Broadband Internet in Vietnam

Table of Contents

I. Introductiona. Historical context & demographicsb. General internet market characteristics in Vietnam

II. Market Overviewa. Broadband in Vietnamb. Fixed and Mobile broadband marketsc. Competition landscape

III. Company Profiled. Corporate history and e. Organizational structuref. CMC Telecommunications Infrastructure JSC.g. Asia-Pacific Gatewayh. Cable TV Marketi. SWOTs

IV. French ICT companies in Vietnamj. French Telecommunications in Vietnamk. Other French ICT activities in Vietnam

I. Introduction

1986: Đổi Mới, market liberalization

2000-2014 : Average GDP of Vietnam = 6%

Q2 2014: 5.25% GDP; dynamic growth.

APEC (1998) – opening the market to regional companies

BTA with U.S (2001) – increase of exchange with U.S

Emerging economy, rising incomes

a. Historical context Demographics

2012: Over 135 million mobile phone subscribers (149% of the population)

Population is young, eager towards new technologies

Modern technologies more common in Vietnam

Q2 2013 Q1 2014 Q2 20140

10000

20000

30000

40000

50000

60000

70000

Work force and population

b. General characteristics of the Internet market in Vietnam Broadband internet access market

dominated by VNPT, Viettel (SOEs)

SOEs control the majority of infrastructure

Process of liberalization , some SOEs equitized (MobiFone)

Aggressive competition on price of prepaid subscriptions : low ARPU and weak customer loyalty

Decline of dial-up due to broadband, available only in rural areas.

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100000000

Internet penetration

Internet Users Population

ADSL introduced in 2003, growth faster than dial-up

FTTx services offered by ISPs but limited number of customers du to cost

Rural areas: worse internet access due to infrastructure development issues (dial-up)

Mobile broadband becoming more popular than fixed broadband.

Dec-12 Dec-13 Jul-140

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4.775.15

5.63

2.993.31

2.46

7.77

8.478.09

Fixed broadband internet subscribers Number of 3G capable cards in useTotal number of broadband internet subscribers

a. Broadband in Vietnam

II. Market Overview

Fixed broadband market dominated by SOEs ( VNPT, Viettel, SCTV)

Major private ISPs : FPT Telecom, CMC

Rising incomes, ADSL growth = dial-up decline

Primary services : ADSL, FTTx

Other services : IPLC, VPN, video conferencing etc.

Expensive development of infrastructure: mobile broadband becomes more popular

VNPT Group; 56.25%FPT Telecom; 26.80%

Viet-tel;

9.74%

SCTV; 2.81%CMC Telecom; 2.52% SPT; 0.95% Netnam; 0.37%HTC; 0.30%Others; 0.27%

Fixed broadband market shares, December 2013

b. Fixed Broadband

Mobile Broadband

Jan-13 Jun-13 Jan-14 Jun-140

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Mobile broadband subscribers

Subs

crib

ers

(in

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sand

s)

- Total number of sim cards in circulation is declining

- 2G subscribers declining (prepaid and postpaid); 3G becomes cheaper

- 3G subscribers on the rise, decline of postpaid 3G

3G first introduced in 2009 by Vinaphone

Spectrum recycling : 2G spectrum must be re-used as 3G. Allows more spectrum, cheaper infrastructure

3G operators: Viettel, MobiFone, Vinaphone, EVN Telecom and Vietnamobile.

4G licenses granted, 4G launch delayed until 2015 at soonest due to lack of 3G subscribers.

63%

23%

12%2%

3G market shares, December 2013

ViettelMobiFone (VNPT Group)VinaPhone (VNPT Group)Hanoi Telecom (Vietnamobile)

a. Competition Landscape

Broadband Internet (fixed and mobile) market shares in Vietnam as of December, 2013

Dominating ISPs : VNPT, Viettel, FPT, SCTV and CMC

Highly competitive sector despite heavy presence of SOEs

VNPT; 55.82%Viettel; 23.46%

FPT; 16.30%

SCTV; 1.71%CMC Telecom;

1.53% SPT; 0.58%Netnam; 0.23%HTC; 0.21%Others; 0.16%

Fixed broadband market competition

Fixed broadband market shares, December 2013

VNPT : leading ISP, owns majority of telecom infrastructure in Vietnam, invested heavily in fiber optic network expansion. Currently under government re-organization. Will be separated from MobiFone.

Viettel: owned by Ministry of Defence, vast infrastructure network in remote areas, currently under government re-organization plan.

FPT: 3rd largest ISP, announced an increase of investment shares in FPT Telecom and improvement of bandwidth speed at no additional charge.

VNPT Group; 56.25%FPT Telecom;

26.80%

Viettel; 9.74%

SCTV; 2.81%

CMC Telecom; 2.52% SPT; 0.95%Netnam; 0.37% HTC; 0.30%Others; 0.27%

Mobile broadband market competition Viettel: dominating mobile broadband market (2G and

3G); acquired EVN Telecom but returned spectrum to MIC (2012); plans on deploying more 3G infrastructure and improve it with DC-HSPA+. Large area coverage in Vietnam.

VNPT: 2nd place on mobile broadband market because it used to own MobiFone and Vinaphone but Government forced VNPT to divest its shares in MobiFone (2013). VNPT will retain 20% of MobiFone shares and the company will go public through IPO.

MobiFone: dominating operator of mobile and 3G services. Plans on expanding 3G infrastructure and centralizing its services. Expected to be finish privatization by end-2015. Currently under control of MIC.

Vinaphone: 3rd MVNO on the market. Plans to expand 3G VAS and offer roaming on local/international flights.

63%

23%

12%2%

3G market shares, December 2013

ViettelMobiFone (VNPT Group)VinaPhone (VNPT Group)Hanoi Telecom (Vietnamobile)

a. Corporate history CMC Group established in 1993

Initially focused on software integration and development

Created numerous subsidiaries to diversify its activities

Nowadays a leading company on Vietnam ICT market and CMC TI is a major private ISP.

85.17% of shares are voting shares.

Until recently focused on manufacturing and distribution of ICT products for major labels (Acer, Sony Ericsson, Toshiba etc.) but in January 2011, CMC introduced Bluefone – first manufactured trademark product.

According to Vietstock.vn, CMC Group’s net profit after tax in Q1 2014 was over VND 12 billion (over $577000)

III. Company profile

b. Organizational Structure CMC subsidiaries and joint ventures:

- CMC Production & Trading: ICT distribution (laptops, PCs, mobiles)

- Ciber-CMC: joint venture with Ciber established in 2008, company provides software and enterprise resource plan consultancy services.

- CMS Computer : Production and assembly of Vietnamese-made CMS trademark computers and IT goods distribution.

- CMC SI: System integration, software services for financial, government and education institutions.

- CMC InfoSec: Information security.

- CMC Software: Softare R&D; software services.

- Netnam Corporation: ISP created in 1994, CMC Group owns 43.8% of Netnam). ICT goods distribution and providing broadband internet access in Vietnam.

c. CMC Telecommunications Infrastructure JSC.Established in 2007 as CMC Telecom Service JSC.

In 2008, CMC Telecom Service JSC became CMC Telecommunications Infrastructure JSC (cooperation between CMC Telecommunication and SCIC)

2009: CMC TI receives permission to start developing its own network infrastructure and to provide telecommunication services.

Activities: Providing internet service (ADSL and FTTx) and value added services : data hosting services, server/website services, leased line services.

In 2009 CMC TI signed an number of agreements to start providing services :

- Sharing infrastructure and providing TV content in Hanoi with Hanoi Broadcasting and Television Service.

- Deploying infrastructure and providing internet services with Netnam Corporation.

- Deploying office building telecommunication networks with EVN Hanoi. EVN Telecom agreed to maintain the infrastructure, CMC TI provides customer services.

- Developing infrastructure with Alcatel-Lucent. Alcatel would provide GPON technology. CMC TI uses this network to provide FTTx services.

2010: CMC TI introduces FTTx services in Vietnam.

September 2010: CMC TI has been given a 4G license by MIT but launch will be postponed.

2013: CMC TI and CMC Telecommunications are merged in to CMC Telecommunications Infrastructure JSC. This centralizes their telecommunication activities within CMC TI.

2nd largest provider of leased line services and 4th largest FTTx provider (Q3 2013)

d. Asia-Pacific Gateway2009 project, assembling multiple regional telecommunication

companies from East and South East Asian countries. (Includes VNPT, Viettel, FPT Telecom and CMC TI from Vietnam and many more from other countries)

Objective: deploy 10 000 Km of submarine cable network to improve bandwidth between those countries, to improve connectivity and allow participating operators an entrance on other regional markets.

APG cable network will support bandwidth up to 54.8 Tbps.

Not the only cable network in the region, other similar projects have been already deployed (TGN-IA, SJC etc.)

Expected launch: Q3 2014

e. Cable TV MarketApril 2012: CMC TI introduces

Giganet Home, a cable TV internet subscription package.

2013: CMC TI signed a cooperation deal with VCTV to use the VTVcab cable TV to provide broadband internet services (VTVnet)

Providing broadband internet access through the television network constitutes a potential threat to ADSL providers as CATV internet is cheaper than FTTx and offers 40 Mbps of bandwidth.

SCTV65%

CMC Telecom35%

CATV market shares, De-cember 2013

f. SWOT analysis Strengths Leading private ISP on domestic market Strong presence on CATV market with 35% of

market shares. Strong presence on leased line market (24% of

market shares) Long development history (CMC Group) Diverse sectors of activity (informatics,

manufacture/distribution, software/internet services)

Weaknesses Weak brand awareness Weak non-core mobile services (VAS) Low broadband market shares (1.53% as of

December 2013) Low FTTx market shares (3.26% as of December

2013)

Opportunities Future 4G launch, 4G license granted Member of Asia-Pacific Gateway expected to

launch in Q3 2014 Telecommunications sector privatization,

increased competition on the market.

Threats Low ARPU Viettel (ViettelTV), FPT and VNPT enter CATV

market

French ICT companies in Vietnam

a. Alcatel Lucent, France Telecom, La Poste Alcatel Lucent present in Vietnam since 1993, France Telecom

since 1997

VNPT/Orange contract to deploy over 500 000 fixed lines in HCMC region for $492.6 million.

2007: Alcatel/ MobiFone contract, Alcatel provides GSM Base Stations in rural areas.

2008: MoU between La Poste and VNPost Corporation. La Poste provides staff training, money transfer services for VNPost and wanted to establish a JS Bank to offer insurance services.

2009: Alcatel provides GPON infrastructure for CMC TI

Orange France Telecom repeatedly expressed interest in acquiring MobiFone shares

2013: Alcatel improves AAG capacity from 1.92Tbps to 8Tbps

French/Vietnamese ICT companies: - France Cable Radio (Orange/VNPT), taken over by VNPT in

2011 - Alcatel Network System Vietnam (ANSV) created in 1993,

VNPT took over in 2011.

b. Other French ICT activities in Vietnam:

Main activities of FR ICT companies: technology transfer to VN telecoms, infrastructure development, outsourcing software activities to VN ICT companies, providing content and software services.

Examples: - Nexans (communication cables, copper and optical

fiber) - Pentalog High Tech (IT consulting/engineering and

wireless network services) - Canal Overseas (subsidiary of Canal+, owns K+,

providing satellite TV service in VN) - Gemalto (Software security, e-banking/e-government

services). Cooperated with FPT-IS to provide Europay, Mastercard, VISA payment for VPBank.

Observations:- In 2013,France imported informatics/electronics/optics from VN

for a total sum of over € 1.026 Bn (biggest sector of French imports from VN) while shoes and tetile imports were estimated around € 700 million

- Few French ICT companies in Vietnam apart Orange France Telecom and Alcatel

- French outsourcing ICT prefer French speaking labor force they can find in North Africa, which also is geographically closer to France

- Foreign companies wary of setting up BCCs, as they give advantage to local companies.