Privatization, subscriber boom heat up Vietnam mobile

Marc Einstein/Frost & Sullivan
05 May 2008

Vietnam is set to take center stage as one of Asia's most dynamic wireless markets in 2008. Home to nearly 50 million residents who still do not own a mobile phone, the emerging Southeast Asian tiger is planning to privatize three mobile carriers, has several pending greenfield and network upgrade contracts and is one of Asia's fastest-growing economies. The market added over 22 million new subscribers in 2007 - more than the additions in the past three years combined - and is set to generate over $4 billion by 2013.

While the phenomenal subscriber growth is attracting fanfare from potential foreign suitors of state-owned MobiFone, Vinaphone and Viettel, there are still many pitfalls facing these and other players in the years to come. Notably, Vietnam's operators will have to content with a crowded seven-player market, heavy capital spending and an incessantly falling ARPU.

While Vietnam's pending privatization does indeed represent one of the region's last, best opportunities to capitalize on organic subscriber and revenue growth in the region, foreign investors take a caveat emptor approach.

Vietnam's mobile market penetration rate hit 44% at the end of 2007, and it has clearly distanced itself from other emerging markets in the region such as India, Indonesia, Pakistan and Bangladesh. The country has propelled itself in front of its giant neighbor to the north (China closed 2007 at 41.7%). We expect that expanding coverage and intense competition from a seven-player field will push the penetration rate toward the 100% range over the next five years, when Frost & Sullivan predicts that Vietnam will have close to 92 million subscribers. With the market being nearly 90% comprised of GSM users, any mandatory base cleaning or other regulatory registration initiatives could lower this total as Malaysia experienced in 2007.

A surge in revenue will accompany Vietnam's surge in subscribers as the mobile market garnered $2.8 billion in revenues in 2007, a fourfold increase from the 2003 value. Revenues will also continue to expand, albeit an increasingly lower market ARPU will mean that revenue growth will grow at a slower growth rate than subscriber growth rate.

Vietnam's market ARPU fell dramatically in 2007 to $6.50, down by 41% from the 2006 average level. As the market continues to expand, Vietnam will see ARPU approaching the $3 level by 2013, which will raise red flags for investor profitability. F&S predicts that Vietnam's wireless market will post $4.1 billion in revenues by 2013, representing a CAGR of 8%.

Vietnam remains one of the last markets in the region with state-owned mobile incumbents, but this will change in 2008 as all three such operators are set to offer private equity stakes to strategic investors. The move has attracted the attention of several global operators and private equity firms, including France Telecom, Vodafone, Telenor, Comvik International, Telekom Malaysia, SingTel, Chunghwa Telecom and NTT. Initial signals from the government indicate that Mobifone will be the first operator to offer a partner up to 20% of its equity while listing its shares on the local stock market as early as May, with Vinaphone and Viettel to follow later in the year.
Despite challenges facing Vietnam's wireless market, which are endemic to many emerging wireless markets in the world, private stakes will make good additions to operator's portfolios.

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