tools the firm uses to pursue its marketing objectives in the target market There are many marketing-mix tools McCarthy (Kotler, Ang, Leong and Tan, 1999) popularized a four-factor classification of traditional marketing tools called the four Ps: product, price, place (i.e distribution), and promotion Figure (2.5) shows the particular marketing variables under each P

2.6.2.1 Product

A critical marketing-mix tool is product, which stands for the firm’s tangible offer

to the market Product strategies are taken towards the product quality, design, features, branding and packaging and labeling

The company should use the product or service it provides as a marketing resource Providing a unique product or service gives motivation behind advertising As another option, the company could change or modify the product or service it provides Additional attention may be given to a product if it has changed color, size, or style while the service draws similar attention by modifying the services provided Since, sales and promotional opportunities are generated by product differentiation

Branding strategy is also very important in identifying and positioning a company’s product, since brand generates value and competitive advantage for a company (David, 1991) The most valuable brands have an equity that is considered as an important company asset

2.6.2.2 Price

Another important marketing-mix tool is price, the amount of money that customers have to pay for the product or service Pricing strategy could commensurate with the perceived value of the offer If not, buyer will turn to competitor’s product or service The most important influences of pricing strategy are consumer characteristics, organization characteristics, and competitive characteristics

The McKinsey (2001) purports that wrong pricing strategy can destroy corporate value faster than almost any other business mistake It was also observed that when industries are about to be deregulated, managers habitually adopt ill-conceived pricing policies that are almost guaranteed to damage their companies and erode services to customers and the community”

Therefore, in setting pricing strategies, it is important to identify the competitors’ prices, switching rates, customer value and cost to serve If these factors are

weighed and balanced correctly, the company could charge a premium rate comparing to its competitors and continue gaining profitability

2.6.2.3 Place

Place is another key marketing mix tool which includes all activities the company undertakes to make the product accessible and available to its target customers The marketing manager needs to identify, recruit, and link various marketing facilitators

so thit its products and services are efficiently supplied to the target market In order to do this it must understand the various types of retailers, wholesalers, and physical distribution firms and how they make their decisions

Distribution channel is a set of organizational units with manufacturers, wholesalers, and retailers, performing selling functions from a seller to the final buyer The structure of the channel is determined by three elements: the tasks and activiies performed by intermediaries, the types of distributors to be used, and the numter of each type of distributors

Chamel strategy transfers decision in a channel organization It consists of

defintion of channel structures, development criteria for evaluating channel

structires and the selection of an appropriate structure

2.6.24 Promotion Strategy

Promotion is the fourth marketing mix tool and includes all activities that the compiny undertakes to communicate and promote its products to the target market The company has to hire, train and motivate its sales people It also has to set up comnunication and promotion programs consisting of advertising, sales promotion, publi: relations and direct and online marketing

Good promotion strategies increase brand awareness, consumer’s knowledge of prodict and brand, short-term and long-term sales, change consumers attitude about brand build corporate image, brand image and positioning

The ibove 4Ps represent the seller’s view of the marketing tools for influencing buyes From a buyer’s point of view each marketing tools is designed to deliver the custoners benefit If a company could meet its customer needs economically and

conveniently with effective communication, then it could be a winning company Robert Lauterborn (Kotler, Ang, Leong and Tan, 1999) suggested that the 4Ps correspond to the customers’ 4Cs as follows:

2.6.3 Additional marketing mix strategies

T-aditional 4Ps marketing-mix approaches are well structured for goods and the additional Ps are required and useful for the service business The additional Ps consists of people, physical evidence, and process

2.6.3.1 People

Ir business, people provide most of the services If you could hire, train and motivate the right employees at the right place, you could make a huge difference

on customer satisfaction and on the service you provide Ideally, employees should

be well trained to exhibit competence, a caring attitude, responsiveness, initiative, poblem solving ability and goodwill

26.3.2 Physical evidence

Tiere are very few “pure service” situations where physical evidence plays no part

ir a market exchange Physical evidence and atmosphere could be an important elzment in helping to create the image of a service organization and in presenting its services

25.3.3 Process

Tie behavior of people in a service organization and how the service is delivered to iti customer is undoubtedly important Cheerful, attentive and concerned staff can help in facilitating the customers’ problems For example, having to queue for savice or softening the blow of the breakdown of technology involved in service poduction can spell a difference in aggravating or easing out customers’

irconvenience

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2.7 Customers’ behavior

Customer behavior can be defined as behavior that customers display in searching, purchasing, using and evaluating of products and services that satisfy their needs The study of customer behavior is how individuals make decisions to spend their available resources, such as money, time and effort on related items It also investigates what, why, how, where and frequency of the purchase

Talking out with customers could make a ground-breaking discovery of what they are and what is most important for them which could eventually lead to better customer understanding It is helpful to ask them where improvements can be made and take advantage on their suggestions and comments By this way, customer confidence could be gained on the product or service

2.8 Customer satisfaction

Satisfaction is a function of perceived performance and expectations If the performance falls short of expectations, the customer is dissatisfied If the performance matches their expectations, the customer is satisfied If the performance exceeds expectations, the customer is highly satisfied or delighted Whether the buyer is satisfied after purchase depends upon the offer’s performance

in relation to the buyer’s expectations Satisfaction is defined as a person’s feelings

of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to the person’s expectations (Kotler, Ang,

Leong and Tan, 1999)

Many companies are aiming for high satisfaction because customers who are just satisfied will still find it easy to switch suppliers when a better offer comes along Those who are highly satisfied are much less ready to switch High satisfaction or delight creates and emotional affinity with the brand, not just a rational preference, and this creates high customer loyalty

CHAPTER 3

MOBILE PHONE MARKET IN VIETNAM

3.1 Country Analysis

The main objective of the country analysis is to understand the environment for the

telecommunications market and the main drivers of demand for mobile communications and services

Vietnam is divided in 8 regions with 64 provinces The country’s population is expected to reach 90 million people by 2012

North Central 16% North West

in the early 1990s to less than 20% of the total population

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Nominal GDP per Capita

1.300 1.150

1.910 1.710

Figure 3.2: Nominal GDP per Capita in Vietnam

(Source Pyramid Reasearch, 03/2008)

As a result of this rapid economic growth, high consumer price inflation is limiting consumer spending for additional products and services Increasing domestic demand drove up inflation towards 8.4% in 2007 and it is expected to reach a record high with 2008 Nevertheless the average yearly inflation rate is expected to stay below 10% in the next years (as shown in the Figure 3.3) Despite the decreasing price level for telecommunication services due to increased competition, high inflation will have a negative impact as it is limiting the overall budget for private and business consumption

Figure 3.3: Consumer Price Inflation in Vietnam

(Source: Pyramid Research, 03/2008)

The population age distribution reveals that Vietnam has a very young population with about 43% of the people younger than 20 years as shown in the Figure 3.4 Although this group is providing rather low ARPU (Average Revenue Per User) today, it represents a huge potential in the future Taking this age structure with young Vietnamese population into consideration, the demand for mobile telecoms services will grow rapidly in Vietnam

Vietnamese Population Age Distributions

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Top 10 Provinces (Population in Thousands)

Figure 3.6: Share of Urban Population in Vietnam

(Source: Statistic Handbook of Vietnam)

While capacity needs for urban areas will increase with population uptake, countrywide coverage remains important in order to serve many customers A high population density requires high network capacity for voice and data services

Another result of this urbanization trend is an increase of communication needs

The separation of families and friends due to people leaving the rural areas generally leads to an increased desire to communicate thus stimulating

telecommunication markets

3.2 Market Analysis

After understanding the framework of the country analysis, the market analysis is going to outline in a next step the specific framework for the business and trading

plans for mobile telecom services

In the beginning of 2004, the mobile penetration in Vietnam was only at 4% Since then, the market has grown exponentially The mobile penetration has increased by 90% during the year 2006 and 330% by the year 2008

Due to the strong growth in the mobile market, the penetration in Vietnam did catch

up to its neighboring countries The fixed line penetration is comparable to neighboring countries The Figure 3.7 shows the penetration of telephony services

Figure 3.7: Fixed and Mobile Penetration (Source: Pyramid Research, 03/2008) The GDP/capita is correlated with the current mobile penetration in each country Compared to its peer group in terms of GDP/capita (China, Indonesia, India and

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Pakistan), the Vietnam mobile penetration is higher than in its GDP/capita peer group (see Figure 3.8) This means the mobile market is more penetrated in Vietnam and is expected to reach about 70% of the population This is the result of the rapid mobile market growth in Vietnam which leapfrogged countries in the GDP/capita peer group within the last two years

GDP per Capita vs Mobile penetration in Asian countries, 2008

to cool down and therefore the churn rate will slightly fall in the long term

Figure 3.9: Churn Rate Development (Source: Pyramid Research, Asia-Pacific Mobile Forecast Q3/2008)

The blended mobile ARPU in Vietnam is in line with comparable countries and is expected to slightly decrease within the next years Increasing competition is expected to cause a further pressure on the price level of mobile services

Average Revenues per Subscription Development (in US$)

7.29 7.57

203 6.28 6.49

PH IN VT ID TH CH MA SG

Figure 3.10: Average Revenue per Subscription Development

(Source: Pyramid Research, Asia-Pacific Mobile Forecast 03/2008)

3.3 PEST Analysis

3.3.1 Political factors

Vietnam is the most politically stable in the region with the dominant of Communist Party And Communist Party is still dominant for the long coming time However, the country leaders have been younger and higher education than that in the past This new generation of country leader will move country toward the modernization, industrialization speedily and more effectively but less corruption Vietnam political environment is favorable for investment project in term of capital security and long

run business

3.3.2 Legal factors

Previously, the Ministry of Information & Communication (MIC) regulates all telecoms charges for services provided by state-owned and private companies Currently, the Vietnamese Government has taken a small step towards relaxing its stranglehold on the country's telecommunications industry with a decision to allow smaller providers to set their own prices The new rule, known as Decision

No 217/2003QD-TTg, gives post and telecommunications operators with market shares of less than 30% the right to set their own prices That means, a new operator although is unfavorable in market share, still takes advantage of that to increase market share by pricing policy In Vietnam, mobile phone communication cost is quite high in comparison with average population income Therefore, calling cost is always a big consideration when choosing Services Provider, especially to new users By the way, mobile phone services market is still booming, more and more new providers jump in market and all of them try attracting new subscriber by offering lower price This makes MobiFone more difficult to attract new customers

or we can say more difficult to keep market share

Effective from Ist of July 2004, a part of population will get higher income based

on the new income tax policy This policy is a remarkable change from Finance

Ministry and Government, this will create a new consuming trend, and the telecommunication industry will take advantage in gaining higher revenue

The free trade zone joining is becoming globally, and Vietnam finds also that is the way for development The road to AFTA of Vietnam is nearly finish, the Government still protect some industry including telecommunication, but after joining AFTA new comers will penetrate the market with huge operation capital, advanced technology, the company will be at front of competition battle Obviously,

to retain market share, improving service quality must be a long run strategy In the new business environment, the company need taking advantages of being first - in - market mobile phone services provider, long time operation and continue providing high quality service

3.3.3 Economic factors

In recent years, Vietnam has obtained a great achievement in economic and social development Its GDP increases by 7% per annum The revenue generated from telecommunication industry has achieved highly as 40% per annum Thanks to the open door policy, transform administrative procedure and the increasing volume of

Foreign Direct Investment (FDI), Vietnam’s future economic trend from 2005-2010

is expected to be stable At present, the penetration rate of mobile communication is 5% which means the market has a large opportunity to grow in the future Competition is increasing in the mobile industry, which will stimulate the expansion

of the network that will bring benefit to customers

3.3.4 Social factors

Since 2001, due to the improving living conditions result from growing economic, users of mobile phone have been expanding Previously, the mobile phone users were middle class and using for their own business purposes Currently, the users are so even younger including white-collar, blue-collar class, students, ete for

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keeping in touch purposes The mobile users now not only use for calling, but they have the desire to share their happy moments, pictures etc, via their handset and to identify themselves by types of mobile phone like in case of automotive These trends become very favorable to mobile communication operators but the competition still is not so easy

3.3.5 Technology

The main mobile phone systems in Vietnam are Digital GSM (Global System for Mobile communications) network and CDMA 2000 - 1x technology (Code Division Multiple Access)

Currently, the mobile phone network covers Hanoi, Ho Chi Minh City and most of main towns of 64 provinces

The use of mobile phone is more useful than the fixed telephone because it provides quicker access to people and information without geographical and time limitations Besides, it helps to improve business performance and it is useful when fixed phone

is not working New applications such as text message, Internet access (WAP, GPRS), e-mail, international roaming and multi media messages bring much convenience to people Furthermore, expanding and buying the service also can be done within a short period of time and less complexity compared to fixed phone These reasons prove that mobile phone technology has increased many folds around the world

Starting from April 2009, Ministry of Information and Communications has allowed MobiFone to deploy 3G network in Vietnam Providing services based on 3G technology will open a door for a potential market like Vietnam 3G services not only bring revenue to MobiFone but also create an opportunity for the company to expand the market, confirm position, increase customer satisfaction and attract potentials Moreover, 3G is a solution to help MobiFone overcoming existing difficulties causing by the crisis in economy

3.4 Competitive Analysis (Five forces)

The competitiveness of mobile phone industry is analyzed in order to find out its attractiveness According to Porter, a firm must be analyzed in relation to its industry Factors outside the industry tend to influence the firm in the industry The profitability and attractiveness of an industry is dependent on the level of competition Competition in an industry originates from industry structure and goes well beyond the behavior of individual competitors

Bargaining Power High "Y 5 | High Bargaining

Suppliers > Existing firms < Power Buyers

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usage of the spectrum by issuing licenses for using a specific frequency band The scarceness of frequency spectrum limits the number of network operators in a specific geographical market All most the frequency band are licensed for Viettel

(their services have just launched since October 2004), Hanoi telecom and EVN

Telecom company of EVN (Vietnam Electricity) Due to the licensing regulations there are only two ways to enter the market for mobile network operations An interested company can either wait until the government issues additional licenses,

or acquire a company with a license

Access to capital: The second barrier is capital For new entrants, the cost of the license, infrastructure and customer acquisition must be funded well in advance of positive earnings External funds and supplier credits may be required for up to four years from the start of operations Therefore, large financial resources are required both for building the mobile network and capturing market share from incumbent operators The need for large investment becomes a barrier of entry as it increases the risk and limits the pool of likely entrants

From now, due to high entry barriers as analysed, the threat of new entrants is low

3.4.2 Threat of substitute products is low

Paging is not a substitute: A paging/messaging device allows mobility, but fails in simultaneous “two- way” communications All paging services were stopped supply

in Vietnam by August 2004

Satellites are a substitute, but are prohibitively cost: The massive capital expenditures are required to put networks into place The pricing of service is significantly higher than that of cellular to earn a respectable return Hence, satellite phone systems are expensive to build and far less competitive than conventional mobile systems and there are only a few providers for choice, such as Iridium and Inmarsat Great strides have been made in making these phones increasingly portable Though briefcase models are available, is just about that all of them need

an oversized antenna.

Fixed line phone networks fail in mobility: Furthermore, in many cases, the lack

of landline infrastructure makes mobile telephony a cheaper alternative Thus, mobile is actually a cheaper substitute and even a threat to fixed line

3.4.3 Bargaining power of customers is high

Buyers compete with the industry by forcing down prices, bargaining for higher quality or more services The telecommunications infrastructure of Vietnam is not well-developed compare to Europe or Singapore, leading to a shortage of capacity, especially in developing markets

The demand for mobile phone is very high The basic service, voice transmission, is standardized and is the same for all operators However, the value-added services offered by the operators increase the degree of differentiation A higher usage of value-added services implies a lower bargaining power There are differences in the bargaining power among the segments, the ultra-demanding customers are mainly business people as they have relatively high income and thus higher total living expenses The low end users consider their mobile phones essential to improving their quality of life and to their suitability of life They have lower income but a higher usage and therefore they have a stronger bargaining power than the ultra- demanding customers There are differences in the bargaining power among segments where the business users have the weakest bargaining power and low end users have the strongest

The above discussion adds up in a strong bargaining power of the buyers in general

3.4.4 Bargaining Power of Suppliers is high

Equipment manufacturers: provide the infrastructure and handsets to create the network, and are represented by a very limited group of companies to supply the high demand of the industry

The equipment is quite standardized due to the inter-operability requirements Therefore the operators can open the bidding to get the best deal There are,

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however, differences in the vendors Offers are in terms of financial support, service and competence and this differentiation among the vendors increases their bargaining power, which is opposite to the operators Suppliers can use bargaining power over participants in an industry by threatening to raise prices and/or by making them to reduce the quality of purchased goods and services

A few suppliers dominate the network equipment industry and the group is more concentrated than the operators There are currently no threatening substitutes to the network technologies and suppliers

3.4.5 Intensity of rivalry is high

In general, rivalry among competitors takes the form of price competition, advertising battles, product introductions, and increased customer services High fixed costs generally create strong pressures for all firms to fill capacity, which often lead to rapidly escalating price-cutting when excess capacity is present (Porter, 1980) This is also the case for the mobile industry in Vietnam Rivalry occurs because one or more competitors either feel the pressure or sees the opportunity to improve position In most industries, competitive moves by one firm having noticeable effects on its competitors and thus may incite retaliation or efforts

to counter the move Those firms are mutually dependent (Porter, 1980)

Average annual growth rate of mobile phone users in Vietnam is about 40% - 60%

in the last 5 years, and the industry is expecting 10 million customers by 2007 Comparing to other countries with similar economic development, the penetration rate is considered low (Mobile penetration in Vietnam is about 5% in comparison with over 30% of China), implying that the mobile phone industry in Vietnam has a great potential to grow in the future According to Michael Porter (1980), slow industry growth increases the competition for market share In addition, the growth

of mobile phone industry in Vietnam cannot be characterized as slow

3.5 Major competitors analysis

There are currently seven mobile operators in Vietnam Thereof four operators are major competitors to MobiFone offering their services to customers in Vietnam Beside MobiFone, Vinaphone and Viettel dominate the competitive market landscape accounting for a combined market share with more of 90% in September

2008 Viettel launched its service in 2004 and became market leader in terms of connections Vinaphone and MobiFone have seen their market share eroding due to the aggressive market approach of Viettel S-Fone remains clearly the fourth player and is slowly gaining momentum The distribution of the market share is shown in the Figure 3.11

Mobile Market Share in 09/2008

strategy and market positioning as well as pricing of each competitor to MobiFone Viettel is a fully integrated telecommunications provider offering fixed voice, broadband, mobile and international services with their mobile division being market leader It has been the fastest growing mobile phone network decisive