International carriers target investment in Indochina
18 June 2012 | Guy Matthews
Investment in network infrastructure and services is pouring into the Indochinese markets, marking the peninsula as a fertile hunting ground for the international carrier community. Guy Matthews investigates the potential of Asia’s latest high growth markets.
The Indochinese peninsula has stepped forward as Asia’s most coveted market and its timing couldn’t have been better.
Confidence from foreign investors in the region has been knocked by the recent high profile regulatory failings in India and the long-term obstacles associated with entering the Chinese market.
So named because it sits between India and China but belongs ethnically and culturally to neither of them, the Indochinese peninsula has helped restore faith to the international carrier community.
Encompassing the former French colonies of Vietnam, Cambodia and Laos, as well as Burma and Thailand, it has lately attracted fierce interest from carriers, lured by its vibrant economics, large population of young and well-educated people and hunger for all types of telecoms service.
Japanese cellco NTT DoCoMo, for example, has just acquired a 25% stake in mobile content provider VMG Media, marking its first move into the Vietnamese market. Russian operator VimpelCom owns a chunk of Vietnamese player GTEL, while Asian giants Tata, Pacnet and TM Global are competing for a share of an emerging wholesale opportunity as once closed economies seek global connectivity. To capitalise on this need, the Asia-America Gateway (AAG) cable now links the region’s bigger economies directly to the US mainland.
Meanwhile others have been exploring interconnection agreements with local providers. PCCW Global, for instance, has struck a deal with Vietnamese service provider FPT Telecom Corporation involving the interconnection of their Ethernet networks with a view to offering improved international network coverage, deepening an already fertile collaboration.
In the wider ICT ecosystem, Google has signalled its interest in putting down roots in this part of Asia, chastened perhaps by its experiences in China. It will join Microsoft, which is already heavily invested in Thailand, and Yahoo!, with its growing stake in Vietnam.
Good morning Vietnam
The two most alluring pearls in the Indochinese oyster are Thailand and Vietnam. They don’t share quite the same antagonistic rivalry as China and India, but in their different way they both aspire to being the alpha economy of the region.
A characteristic of all telecoms markets in this part of the world is lingering state control sitting sometimes uneasily alongside government attempts to stimulate penetration of services and modernisation of infrastructure through greater competition.
Vietnam is no exception here. This is a country where state-owned enterprises account for 40% of GDP. The Vietnamese government has worked hard though to revitalise the country’s telecoms sector and has been rewarded by high levels of outside investor interest, even in the wake of the global financial crisis.
Additional stimulants to this wave of investment have been the country’s strong economic performance, with an average 7% annual growth in GDP since 2004, and its accession to the World Trade Organisation (WTO) in 2007 following 10 years of hard negotiation.
Nothing, however, seems to be plain sailing where state control is involved. With a limitation on ownership of a listed Vietnamese company set at 49%, there’s no simple way for a foreign enterprise to acquire a controlling stake in a local business as they would in a free market economy. And setting up an office in Vietnam is not a simple matter in a culture of labyrinthine bureaucracy.
The Vietnamese government has been promising increased levels of ‘equitisation’, its term for privatisation, for a number of years now to further open investor floodgates, but a precise roadmap for the relinquishing of state ownership in favour of private interests does not exist, nor is it clear whether the government intends ever to fully withdraw from telecoms involvement – suggesting perhaps that it doesn’t. Strict cyber laws dictating who can see what on the internet are another token of opposition to a fully free and open society.
The Vietnamese government remains committed, at least, to a nationwide programme of network improvement: “Vietnam has for some years now been aggressively expanding its national infrastructure and growing its subscriber bases across all market segments,” says Peter Evans, senior research analyst with the BuddeComm consultancy. “Progress in developing the mobile market has been especially impressive, though there has been a moderating of growth recently.”
Mark Stevens, managing director APAC for Aircom, a vendor of network optimisation software and tools, has been tracking the ins and outs of Vietnam over a period of time. “I spent some time in Hanoi 15 years ago, and the most commonly used technology you’d see was the bicycle,” he says. “Now Vietnam is seeing phenomenal growth. If you take the mobile market alone, there’s a total population
of about 90 million, and 140 million mobile subscriptions.”
A lot of that growth, he says, has been in 3G: “Across the region, we’re seeing the impact of smartphones on networks,” he says. “There’s a healthy market for sub $100 smartphones, so you can imagine the effect that’s having. There’s talk about LTE already, and operators are starting to trial it. In Vietnam we’re seeing the refarming of spectrum for this purpose.”
The land grab for new mobile subscribers conducted by the country’s eight wireless licensees may be largely over, but a fresh phase in Vietnamese telecoms is beginning which is all about quality of service. “The Vietnamese government is taking a hard look at what to do next with the market, weighing up whether it needs further privatisation, and the promotion of more competition. There’s government ownership and control in all Indochinese countries, but it doesn’t seem to have notably hampered growth – or competition,” says Stevens.
Carriers on the lookout for local partners
UK-based Telesens is a vendor of network billing and traffic management software for telecoms operators, and is also reaping dividends from the new dynamism of Vietnam’s communication sector.
“Vietnam is an attractive market for us, in particular for products that support interconnection between operators,” says Telesens’ Vietnam director Le Anh Tuan, who is based in the company’s newly opened Hanoi office. “I see Vietnam as increasingly open to foreign players. The country is interested in attracting capital, technology and managerial skills in order to create favorable conditions for the development of various sectors of the economy, and a more open and stable investment climate.”
Establishing a local office, he says, is a necessary step to achieve success in the market. “This is due to the peculiarities of the market, which can be linguistic or cultural. At the moment we are talking with all major telecommunications companies in Vietnam, and we are planning to enter the telecoms markets of neighbouring countries like Cambodia, Laos and Indonesia - with the help of our Vietnamese partners.”
One outsider that has managed to work its way into the market via partnership is Telstra International. Tarek Robbiati, group managing director with Telstra International Group, says the company has recently completed a programme of infrastructure development in Vietnam, and now has diverse, on-net PoPs in Ho Chi Minh City and Hanoi.
“We’ve got a strong partnership with Viettel, one of Vietnam’s largest, full service telcos,” he says. “As a result, we can offer a portfolio of networking solutions in Vietnam, including IP VPN services across the country, with extensions into neighbouring Laos and Cambodia, as well as International Private Line and Ethernet Private Line.”
Competing with incumbents
Thailand’s government, like Vietnam’s, has poured vast sums into the building of a national telecommunications infrastructure over the last decade or so. But like Vietnam it remains tied to the principle of central control of key national assets. Thailand has not one but two state-owned incumbent telcos – CAT Telecom and TOT Corp - which between them carve up a large proportion of domestic (TOT’s speciality) and international business (CAT’s domain).
That’s not to say that Thailand isn’t keen on attracting foreign capital and expertise to assist in expanding and integrating its networks. Again paralleling Vietnam, there’s been a degree of recent uncertainty about where outsiders sit in the regulatory order, raising anxiety among outside investors over committing capital in the Thai market.
Thailand’s mobile market, with its multiple licensees, has passed the 100% penetration milestone. Whether the rest of the market becomes similarly liberated will depend a lot on the next moves of the newly created National Broadcasting and Telecommunications Commission which opened in late 2011. Will it allow more foreign ownership? Will it loosen rules on social media? What strategy does it have for LTE? Many unanswered questions await resolution.
Wholesale connectivity into and out of the country has been shaken up by privately-owned True Corp. Rungkiet Kamondetdacha is executive product manager of the company’s True International Gateway (TIG) division which manages those connections. He foresees that 3G mobile service growth combined with aggressive network expansion will drive a strong wholesale market in Thailand over the next few years.
He is also excited about the possibility of major intra-regional traffic growth, and believes that with Thailand located so centrally in the region there is an important role for TIG.
“We have border interconnection with all those countries, and can leverage terrestrial transit paths to Singapore, China and Hong Kong,” he says. “As for service scope, we’ve seen carrier cooperation to enable higher-layer services such as MPLS and Ethernet within these countries. By the end of this year I expect we’ll have seen True International Gateway almost double bandwidth over last year.”
Pacnet has a foot in both Thai and Vietnamese telecoms markets. Chris Wilson, senior vice president of product strategy and management with Pacnet, says the company has a fully-staffed office in Bangkok, to serve the local market as well as foreign companies with a presence in Thailand.
With its PoP in Ho Chi Minh City, Pacnet offers connectivity solutions including Ethernet, MPLS and private circuits into the Vietnamese market: “To comply with regulations, these services are provided in partnership with a local partner,” says Wilson. “Our presence will be expanded to Hanoi in 2012. This presence is currently predominantly providing services to foreign companies operating in Vietnam. Pacnet also has agreements with providers which provide coverage from Vietnam and Thailand into Laos, Cambodia and Myanmar.”
Broadband penetration rates in the Indochina and Thailand region, while lower than some of the more developed countries in Asia, are growing rapidly, believes Wilson: “Given the size of the population across this region, this represents a huge growth potential,” he enthuses. “In addition, these markets are becoming more commonly requested locations by multinational customers.”
The Indochinese telecoms market may be developing later than other Asian markets, but it is doing so in a highly dynamic way, claims Tuan of Telesens: “In Vietnam, 3G services began to be available only at the end of 2011, but already it’s a service available to all subscribers at very competitive prices – around $3 per month for unlimited traffic,” he points out.
In spite of this, Jonathan Wright, commercial director of Interoute, says he has his eye on Indochina as a medium term play rather than an immediate bonanza. The European operator has just extended its network into Hong Kong, but wary of the challenges, is initially targeting lower hanging Asian fruit first.
“We’re in Asia to meet the demands of European customers, in the main, which is why we’re looking first at Hong Kong, China and Japan, and Thailand a bit - places that look on business in an open way,” he explains.
Wright says that Interoute’s sales in Asia are either to corporate organisations or reseller partnerships with service providers. “As we bed ourselves into the region, we’ll probably be looking to do more business in places like Thailand and I’m sure the rest of Indochina too. But it will be about extending our sales presence first, initially for the benefit of European customers then no doubt for customers within the region.”
It is an interesting token of the state of development of Indochinese telecoms that it appears to be in an early phase of shifting from being a pure importer of foreign investment. Vietnam’s Viettel Group, which has a stake across Indochina, is to invest $400 million over the next 10 years in projects to build mobile networks in Mozambique and Peru, and also has plans for Haiti and Mali.
Watchers of the global telecoms sector have grown used to seeing Indian and Chinese telcos springing up in a variety of emerging markets. A parallel investment wave from Indochina now seems on the cards.
Myanmar – opening Asia’s newest frontier
Burma, also known as Myanmar, has been inching away from the totalitarian rule that has isolated its economy from the surrounding region and the rest of the world for decades. Prior to general elections and a new constitution in 2010, there was little outside investment in the country, ring-fenced as it was by international sanctions.
Following the visit of US Secretary of State Hilary Clinton in December 2011 and the tentative lifting of European Union sanctions in April 2012, the country has started to look like a much more attractive target for foreign investors.
Burma’s government is proactively trying to stimulate outside interest in its telecoms sector, until now amounting to less than $6 million a year, recognising that this represents the most realistic route to improving its highly rudimentary infrastructure and poor penetration of services.
According to the International Telecommunication Union (ITU), there are around 600,000 fixed telephone lines in service in a country of 60 million citizens and around the same number of mobile phones. Broadband internet subscriptions numbers are slightly over 16,000.
Earlier this year, Burma’s government signalled that it intended to relax the monopolistic stranglehold of state-owned incumbent Myanmar Posts and Telecommunications (MPT).
Le Anh Tuan, director of telecoms software vendor Telesens considers the potential opening of Myanmar as an important event: “Until now, in a country with 60 million inhabitants, there’s been only one state operator,” he says. “Now under new laws there’s access for foreign telecoms companies, and the government of Myanmar is holding a tender for issuing a licence to telecommunications services.”
International traffic in and out of Burma has been predictably restricted over the last few decades, but even this is now changing. “Myanmar is opening up telecoms services,” believes Rungkiet Kamondetdacha, executive product manager for True Corp’s True International Gateway (TIG). “This will include not only physical connectivity but also the giving of licences for various type of services - voice, mobile roaming, internet.”
The True International Gateway (TIG) is being extended between Thailand and Burma, with plans to complete cross-border connectivity by the end of this year. This, Kamondetdacha says, will enable better connectivity and bring about other types of service: “We view Myanmar as a market with high potential growth, particularly Internet and mobile services.”
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