Beeline Failure Stings Foreign Players

VIR | Tue, Sep 3, 2013 03:46:00 PM Share this on

Vietnam’s telecom market has been characterised by cut-throat price competition, according to a newly released report on the Southeast Asian telecom market by global market research Business Monitor International.

The report underscored that fierce price battles between service providers had eaten into profits and prompted the exit of foreign players.

Sweden’s Comvik, South Korea’s SK Telecom and most recently Russia’s VimpelCom all abandoned Vietnam’s telco market.

In April 2012, GTel Mobile, a joint venture between Global Telecommunication Corporation (GTel) and Russia’s leading mobile phone operator VimpelCom, saw GTel buy out the Russian partner’s 49 per cent stake for $45 million.

GTel Mobile relaunched Gmobile to replace Beeline brand five months later in September 2012. The Beeline brand which was valued at around $9 billion globally in 2009 officially abandoned the Vietnamese market.

VimpelCom chief executive officer Jo Lunder was quoted as saying the disengagement from the Vietnamese market was part of the group’s strategy to focus on added-value services.

“We decided on scaling down operations in some regions and territories to focus on key markets,” said VimpelCom’s vice president Pavel Borodin.

VimpelCom data showed that in 2011, Beeline’s average revenue per user in Vietnam was a mere 70 cents per month in the third quarter and 90 cents per month in the fourth quarter, the lowest among countries the group had ventured into.

VimpelCom’s losses in the Vietnamese and Cambodian markets by the end of 2011 had surpassed $500 million, with the Russian partner shouldering losses of over $410 million in Vietnam’s telecom market alone during the five-year period.

In Vietnam, despite operating over four years as a joint venture model, Beeline had yet to be given suitable waveband for providing 3G services. To achieve the best coverage for voice services, Beeline would need at least 20,000 base transceiver stations (BTSs) since it was only given 1,800MHz waveband, meanwhile other local operators having the right to use 800- 900MHz waveband and only needed half of the BTS which entailed a far lower investment ratio for each BTS against higher coverage efficiency.

GTel’s general director Nguyen Van Du pointed out four reasons behind the Russian partner’s disengagement.

First, Vietnam’s current policy did not allow foreign partners to hold a ruling share in a telco joint venture company. The Russian partner had poured a half of billion dollars into GTel Mobile, but it lacked the management position to drive through its strategy.

Second, the financial downturn swept Europe in 2011, triggering a nosedive in the foreign partner’s parent company share value. VimpelCom then faced difficulties in raising capital.

Third, the parent company strategy was to focus on markets with high revenues and profitability, while Vietnam’s telecom market was structured around cut-throat price competition.

Fourth, GTel Mobile was given limited frequency resources putting it at a disadvantage when competing with other rivals.

Source: VIR