Vietnam: towerco and supplier opportunities in 2018

Boasting 331,210km² and population of ~93mn, Vietnam is home to global mobile network operator Viettel, as well as MobiFone, Vinaphone, Vietnamobile and Gtel. There are tens of independent towercos scattered around the country, mostly small, “mom and pop shops.” While urban centres such as Ho Chi Minh and Hanoi are littered with rooftop structures, towers of all types and sizes can be seen all across the land, which include mountainous and coastal areas. Building on recent research as well as discussions from the fourth TowerXchange Meetup Asia, in this editorial we revisit this unique tower market.

TowerXchange’s last in-depth look at the Vietnamese telecom tower market was back in 2015 and since then the local industry has continued to grow rapidly.

According to Vietnam’s Ministry of Information and Communications (MIC), the country had roughly 130mn phone subscribers, with 68.8mn as 2G, 54.2mn as 3G and 7.3mn as landline subscribers as of June 30, 2017.

MIC also noted SIM subscribers for 4G totaled 6.3mn in mid-2017, while a survey by IDG noted actual active 4G users to be 3.5mn, with 88% living in Hanoi and Ho Chi Minh city. With an approximate population of 93mn, smartphone penetration reached 55% at ~48mn devices.

According to the GSMA, Vietnam had 150% penetration as of Q4-2014, though the government had been attempting to clean up SIM registrations and blocked 10mn+ pre-activated ones by the summer of 2017.

While subscriber growth has hit a saturation rate, the rollout of 3G and now 4G services is playing a role in boosting mobile broadband penetration and enhancing connectivity. The government is keen for the successful implementation of 4G and eventually 5G to support initiatives of e-Government, Smart Cities, and Smart Agriculture.

When it comes to the MNO landscape, military-owned Viettel leads the pack; while state-owned MobiFone (Vietnam Mobile Telecom Services, subsidiary of VNPT) and Vinaphone (VNPT) occupy the number two and three spots. Both MobiFone and VNPT have been urged by the government to complete their equitisation by 2018 and 2019 respectively.

The market has two other significantly smaller players which are Vietnamobile, a joint venture of Hanoi Telecom and Hutchison Asia Telecom Group, and Gtel now owned by the Ministry of Public Services and formerly known as Beeline when it was owned by VEON.

In mid-October 2016, the government issued 4G licenses on the 1800MHz band to Viettel, MobiFone, VNPT (Vinaphone) and Gtel. The fifth license was granted to Vietnamobile two months later.

Shortly after receiving its license, Vinaphone officially launched the country’s first 4G service on the island of Phuc Quoc on 3 November. By the end of 2017, it would have installed approximately 21,000 base transceiver stations (BTS) nationwide to support network expansion, with an additional 9,000 BTS for 3G.

In April 2017, Viettel launched its 4G LTE network, delivering nationwide coverage for 95% of the population thanks to 36,000 BTS installed. This rapid rollout came six months after having received its license for 4G service provisioning, with average download speed of 30 to 50Mbp, which is 7-10x times faster than 3G.

Over the years, Viettel has built up a 3G network of 35,000 stations and 2G network of 25,000 stations, as well as 350,000km of fibre optic cable. And by February 2018, the military-owned operator was said to have increased its reach to 37,000 BTS including in rural and remote areas.

Following the heels of Viettel, MobiFone started offering 4G services in July 2017, at which time it had built 4,500 BTS with 30,000 more planned for the 2017-18 period. Recently it announced the addition of 1,500 4G stations in central Ho Chi Minh City to support the peak traffic expected as part of the Lunar New Year holiday.

Vietnamobile on the other hand does not appear to be in a rush to offer 4G, as its CEO Elizabete Fong had previously stated in 2016 that “in cities, people have shown interest in 4G, but in rural areas, most of the smartphones being used are 3G. 3G is still the more popular and more easily accessible technology.” By the fall of 2017, the operator had completed its 3G network rollout across all 63 cities and provinces, covering 90% of the population. The MNO is not expected to invest in 4G technology for another few years. With ~40% of the country being 25-and-under, Vietnamobile also launched two new data packages for the youth segment as part of its 3G rollout.

In general, 4G uptake has been relatively slow, in part due to the limited number of smartphones that are 4G compatible in the country, which also tend to be more expensive. In addition, the partial switchover of some 3G users to 4G has eased up the pressure on the network, allowing 3G users to have a more improved experienced compared to before and therefore less immediate need to convert. The increased availability of Wi-Fi as a result of fibre optic expansion across the nation also means consumers have other means of accessing data.

By the end of Q2-2017, Viettel had 52% of the 4G market share, followed by MobiFone at 27% and Vinaphone at 21%, according to an IDG report.

Having set the context for Vietnam’s mobile market through recent baseline statistics, this report now dives into the ground realities of the infrastructure side of things, courtesy of insights from the country-focused roundtable at the fourth TowerXchange Meetup Asia, hosted by John Seet, CEO of SEATH (OCK).

Currently there are an estimated 70,000 towers/structures in the country, up from ~55,000 in June 2015.

The towerco ecosystem in Vietnam is truly fragmented, with tens of towercos owning portfolios made of anything between five and 100 towers. The majority of tower ownership remain in the hands of the MNOs.

Malaysia-based OCK is currently the market leader, with ~2,000 towers acquired from Southeast Asia Telecommunications Holdings Pte. Ltd. (SEATH) for US$50mn in January 2017. This portfolio had been built up over ten years by VinaCapital, who also sold its ~120 IBS portion to JTOWER of Japan for US$10.2mn the summer of the same year.

Golden Towers is the other known towerco of some scale, at 350 towers. And there is said to be another towerco with 600 to 700 towers, though TowerXchange has not yet been able to verify this.

Lease rates are all denominated in local currency and while amongst the lowest in the region, indicate ample room for growth. Due to inflation and advancements in the country, prices are surging and this include land rentals fees also.

Tenancy ratio is low and ranging between 1.2 and 1.3. With no official mandate for infrastructure sharing in the country, the MNOs still build the bulk of their towers. Sharing between MNOs also tend to be limited, and when they do it is on a barter basis rather than commercial.

Once operators start working with towercos, they tend to outsource every aspect of the deployment and this may very well represent one of the limitations in the advancement of towercos across Vietnam. In fact, MNOs employ a large workforce to deal with infrastructure and large-scale outsourcing could lead to the undesired effect of employment loss at the State-owned and military-owned entities.

Without regulations governing telecom infrastructure development, it means the operators are allowed to build next to each other resulting in plenty of parallel infrastructure across Vietnam.

Overlapping towers are common as not only are landlords happy to lease to a second customer to generate additional income, contractors who are engaged for site acquisition are also keen to get the business to build rather than reporting an existing tower that could be available for sharing.

Another challenge in the country is that MNOs tend to own the land under their sites, especially Viettel due to its military and government links. Viettel doesn’t often engage in sharing its infrastructure and prefers to build and own sites.

Tower build permits were fairly recently introduced in the country, so all existing towers needed to apply for issuance. However, the process is said to be inconsistent across provinces, where some grant existing towers as they are, without any paperwork. There is a mix of relaxed and stringent approaches that towercos must contend with at the moment.

In Hanoi, new builds are said to be halted as there are inter-governmental department disputes on who has the right to issue the build permits. Until this is resolved, any new builds in the area are expected to be fined heavily.

Even with a build permit, there are risks as neighbourhood consent is not so straightforward in Vietnam. A resident living two blocks away with sightline to the tower would be able to file a complaint and halt the process. And this could very well happen after the foundation work has started and concrete has been poured in, by which point it costs more to remove. An estimated 20 to 30% of sites may experience this, meaning out of ten towers, every two to three might be incomplete due to a complaint. This also means the towerco is not getting paid, driving up cost per site over time.

One solution to counter the challenge of acceptance is the use of cell-on-wheels (COW), which allows testing of the structure in an area, leading to a permanent build if no complaints are received within a certain period of time. While this does mean extra investment and an overall longer process, it may be worth it ultimately to get a site up.

Compared to Myanmar, where power supply is amongst the lowest in the region covering only ~40% of the population, and thus one of the main pain points for MNOs and towercos, the grid in Vietnam is much better. Roughly 90% of the sites have grid connections though there is a difference between a good versus bad grid. While the grid tends to be unstable, cutting out more often, it generally comes back within two hours, at worst four to six, or up to eight hours.

Most sites have a standby genset and the heart of the SLA is more or less centred around how quickly maintenance personnel is able to reach the site and turn it on if there is a power outage. If the genset has not been well maintained or serviced and fails to turn on in time of need, then it’s a matter of how quickly a standby genset could be brought onsite.

While there are no complicated power solutions currently in need or deployed in Vietnam, it may be ready for green energy, which is still new to this marketplace, but a direction that telecom players around the world are moving towards.

What is also worth exploring in Vietnam is advanced lithium solutions, with backup and recharge time different to that of generators. While the reality is gensets will always have a role to play in rural sites that are off-grid, towercos are being challenged to take the lead in bringing reliable and alternative energy onto the site.

Understandably, industry solutions providers are keen to push for adoption of new technologies. One participant at the TowerXchange Meetup Asia roundtable cited payback of advanced lithium solutions on the capex investment as two years in Myanmar. On the other hand, towercos who are the site owners and operators see no incentive for the capex investment of a complete set of solution involving genset, solar, battery, et cetera. Any reduced consumption on genset runtime or grid ends up being a benefit to the MNO at the expense of the towerco, as diesel and electricity charges are often contracted as pass-through.

Of course, the general rise of the ESCOs and the potential role they could play is something to consider for the Vietnamese market. Though again, towercos in general are assessing the costs to partner versus doing it in-house, as minimising opex is key for a towerco to optimise or improve revenue.

Given the context for the Vietnamese tower market, with a large geographical spread and fragmented ecosystem, there are certainly opportunities for consolidation. This is a market where economy of scale allows costs to be optimised.

In addition, some of the smaller towercos also struggle with financing to rollout sites and meet SLAs as they do not have the resources to maintain and service their sites. An experienced towerco with access to financing could be well positioned to make a difference.

While the availability of the grid negates the need for complicated power set-ups, green energy is an area to be explored.

Upgrading site monitoring systems may be another opportunity to modernise a lot of the sites which are old.

Most MNOs use microwave right now, however as fibre is brought to the site and the equipment offloaded, more space is created on the tower for antennas.

New structures such as cell-on-wheels (COW) could provide relief on testing neighbourhood acceptance and tower manufacturers could play a supporting role here.

In conclusion, growth opportunities remain in Vietnam, as the government has introduced more MNOs to increase competition and affordability of communications. With 4G rollout in place and 5G in the future, more sites will be needed for capacity and tower sharing should very much play a role .