Vietnam telecommunications report q1 2016

BMI Industry ViewBMI View: Vietnam has experienced strong uptake of 3G and fibre broadband in recent quarters, demonstrating the rising inclination towards both mobile and fixed data use

Q1 2016 www.bmiresearch.com

VIETNAM

TELECOMMUNICATIONS REPORT

INCLUDES 5-YEAR FORECASTS TO 2019

INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: December 2015

© 2016 Business Monitor International Ltd

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copyrighted in the name of Business Monitor International Ltd, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

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of the publisher

DISCLAIMER

INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: December 2015

© 2016 Business Monitor International Ltd

All rights reserved

All information contained in this publication is

copyrighted in the name of Business Monitor International Ltd, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

in any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 8

Industry 8

Industry Forecast 9

Latest Updates 9

Structural Trends 9

Table: Telecoms Sector - Historical Data & Forecasts (Vietnam 2012-2019) 13

Industry Risk/Reward Index 15

Table: Asia Pacific Telecoms Risk-Reward Index - Q116 17

Market Overview 19

Market Drivers & Trends 19

Mobile 20

Table: Vietnam Mobile Market ('000) 21

Table: Value-Added Services 24

Wireline Voice & Broadband 25

Pay TV 29

Regulatory Development 33

Regulatory Overview 33

Table: Vietnam - Regulatory Bodies And Their Responsibilities 33

Legislation And Market Liberalisation 33

Regulation 34

Licensing And Spectrum 34

Competitive Landscape 37

Table: Key Players 37

Table: Vietnam Mobile Market Overview 37

Company Profile 38

Vietnam Posts & Telecommunications (VNPT) 38

MobiFone 43

VinaPhone 47

Viettel 51

S-Fone 56

FPT Telecom 59

Demographic Forecast 62

Table: Population Headline Indicators (Vietnam 1990-2025) 63

Table: Key Population Ratios (Vietnam 1990-2025) 63

Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 64

Table: Population By Age Group (Vietnam 1990-2025) 64

Table: Population By Age Group % (Vietnam 1990-2025) 65

Glossary 67

Table: Glossary Of Terms 67

Methodology 69

Industry Forecast Methodology 69

Sources 71

Risk/Reward Index Methodology 71

Table: Risk/Reward Index Indicators 72

Table: Weighting Of Indicators 73

BMI Industry View

BMI View: Vietnam has experienced strong uptake of 3G and fibre broadband in recent quarters,

demonstrating the rising inclination towards both mobile and fixed data use We now hold a more positive outlook on the adoption of premium services and advanced networks, although the government's

restrictions on 4G rollouts could restrict operators' abilities to meet rising data needs in the short term.

4G Rollout Restrictions - A Downside To Technological Infusion

Vietnam Mobile Market Forecsts

Vietnam - 3G & 4G phone subscribers, '000 Vietnam - Cellular Mobile Phone Subscribers, '000

0 50,000 100,000 150,000 200,000

f = BMI forecast Source: VNTA, BMI

Latest Updates & Industry Developments

■ We are forecasting 156.299mn mobile subscribers by end-2019, for a 162.1% penetration rate Out of thisnumber, 43.653 will be 3G/ 4G connections However, we highlight the figure is distorted by inactiveprepaid subscriptions and multiple SIM ownership

• Viettel has installed approximately 200 LTE-enabled base transmission stations (BTSs) in the residentialarea of Vung Tau City, Ba Ria City and Long Dien District after being granted permission by thegovernment to conduct 4G trials Rising data consumption could increase subscribers' appetite for fasterdata transmission speeds through 4G, and Viettel is keen to be the first operator to move into the area

Industry

Telecoms Industry SWOT Analysis

Strengths ■ Highly competitive mobile sector dominated by the state

■ Fixed-line penetration levels and internet user rates are high in major urban centressuch as Ho Chi Minh City, Hanoi, Danang and Haiphong

Weaknesses ■ Dependency on prepaid services exerts strong downward pressures on average

revenue per user (ARPU) levels

■ Broadband growth continues to be highly dependent on DSL

■ Digital divide: many rural areas have little or no access to telecommunicationsservices despite advanced networks being rolled out in larger cities

Opportunities ■ Government approach to liberalise the telecoms industry could see the entrance of

more foreign investors

■ Divestiture of MobiFone from Viet Nam Posts and Telecommunications (VNPT) , andthe former's subsequent planned Initial Public Offering (IPO) by 2016 should providethe impetus for operators to launch better quality services

Threats ■ Geographical challenges to network deployments; nearly one-third of Vietnam's

villages lie in mountainous areas without access to telecommunicationsservices.Number of inactive mobile subscribers is unknown in what is still a marketthat lacks transparency and reliable data

■ The Ministry of Information and Communication (MIC) will hold off 4G licensing until2017; delayed introduction of 4G could cause Vietnam to trail behind its peers

Industry Forecast

BMI View: Positive growth rates in 3G and FTTH subscriptions have enabled us to amend our five-year

forecasts upwards MobiFone's privatisation will bring about more competition in the mobile sector, which

we believe will drive operators to improve the quality of their services - painting an overall positive picture for the market However, the government's recent decision to delay the launch of commercial 4G services till 2017 could mean that Vietnam is unable to exploit the full demand for mobile data over the next couple

of years, and fall behind its regional peers in technological advancement.

Latest Updates

■ 3G subscriber growth picked up over the first three quarters of 2015 and has led us to revise our subscription forecasts upwards this quarter We believe that 3G subscribers will reach 35.914mn by

end-2015, and reach 43.653mn by end-2019 - accounting for 27.9% of all mobile subscriptions

■ We have revised upwards our fixed broadband subscription forecasts as well, in light of

faster-than-expected take-up, especially in fibre broadband According to VNTA data, FTTH connections grew by 380.7% y-o-y to 2.9mn in Q315 Despite this, fixed broadband penetration reached just 7.7% in Q315, underscoring the potential for strong subscriber growth to continue throughout our 5-year forecast

period We forecast 7.20mn fixed subscriptions by end-2015, rising to 9.05mn for a penetration of 9.3%

In June 2014, government-owned Vietnam Posts and Telecommunications (VNPT) sold off its mobile unit MobiFone with a view to entice outside investment BMI believes MobiFone's impending IPO will

boost competition in the market as well, providing upside to the 3G market

Strong competition between operators revolves around price, and aggressively low tariff rates have pushedthe Vietnamese mobile industry towards market saturation and declining profitability Further evidence of a

growth slowdown includes operators such as Viettel and VNPT looking at overseas markets for additional

growth opportunities - VNPT's MobiFone opened a representative office in Myanmar in December 2012

We do not expect the Vietnamese mobile market to return to double-digit growth While rural regionspossess growth opportunities, the return on investment is comparatively low due to the need for the highest

capital expenditure and lower purchasing power Instead, we expect operators to focus on generating higherrevenue from existing subscribers by upgrading customers to more expensive services such as 3G Thechange in emphasis is partially due to market saturation and a competitive landscape that has seen a number

of investors leaving, which leaves the remaining operators with greater market shares However, we

highlight that the headline figure is distorted by inactive prepaid subscriptions and multiple SIM

We believe that VNPT and Viettel have significantly higher ARPU given their higher market share

Nevertheless, we estimate that the average ARPU level for the Vietnamese market was in the region ofUSD4.1 at the end of 2012, given the strong level of competition, high dependency on basic 2G services

and the occasional aggressive pricing promotion Both MobiFone and VinaPhone raised their 3G tariffs by

25% in April, to bring their prices on a par with competitor Viettel, but we do not believe this will have asignificant impact on ARPUs in the long run We envisage ARPU levels in Vietnam to continue to declineover the next five years Local media reports that 3G tariff rates are lower than that of 2G services reaffirmsour view that competition remains intense Local media reported in January 2013 that MobiFone haslaunched a 3G service package that costs only VND15,000 (USD0.7) a month

We do not anticipate that the launch of 4G services will immediately lead to higher ARPUs in the country.Both Viettel and VinaPhone, it would appear, will begin offering 4G data services without any additionalcost to the consumer It is, nevertheless, possible that the demand for data consumption will grow that mayentail a higher ARPU However, we do not envision this to be significantly strong in the short term -especially with the government's plan to withhold 4G licensing and limit network investments during theservice's trial period

Industry Trends - Mobile

(2012-2019)

Cellular Mobile Phone Subscribers, '000 (LHS) 3G & 4G phone subscribers, '000 (LHS) Mobile Phone Subscribers/100 Inhabitants (RHS)

2012 2013 2014 2015f 2016f 2017f 2018f 2019f 0

50,000 100,000 150,000 200,000

130 140 150 160 170

f = BMI forecast Source: VNTA, BMI

Wireline Voice & Broadband

The fixed-line industry is expected to continue its long-term decline trend driven by mobile substation andVoIP usage The latest available data from the General Statistics Office (GSO) registered 14.9mn fixed-linesubscriptions in December 2012, down from the 15.5mn subscriptions in 2011

Our scenario for Vietnam's fixed-line market is that the major players - VNPT, Viettel and EVN Telecom

(which has since merged with Viettel) - continue their rural expansion projects to sustain their fixed-linesubscriber bases VNPT is already working to boost subscriber loyalty by offering single billing for bothfixed-line and broadband services However, we believe that the declining demand is convincing them tochannel their capital to more profitable segments such as mobile and broadband Further, the traditionalfixed-line voice service is also under threat from cheaper alternatives such as VoIP The declining

subscriber figures indicate the market's

Conversely, the number of fixed broadband subscribers increased by 16.5% y-o-y from 5.153mn in 2013 to6.001mn in end-2014 VNPT and FPT Telecom together account for more than 80% of the fixed broadbandmarket This is a pick-up from the 7.9% growth a year earlier.

Despite Vietnamese telecoms companies continuing to deploy broadband services such as fibre-to-the-x,affordability and coverage remain key concerns in the emerging market Demand for traditional fixedbroadband services is increasingly under threat from mobile alternatives due to a lower cost structure While

we believe there will be limited growth potential for the fixed broadband industry in Vietnam in the nearfuture, we retain an optimistic view in light of Vietnam's growing affluence and expanding middle class Infact, fibre-to-the-home (FTTH) subscriber numbers have demonstrated three-digit y-o-y growth in

2014/2015, and achieved 3.1% penetration in September 2015; accounting for almost half of all fixedbroadband subscribers in Vietnam In addition, next-generation mobile technologies LTE and WiMAXcould cannibalise demand for fixed broadband solutions, companies could generate consumer interest byintroducing bandwidth-intensive services, such as IPTV, or target businesses by offering bundled packages,such as cloud solutions

Although the internet user penetration rate is expected to be approaching saturation in major cities andtowns, rural Vietnam remains comparatively untapped as a result of consumers' lower purchasing power.However, expansion into these areas is costly and the return on investment is not as attractive Mobileinternet services are a more efficient way to capture customers in rural areas

We expect the growth rate of the Vietnamese broadband market to decline in the next few years as

consumers opt for mobile alternatives That said, declining prices of products and services should help thesector to grow by an average of 5.2% between 2013-2019 to bring the total number of fixed broadbandsubscribers in Vietnam to 7.9mn by 2019

Industry Trends - Wireline Sector

(2012-2019)

Broadband internet subscribers, '000 Main telephone lines in service, '000

0 5,000 10,000 15,000

e/f = BMI estimate/forecast Source: BMI, VNTA, operators

Table: Telecoms Sector - Historical Data & Forecasts (Vietnam 2012-2019)

Main telephone lines

in service, '000 14,900.0 13,100.0 12,183.0 11,634.8 11,402.1 11,196.8 11,017.7 10,863.4Main Telephone

Cellular Mobile Phone

Subscribers, '000 135,682.0 123,736.0 136,148.0 140,232.4 144,860.1 148,771.3 153,234.5 156,299.2Mobile Phone

Subscribers/100

3G & 4G phone

subscribers, '000 16,816.0 19,685.0 28,731.0 35,913.8 37,709.4 39,594.9 41,574.7 43,653.43G & 4G market, % of

Broadband internet

subscribers, '000 4,775.0 5,153.0 6,000.5 7,200.6 8,280.7 8,694.8 8,868.7 9,046.0

Telecoms Sector - Historical Data & Forecasts (Vietnam 2012-2019) - Continued

Industry Risk/Reward Index

BMI View: BMI's Telecoms Risk Reward Index for Asia Pacific remained largely unchanged this quarter.

Industry Risk scores were not amended this quarter as the regulatory climate in the APAC countries remained constant There have been several minor changes to Country Risk/Reward and Industry Reward scores this quarter, although none have had the effect of altering the country's overall Telecoms Scores The exceptions are Taiwan, which rose one position to tie with South Korea in 6th place, and Fiji, which fell by one place to match Myanmar's unchanged score at 20th place in the rankings.

Country Risks/ Rewards

Laos, which is ranked last out of the 28 countries in terms of overall telecoms score, experienced an

improvement in Country Rewards score from 39.0 to 41.3 as a result of strong GDP growth, which BMI's

country risk team forecasts to average 6.5% per year from 2016 to 2024 thanks to sustained FDI inflows.However, the country's poor business environment and weak fiscal position pose downside risks to growth,and the country is in our bottom five in both Industry Risks and Rewards

Indonesia, which holds its position from last quarter at 11th place, had its Country Risk score increase from58.4 to 59.2 this quarter Its Economic Policy Package III will address electricity tariffs and interest ratesthat will benefit business activity in the telecoms sector The downside risk to this is that the decentralisednature of the Indonesian government poses challenges in policy implementation and the impact of thesestimulus measures will be limited in the short-term.Indonesia's high subscriber numbers and growth informsits Industry Rewards score of 55.0, one of the highest in the region However, the prevalence of prepaidsubscribers points towards multiple SIM ownerships, which means that churn rates are high whilst ARPUsare limited

Hong Kong's Country Risk score improved on the back of a robust economic performance in Q215, leading

to real GDP growth of 2.6% in H115, despite China's stock market crash and weak external demand

environment However, our country risk team believes that downward pressures will intensify in H215 andhas downgraded its 2015 and 2016 GDP forecasts Hong Kong ranks in third in our telecoms ranking, asfavourable economic, political and regulatory environments facilitate investments into the telecoms sector

On the other hand, Taiwan's Country Risk scores fell from 73.1 to 72.2, as political instability has weighed

on investor confidence, which will choose to postpone their investment decisions until the elections have

concluded Similarly, Fiji's downgraded Telecoms Score was the result of a fall in Country Risk score by

4.2 points to 34.7 because the lack of judicial independence (see 'Enforcement Risks To Persist Despite Political Stability', September 28).

Nepal's Telecoms Risk score also fell by one point this quarter, as a result of a decrease in Country Riskscoring The country's prolonged political instability (which our Country Risk team gives a 43.1 score onthe short-term political risk index, below the regional average of 69.7) and the earthquakes after-effectshave resulted in a less than ideal business climate and subdued consumer demand The combination of thesefactors have informed our Country Risk team's forecast that real GDP will contract by 4.4% in FY2015-16(July 16, 2015- July 15, 2016)

Developing APAC Countries - Industry Rewards Will Rise With Economic

GrowthIndustry Risk and Reward Scores (Q116)

Source: BMI

Industry Risks/ Rewards

Malaysia's Industry Rewards score fell from 50.0 to 47.5 this quarter as high mobile penetration (125%)coupled with falling blended ARPU - brought about by price competition in the prepaid segment - limitsprospects for organic growth Instead, operators will have to look towards migrating prepaid subscribers(79% of the mobile market in Q215) on to postpaid plans to raise blended ARPU, and bundle in highervalue products and services

Singapore's Telecoms Score fell by 1 point to 66.2 (67.3 previously) as a result of a downgraded Industry

Risk score from 50.0 to 47.5 The saturated mobile market, penetration of 152%, provides little opportunityfor subscriber growth In July 2015, the Infocomm Development Authority (IDA) released incentives such

as discounts on the upcoming spectrum auctions in early 2016 and interconnection from the incumbents tolower the barriers to entry of a fourth mobile operator into the market If the licensing of a new operator issuccessful, there is a high chance that it will lead to downward pressures on ARPU; key contender

MyRepublic had the same disruptive effect on the fibre market.

Taiwan was the only country this quarter to experience a rise in ranking as a result of a boost in telecomsscore, which rose by 1.4 points to 61.8 This improvement was a result of a higher industry rewards score of55.0, which offset a slight decline in Country Risk score Taiwan's operators saw a reversal in the generaldeclining ARPU trend, as a result of subscribers migrating on to 4G networks, which yielded higher ARPUs

for operators (see 'Chunghwa Investments Will Unlock Premium 4G Market', September 22).

Table: Asia Pacific Telecoms Risk-Reward Index - Q116

Asia Pacific Telecoms Risk-Reward Index - Q116 - Continued

Market Overview

Market Drivers & Trends

As an emerging market, Vietnam has a mobile penetration rate higher than its regional peers This is due tothe aggressive price competition among operators in the domestic mobile market Consequently, there hasbeen significant downward pressure on the sector's average revenue per user (ARPU), which only accountsfor about 25% of the regional average

This is the result of a predominantly prepaid market, which can be attributed to low consumer spendingpower Vietnam's mobile operators have been forced to compete aggressively with price and variouspromotions in order to win customers and maintain market share, while the regulator has done little toprevent further escalation in competition or balance the skewed competitive landscape, which is dominated

by state-owned companies Instead, the regulator was reported to believe that domestic players are

financially strong enough to support growth in the market We believe this has led to complacency andunwillingness to invest in new products and services

3G adoption in Vietnam has been lukewarm thus far, accounting for 21% of the total mobile market in

2014 Underpinning this is the poor network infrastructure in the country In terms of the competitivelandscape, the Vietnamese government has started to drive out weaker players with its latest effort seeing

Vietnam Posts and Telecommunications Group (VNPT) to divest of MobiFone, transferring its

ownership to the Ministry of Information and Communications Strong competition and aggressively lowtariff rates have also pushed the Vietnamese mobile industry towards greater market saturation and

declining profitability However, MobiFone's initial public offering (IPO) could provide a major upside forthe sector by encouraging investment into improving services

Vietnam Mobile Market Shares (%)

2011-2014

Source: BMI, VNTA, Operators

Table: Vietnam Mobile Market ('000)

In April 2013, both MobiFone and VinaPhone raised their 3G tariffs by 25% to match Viettel's prices Themove has been driven by subscribers increasingly opting for over-the-top (OTT) alternatives, which channelrevenues away from operators with alternative applications for messaging, talking and sharing data We donot believe that this rise in prices will deter subscribers from using OTT applications, and that operators andOTT providers can coexist and develop mutually beneficially arrangements.

Vietnam's regulator has again delayed 4G licensing till 2017, and limited the rollout of trial 4G services toselected cities, owing to low 3G network quality and consequently, uptake, in the country The Ministry ofInformation and Communications permitted operators to run trials of their 4G services in Q415 and leading

operators Viettel and Vinaphone have been keen to rollout trials services Given the lower costs for

transmitting mobile data over 4G, we believe that this restriction by the government might pose downsiderisks to operators' ability to tap rising data demand for revenue growth

As at end-2014, the top three 3G players were Viettel, MobiFone and VinaPhone, with market shares of52.2%, 23.4% and 21.9% respectively

Vietnam 3G Market Share (%)

Q414

Source: VNTA

Mobile broadband is attractive as Vietnam has a weak and unreliable fixed-line infrastructure, which makesconnecting to the internet difficult According to VNTA, Viettel and VNPT had 3.06mn mobile broadbandsubscribers at end-2014; mostly dedicated 3G data cards

The relatively low level of fixed network infrastructure in Vietnam has meant that wireless technologies aredeveloping as an important platform for delivering fixed broadband services The two most importanttechnologies are WiMAX or LTE, both of which will be used to offer 4G mobile broadband services This

means that the government's decision to delay the launch of 4G services to 2015 at the earliest will

effectively put the brakes on network development over the short term

Table: Value-Added Services

Jan-15 Vietnam's government has approved plans to split state-owned Vietnam Posts and Telecommunications(VNPT) into three entities Jul-14 Vinaphone introduced a new third-generation mobile telecommunications standard, called DC-HSDPA May-13 VinaPhone launched a Busy SMS services, which helps subscribers decline calls in busy periods andmanage their time better Apr-13 MobiFone launched a prepaid pack, Q-Kids, aimed at the under-15s.

Feb-13

Viettel rolled out an array of mobile phone packages and features targeted at the country's ethnic

minorities The operator designed a variety of products for these ethnic minority customers, along with a switchboard that offers free inquiry services in Thai, Tay-Nung, Hmong, Dao, Gia Rai, Khmer and Ede in a bid to tap into this underserved market segment The operator is also providing services such as farming guidance, navigation services, storytelling and music, in minority languages.

Jan-13

Viettel launched a mobile banking service, BankPlus, in collaboration with An Binh Commercial Joint Stock Bank (ABBANK) The services will allow customers to carry out banking transactions on their mobile phones Once the service is activated, a maximum VND200mn can be transferred to other ABBANK accounts on daily basis by phone users The service does not require additional application installation and is available on all models of mobile phones.

Jan-13 MobiFone launched mFilm, which allows subscribers to search, download and view videos and movies.MobiFone announced that it will work with content providers to expand its portfolio Dec-12 VinaPhone introduced social ZOOTA, which has features such as photo sharing, chat and games, to itssubscribers.

Oct-12

MobiFone announced that international roaming service is now available on certain flights From October

22 2012, outgoing and incoming calls on flights are charged at VND69,900 per minute and outgoing text

at VND15,000 per text while incoming texts are free From November 16 2012, postpaid customers are able to access the internet via data service at VND49,000 per 100KB and VND4,900 per

subsequently10KB The same service will be delivered to prepaid customers from January 1t 2013 Sep-12 Viettel launched an e-book store with about 2,000 books Prices range from VND2,000 to VND15,000, andcan be deducted directly from the subscriber's mobile account.

Jul-12

VinaPhone has started to offer in-flight mobile-phone services on domestic and international air routes, thereby making it the first mobile operator to offer such service in Vietnam The operator will charge USD4.3 and USD4.7 for outgoing and incoming calls respectively The subscribers can also send SMS by paying USD0.8 for each SMS, while subscribers will not be charged any fee for receiving messages The service is available on several domestic and international flights, including Emirates, Malaysia Airlines and Hong Kong Airlines The operator is also in discussions to offer its services to more airlines.

Jun-12

Vietnamobile has introduced a promotional offer for the Euro 2012 football tournament The operator is offering Euro 2012 content packages priced at VND500 to VND2,000 per day or VND20,000 for the whole season The packages will allow subscribers to access images, videos, updates and advice from football experts through SMS The promotion also features a quiz with weekly prizes and a grand prize of

VND200mn in cash.

May-12

Viettel announced an international roaming service for its prepaid subscribers Subscribers travelling to Cambodia, Laos, Haiti and Mozambique also enjoy a preferential package due to the operator's global presence.

Feb-12

MobiFone, in association with media firm Zing, introduced Zing.vn service packages in the country, reported Viet Nam News The packages enable subscribers to listen to music, download MP3s and watch news Subscribers can also access the Zing Me social network for a monthly tariff of VND15,000.

Jan-12

Viettel and Vietcombank introduced Mobile BankPlus, enabling the operator's mobile subscribers to bank with Vietcombank through mobile devices since January The service allows Viettel's subscribers to transfer money from one account to another within Vietcombank, as well as pay phone bills and access

Value-Added Services - Continued

their account balance and transaction details Subscribers can access their banking accounts via their mobile phones without connecting to 3G or Wi-Fi The strategic cooperation would allow both parties to take full advantage of the number of customers and network of both sides, said the director of Viettel, Hoang Son.

Dec-11

Beeline VN re-launched its Ty Phu package, which offers free on-net calls from the second to the 12th minute A SIM card costs VND20,000 and the tariff plan charges VND1,350 a minute for the first minute and from the 20th minute onwards.

Dec-11 Vietnamobile became Vietnam's fifth 3G provider and offers data connection speeds of up to 21.6Mbps.Prices start from VND10,000 a month or VND5,000 a day for 120MB of data.

Nov-11

The Vietnam Posts and Telecommunications Group (VNPT) has signed a contract with DTS

Communication Technologies Corporation (DTS) to provide MegaERP service in Ho Chi Minh city.

According to the terms of the contract, VNPT will provide the network infrastructure, while DTS will provide the service system The MegaERP service will help enterprises and organisations to enhance their management ability as well as business operations with low cost as they are not required to invest in hardware or software installation.

Nov-11

MobiFone announced that its postpaid subscribers can save 10% on their bills if they make mobile bill payments via VietinBank's payment system The payment service was made possible through a venture between MobiFone, Vietnam Payment Solution Joint Stock Company and VietinBank.

Oct-11 Beeline VN launched its free WebSMS service.

Oct-11 Beeline VN launched a daily and monthly unlimited GPRS plan Both options require a VND1,000registration fee, with the former priced at VND1,500 a day The monthly plan cost VND30,000 a month.

VND20,000 and an extra VND 2,000 to download messages.

Source: BMI, operators

Wireline Voice & Broadband

Vietnam Multimedia Corporation (VTC) and FPT Telecom entered the market in 2010, according to data

from the MIC While VTC's market share declined by 0.12% in 2010 to 0.06% in 2011, FPT Telecom'smarket share increased from 0.1% to 0.21% over the same period Vietnam-based telecoms and IT servicesprovider FPT Corporation has approved a plan to increase its stake in its subsidiary FPT Telecom from itscurrent ownership of 42.51%, by acquiring additional shares from its minority shareholders FPT

Corporation stated that the shares would be acquired at VND52,000 (USD2.4) per share over the period of

one month from August 8 FPT Telecom operates in 57 provinces and cities across Vietnam and had a total

of 1.40mn retail broadband subscribers at the end of June 2014

As we have acknowledged, VNPT remains the dominant operator, despite the presence of numerousoperators in the sector and continued encouragement by the MIC to raise competition The dominance ofVNPT relates to its former monopoly status as a state-owned entity, while despite the added competition itscontinued investment in the expansion of its national fixed-line infrastructure appears to be fading as itretains a market leading position Price competition between rival operators continued to erode its market ascompetition intensifies

In addition to controlling the greater part of the local voice telephony market, VNPT was, until 2002, the

only body authorised to offer long-distance and international services However, Saigon Postel (a privatised

former subsidiary of VNPT) and mobile operator Viettel have since begun offering domestic and

international VoIP services Meanwhile, Vietnam Data Communication Company (VDC), another VNPT

subsidiary, also offers its own prepaid and postpaid VoIP service, which it launched under the brand name'FoneVNN' in 2003

The MIC was expecting to continue regulating residential phone tariffs until the end of 2010 Since 2011,operators are free to decide charges for all subscribers, although the MIC will continue to set the ceilingprice in order to ensure there is a level playing field Charges for business users are already allowed to bedecided by Vietnam's wireline operators However, they must be within 50% of VND200 per minute for acall and VND20,000 per month for a subscription

With the limited availability of traditional fixed-line infrastructure, and with around 70% of Vietnam'spopulation living in rural areas, a number of Vietnamese telecoms operators - including mobile operators -have looked to fixed-wireless access (FWA) as a way of providing fixed-line connectivity Faced with highlevels of saturation in already crowded urban mobile markets, FWA has been seen by Vietnam's mobileoperators as a way of supplementing revenue streams Fixed-wireless services can be launched on existingmobile networks and, therefore, incur few start-up costs They are widely regarded as a cost-effective way

of providing telecoms services to low-income households

Mobile market leader Viettel is said to have around 70% of its subscriber base living in rural areas; thisindicates the importance of the operator's fixed-wireless business unit Viettel's postpaid service,

HomePhone, was launched in August 2007, a few days after its prepaid service By offering special

discounts, Viettel has sought to increase the number of customers subscribing to its HomePhone service.Press reports suggested that Viettel had more than 13mn customers at the end of 2007 Viettel launched a

new package for its HomePhone 60 in January 2011 Subscribers would have a tariff rate of VND600 aminute for all internal and external calls The operator claimed to help subscribers save more than 40% ofcharges for all calls to mobile usersVietnam's fixed-line incumbent VNPT also offers a fixed-wirelessservice called GPhone The service operates over VinaPhone's GSM network and is charged at fixed-lineprices, making it affordable for low-income households GPhone was launched in two phases, with servicesinitially being launched in eight provinces and cities (including Lau Chau, Thai Nguyen, Ha Tay, QuangNam, Quang Ngai, Can Tho, Hau Giang and An Giang) in June 2007, and the rest of the country duringAugust 2007 VNPT had outlined a target of 100,000 GPhone subscribers by the end of 2007, and thecompany announced in July 2009 that it had 1.7mn GPhone subscribers.

According to the MICs VNTA, there were 4.67mn xDSl subscriptions in the end of December 2014,291,841 cable internet subscriptions and 889,990 FTTH subscriptions yielding a total of 6.077mn fixedbroadband internet subscriptions against 9.52mn total broadband internet subscriptions in the end of

December 2014

It is important to note that the rate of internet user penetration among young people, and in Vietnam's moreaffluent urban centres, is already higher than the national average In order to ensure that internet usergrowth continues over the next few years it will be necessary to extend internet access to new demographicgroups This, in particular, relates to providing internet services in rural areas of the country, where fixed-line infrastructure is particularly poor and in some cases non-existent

One phenomenon that bodes well for continued growth in the number of internet users is the high level of

PC ownership that exists in Vietnam According to a survey conducted by Alcatel-Lucent, some 95% ofVietnamese households now have access to a desktop PC, of which 16% are planning to purchase a laptop.Official figures from the MIC differ significantly

Vietnam Internet Users

2008-2015

Vietnam - Internet users, '000 (LHS) Vietnam - Internet users, % y-o-y (RHS) Vietnam - Broadband internet subscribers, '000 (LHS)

Vietnam - Broadband internet subscribers, % y-o-y (RHS)

0 10,000 20,000 30,000 40,000

0

-25

25 50 75

e/f = BMI estimate/forecast Source: BMI

Traditionally, affordability has been one of the main reasons behind the slow take-up of internet andbroadband services in the market However, access to PCs and laptops is growing as a number of cheapermodels become available in the market Moreover accessing the internet through mobile devices is gainingpopularity in Vietnam, and we believe this is a more effective means to increase internet penetration rates inrural areas Assuming prices of mobile devices and tariff rates continue to fall, we expect the internetpenetration to maintain its growth trajectory, with a possibility of acceleration if operators adopt moreaggressive methods to pursue subscriber growth

The latest breakdown of internet service providers' market shares relates to March 2013; these figures show

a considerable shake-up in the rankings and a considerable increase in market size - to 43.5mn subscribers.The VNNIC reported that VNPT was the market leader with 26.4mn internet subscribers, 60.8% of themarket Viettel slipped from second to third rank, with 3.9mn subscribers and an 8.9% share; it was FPTTelecom that regained second place with 28.9% market share and 12.6mn subscribers The remaining 1.4%

of the internet market was divided among smaller operators, including Saigon Postel Corporation

and NetNam.

Compared to Vietnam's internet sector, the fixed broadband segment has been growing at a faster rate, onaverage, which is partially attributed to a low-base effect The number of fixed broadband has increasedfrom 4.8mn in Q1 2013 to 6.077mn in Q4 2014 At the end of 2014, VNPT held 54.3% of the fixed

broadband market and FPT Telecom accounted for 24.5%, followed by Viettel at 13.7% of the fixedbroadband market

Le Thi Ngoc Mo, deputy head of the MIC's Communications Department, commented that Viet Nam hasplanned to boost nationwide broadband development by 2020 The goal is to reach 90% of communes in thecountry by 2015 and 100% by 2020 The key challenge is infrastructure rollout to the rural areas Therollout is expected to be funded by Universal Service Fund the VTCI

Following the divestiture of MobiFone in June 2014, VNPT is also required to establish member firm called

VNPT- Net, which specialises in network infrastructure BMI predicts this subsidiary unit will play a

significant role in fixed broadband network to meet the MIC's broadband ambition

FPT Telecom, meanwhile, has completed B line of the north-south backbone The broadband infrastructurehas raised domestic bandwidth to hundreds of Gbps, meeting the needs of retail customers and corporateclients FPT also completed the first transnational backbone network connecting Vietnam to Laos

Viettel continued a previous programme it had in place since 2008 to provide schools with internet access

In May 2014, the company announced it will partner with the Ministry of Education and Training to offerfree internet services via fibre optic infrastructure to all educational institutions from pre-schools to

universities nationwide Viettel has provided internet connections to nearly 30,600 educational institutionsacross the nation, with 81% of those using broadband Internet services, as of May 2014 The free broadband

to schools initiative is expected to complete by the end of 2015

Pay TV

According to the MIC's White Book on the ICT sector from October 2014, there were 6.7mn pay TV (cable,satellite and IPTV) subscribers in Vietnam at the end of 2013, down reportedly by 2.4mn y-o-y due to theincrease in the price of VTC's services after having been taken over by VCTV (VTV)

State-owned Vietnam Television (VTV)'s brands VCTV, Saigontourist Cable Television

Company (SCTV) and K+ held over 70% of the market This dominance has led MIC to check all

companies applying for pay-TV licences in a move that aims to avoid the market being monopolised by alarge player Both Viettel and FPT are keen to enter the market

State-owned operator the VNPT first launched IPTV services in Hanoi and Hai Phong in June 2009 At thattime, VNPT announced that the offering would arrive in Vietnam's southern provinces and in Ho Chi MinhCity in September 2009 The first phase of VNPT's IPTV deployment offering included live TV, VOD,music-on-demand (MOD) and TV-on-demand (TVoD) The second planned phase will add media sharingservices, usage data access and e-education among others.

Following the preliminary launch in June 2009, it was reported in September 2009 that VNPT had officiallylaunched its IPTV service under the MyTV brand From September 2009, the IPTV service was madeavailable in Hanoi, Da Nang and Ho Chi Minh City However, it was scheduled to be expanded nationwide

in October 2009 Subscribers are able to access live TV, VOD, music videos, games, internet and telephonyservices, and TVoD After announcing the launch, VNPT's chairman of the board of directors, Pham LongTran, forecast that, with the strong development of broadband internet and the high demand for

entertainment, MyTV would 'boom in Vietnam in the near future' In August 2010, VNPT extended anagreement with Intel for technology research, development and application to cover 2011

VNPT said in October 2010 that it was planning to extend its IPTV service to subscribers' mobile handsets.VNPT's MyTV service had almost 150,000 subscribers and the operator planned to expand its reach by

end-2011 This announcement came one month after VNPT signed an agreement with Alcatel-Lucent, with

the latter providing its end-to-end IP Multimedia Subsystem solution

Besides traditional pay-TV operators, such as VTC, Ho Chi Minh Choice Centre (HTVC), Vietnam Satellite Digital Television (VSTV) and SCTV, Vietnamese mobile operators have also entered the fray

through the IPTV and mobile TV routes in order to capitalise on the industry's growth potential FPT

Telecom re-launched its IPTV service iTV in major urban cities during April 2009 and expected its

subscriber base to reach 1mn in 2011, up from 20,000 in Q1 2010 In August 2010, FPT Telecom becamethe first telecoms company in Vietnam to distribute K+1 and K+ channels The contract was to be

implemented after it was approved by the MIC The two channels air seven big football events in the worldand would add to FPT Telecom's existing 60 channels on its iTV

In July 2010, Saigon Post and Telecommunications followed VNPT and launched an IPTV service The

service consisted of 86 domestic and international linear channels, as well as interactive services such asvideo-on-demand

It was initially believed that Vietnam's pay-TV industry would significantly benefit from the participation of

French pay-TV provider Canal Plus Canal Plus partnered with state-owned VTV's subsidiary VSTV and

launched satellite-based K+ service in January 2010 However, although the service had almost 200,000subscribers, the company looked increasingly unlikely to meet its target of 1mn subscribers by 2012.Consequently, VSTV slashed the tariff rates of its K+ service in early June 2011 to bring prices more in linewith rivals such as SCTV and aimed to increase its subscriber base to 500,000, which was the minimumnumber needed to be profitable.

In March 2011, Hanelcom signed a memorandum of understanding with Dutch-owned company CYMTV

to build a new IPTV service in Vietnam The service, called HanelTV, would be made available for thosewith a Hanel set-top box, as well as PC, smartphone and tablet devices The technology offered by CYMTVuses a private cloud streaming product that enables video content to be securely streamed over the openinternet Services on offer include VOD, news and information, games, karaoke and a community portal

Meanwhile, US-based Sigma Designs partnered with VTC in April 2011 to develop and market set-top

boxes for digital TV, smart energy products and home connectivity solutions A joint venture called

VietSilicon Technology Joint Stock Company was to be created, which will result in the launch of two

products in 2011 after leveraging on Sigma Designs' IPTV semiconductor technology and VTC's localcontent and network

However, despite the strong support shown by service providers, IPTV has yet to gain significant traction inVietnam, although it was reported in October 2011 that VNPT's MyTV service had 500,000 subscribers,while FPT Telecom's OneTV had 30,000 subscribers A reason cited is the poor image quality of IPTVservices due to ADSL connections and a lack of consumer awareness However, operators have been trying

to spur consumer interest by bundling IPTV services with fibre broadband in hope that the faster broadbandconnectivity would improve image quality In mid-2011, FPT Telecom launched a multimedia bundle based

on a VSDL connection, while Viettel introduced fibre and IPTV packages in September 2011 that costabout VND100,000-300,000

Local media reported in September 2014 that ARPU's for pay-TV at USD5 per user per month in Vietnamare one of the lowest in Asia This leaves little room for investments into new infrastructure and content andoperators have called for a minimum price floor to be introduced and more than 90% of users are still onanalogue services The proposal for minimum pricing is currently being drafted by Vietnamese Pay-TVAssociation

In light of the low pay-TV penetration rate in Vietnam, FPT Telecom and AVG have submitted a joint

application to provide cable TV services to the Ministry of Information and Communications VietNamNetBridge reported that the two companies have built up a 2,000km north-south transmission backbone, which

is expected to be completed by June 2012 If approved, FPT Telecom and AVG could offer low-cost cable

TV services in addition to alternative services such as internet and fixed-line on the same coaxial cable

Meanwhile, Viettel, which already offers IPTV services under its NetTV brand and aims to secure 300,000

subscribers in the next few years, could also enter the cable TV market Although Viettel has significantpresence in Vietnam's mobile, fixed-line and broadband industries through an extensive network, as well asthe capital to make further investment, the biggest challenge is securing popular content and competing in a

market segment where there are several well-established players, such as VTV and Vietnam Multimedia Corporation Profit margins are equally squeezed, and we do not believe that the pay-TV market would be

a significant revenue generator for Viettel in the short run

In March 2013, CMC Telecom and VCTV announced that they had signed a cooperation deal whereby

internet services would be offered on VCTV's cable TV infrastructure; the launch date for the service wasAugust 2013

Regulatory Development

Regulatory Overview

Table: Vietnam - Regulatory Bodies And Their Responsibilities

■ submitting to the government drafts of laws, ordinances, regulations, strategies and development plans on posts, telecommunications and information technology;

■ giving guidance in implementation of laws, ordinances and regulations, as well as development strategies and plans related to posts, telecommunications and information technology;

■ regulating the access to, and the interconnection between, public switched telephone networks and specialised and private networks;

■ regulating the electronics and information technology industry development plan;

■ regulating charges and tariffs in the fields of posts, telecommunications and information technology;

■ planning, assigning and allocating radio frequency spectrum; controlling and monitoring radio frequency spectrum and radio equipment; organising radio frequency, satellite orbit registration and coordination;

■ granting licences in posts, telecommunications, radio frequency and internet;

■ regulating the quality of posts, telecommunications and information technology networks, plants, products and services;

■ regulating numbering resources, codes, domain names and addresses used in the fields

of posts, telecommunications and information technology;

■ conducting international cooperation activities in posts, telecommunications and information technology; and as stipulated by law.

Source: BMI

Legislation And Market Liberalisation

The government's telecommunications policy is formally set out in a decision of the Prime Minister,

Decision No.158/QD-TTg of October 18 2001, which ratifies the Vietnam Posts and Telecommunications Group (VNPT)'s development strategy until 2010 and orientation until 2020 The policy decision provides

a comprehensive range of sector development objectives and targets, along with key underlying strategiesfor their achievement

The government's telecommunications policy recognised the current weakness of the legal structure

governing the telecoms sector In line with its policy, the government ratified the Ordinance on Post and

Telecommunications (the 'Ordinance') on May 25 2002 The ordinance took effect on October 1 2002 andhas replaced the Decree No.109/1997/ND-CP, dated November 12 1997, on network and

telecommunications services The Ordinance is expected to achieve two primary aims: the consolidation ofthe legal structure into a single law - which means the repeal of the set of contradicting laws and regulations

- and to modernise the legal structure and address the important issues that arise in a competitive marketstructure

The functions of VNPT are set out in Decree No 51 (Decree No 51/CP ratifying the Statute on VNPT).VNPT is active in all aspects of telecommunications, including infrastructure ownership and operation, andprovision of telecommunications services

Regulation

The regulation of the telecommunications sector in Vietnam falls under the responsibility of the Ministry ofPosts and Telematics (MPT), which fulfils the dual role of policymaker and regulatory authority The keyfunctions and responsibilities of the organisation of MPT are outlined in the Government Decree No.90/2002/ND-CP of November 11 2002 The Decree sets out a wide range of functions and responsibilitiesunder four different groupings It is noted that MPT exercises regulatory control over post and

telecommunications The MPT has responsibility for drafting laws, ordinances and policies on

telecommunications, issuing decisions, directives, rules and technical standards, managing internationaltreaties on telecommunications and radio frequency and issuing and revoking permits in accordance withregulations The MPT has been succeeded by the Ministry of Information and Communications (MIC)

The direct regulatory body over internet activities in Vietnam is the Vietnam Internet Network InformationCentre (VNNIC) The VNNIC is a non-profit affiliation to the Ministry of Posts and Telematics (MPT),established under the Decision No 372/QD-TCBD, dated April 28 2000, of the DGPT (which later becamethe MPT) The purpose of the VNNIC is to carry out the functions of managing, allocating, supervising andpromoting the use of internet domain names, addresses and autonomous system numbers (ASN) in

Vietnam VNNIC also provides internet-related guidance and statistics related to international activities onthe internet

Licensing And Spectrum

Vietnam's Ministry of Information and Communications (MIC) is responsible for all licensing related totelecoms services Prior to Vietnam's entry to the WTO, foreign telecoms operators were prevented frommaking direct investments in Vietnamese telecoms operations Instead, Business Co-operation Contracts(BCCs) served as a transitional investment model in the telecoms sector and ensured that the provision of alltelecommunications services was based on a system of revenue sharing with local companies Upon joining

the WTO in 2007, however, the MIC has allowed a number of local telecoms companies to enter into jointventures (JVs) with foreign partners for the provision of a wide range of communications services,

including fixed voice telephony, packet-switched data transmission services, circuit-switched data

transmission services, telex services, telegraph services, facsimile services and private-leased circuitservices

For non-facilities-based services, the foreign capital contribution to these JVs must not exceed 51% of legalcapital Since 2009, when Vietnam has been a WTO member for two years it is permissible for whollyforeign-owned firms to provide registered telecoms services to Vietnamese organisations and individuals.Further, since 2010, foreign companies are allowed to establish local branches and provide telecomsservices, under the condition that the chief representatives of the branches reside in Vietnam

In order to provide fixed or mobile voice telephony services for which no network infrastructure is required,upon joining the WTO until 2010, foreign partners were allowed to participate in JVs with Vietnamesetelecoms firms, with a capital contribution of up to 51% Foreign operators are authorised to choose theirown local partners when establishing JVs and will be allowed to raise their capital in the JV to 65%.Meanwhile, for virtual private network services and value-added telecom services, some large foreignpartners were permitted to independently provide those services using the network infrastructure of a localoperator Currently, foreign partners wanting to provide such services must select Vietnamese partners andcontribute up to 70% of capital in the JV

For satellite services, the Vietnamese government has been committed to expanding the number of

companies involved in this field since 2010 In addition, the government allows foreign partners to connect

to underwater optical cable networks, of which Vietnam has membership Licensed companies are

authorised to sell transmission lines to international telecoms service providers, which have network

infrastructure (such as the VNPT and Viettel), and also to virtual personal network and IXB service

providers such as Corporation for Financing and Promoting Technologies, VNPT, Viettel and EVN Telecom since four years after the date of Vietnam's WTO membership

In March 2014, the MIC revoked the mobile operator license of S Fone and EVN Telecom, as S Fone had been dormant since SK Telecom had left its JV with Sai Gon Postal that had been the driver behind S Fone

while EVN Telecom had been overtaken by Viettel in 2012 This frees up 450Mhz and 850Muhz spectrum

4G Licences

Vietnam will inch closer towards 4G services and the government has stated that it will issue the first 4Glicenses next year Pilot licenses have been issued to the larger operators and the providers have shownwillingness to scale up 4G services in the country