Viettel and SoEs continue to define tower market structure in Vietnam

During my latest trip to Asia, I headed to hectic Hanoi to take a closer look at the evolving Vietnamese telecom and tower industries. Just a two-hour flight from Yangon threw me into a completely different market structure where military-backed Viettel and its MNO competitors take the lead while towercos play supporting actors. This editorial analyses the role of Viettel and its contestants while examining how this mature telecom market could still provide business opportunities for infrastructure providers and vendors. 

According to the Ministry of Information and Communications (MIC), Vietnam has now 128mn mobile phone subscribers. Although the market is quite mature and saturated, its telecom industry still generated around US$16.8bn in 2017 (a 7.3% growth YoY) and the local Government is actively promoting the development of telecom technologies and IT initiatives to meet the objectives of sustainable economic growth and international integration.

Viettel undoubtedly dominates the game and has around 50% market share with 63mn subscribers. State-owned MobiFone serves approximately 34.8mn customers, followed by VNPT-Vinaphone with 20.5mn. Smaller players Gmobile, with 6mn and Vietnamobile with 3.7mn are trying to increase their piece of the pie and compete with the three giants.

Last year, MIC instructed MobiFone to complete the sale of a portion of its shares – a process known as equitisation — by the end of 2018. State-run company Vietnam Posts and Telecommunications Group (VNPT), owner of telecoms operator VNPT-Vinaphone, must finalise a similar process in 2019.

All the operators are currently rolling out 4G and mobile broadband penetration has rapidly increased due the rising level of 3G and 4G subscribers across the country. Vietnam has more than 13mn 4G users, accounting for about 30% of the total number of mobile phone subscribers, and the service has become very popular even in remote areas. However, operators have massively invested in 4G deployment and they are struggling to realise the expected returns, which is notably affecting their finances.

In July, Viettel Global—the international investment arm of market leader Viettel Group—officially landed in Myanmar as Mytel launched operations in the golden pagoda country, becoming the 10th international market where the company operates. 

Viettel’s overseas footprint extends all the way from Southeast Asia to Africa, and the company has investments in operators in Burundi, Cambodia, Cameroon, Haiti, Laos, Mozambique, Myanmar, Peru, Tanzania and East Timor. Since 2009, Viettel Group has captured more than 90mn customers globally and aims to become one of the world’s top ten telecoms companies by 2020. 

The Vietnamese giant has been able to conquer several international markets thanks to a full, low-cost aggressive strategy that includes infrastructure development and management. In Myanmar, the company’s largest international market, Mytel quickly captured three million customers in just three months and has been actively deploying its own towers as well as co-locating on third party sites. 

In Cambodia, Viettel’s first international venture, the company has a 46% market share and has taken a 50% slice in East Timor. Viettel’s access to Vietnam’s military-industrial complex yields proven contractors and network expertise, and is one of the company’s strengths, having helped its international subsidiaries in notably reducing costs, as well as improving management of telecom infrastructure and equipment. 

Locally, Viettel is by far the largest infrastructure player and certainly the biggest 3G and 4G provider with 40,000 macro towers and a total of 67,000 base transceiver stations (BTS) that provide mobile connectivity to rural and mountainous areas, covering 95% of the population, currently using the modern 4-Transmit-4-Receiver (4T4R) technology. 

Infrastructure development is in Viettel’s DNA and it has indeed become an essential component of their business model. In Vietnam, the company has set up five different divisions to develop and manage their towers including New Technologies & Solutions, Planning & Design, Operations & Maintenance, Implementation and Monitor & Control. The company manufactures its own towers through subsidiaries and affiliated companies and it masters every aspect and process of tower production, deployment and maintenance. Furthermore, Viettel Global has been able to successfully export its expertise and strong foothold across its international ventures, such that they are set to become one of the top telecom infrastructure players across the globe.

In Vietnam, Viettel is not expected to favour any infrastructure sharing initiatives, mainly for national security reasons, but they are patiently awaiting the government to provide a new frequency band suitable for 5G deployment, which could drive a 50% increase on Viettel’s small cell site deployment.

Internationally, Viettel is not planning to stop their global expansion anytime soon. The company is interested in becoming the third operator in the Philippines, where they can also use their infrastructure expertise to revolutionise a dormant tower industry. Regionally, the company is currently evaluating entrances into Malaysia, Nepal and Indonesia, while Viettel executives have confirmed an interest in Nigeria, where the Asian giant could expand its African footprint. 

Moreover, Viettel has confirmed the possibility of creating their own infrastructure arm as Axiata did when they carved out towerco edotco. Even though we could not confirm any official moves yet, some executives are very keen on the idea, which will definitely shake the telecom infrastructure business both regionally and globally.

Currently there are an estimated 90,000 towers in Vietnam, and the majority of them remain in the hands of the operators. Vietnam’s tower count and landscape is littered with “naked” zero tenant towers, many the legacy of bankrupt MNOs.

The towerco ecosystem is still fragmented and there are dozens of very small tower companies owning portfolios of less than 100 sites. With ~2,000 towers, we can consider Malaysia-based OCK the market leader. The company entered the market after buying SEATH’s assets from VinaCapital for US$50mn in January 2017. OCK is not planning to build more assets due to mobile market constraints but they are very keen on consolidating its portfolio and TowerXchange has learned that they are currently negotiating some acquisitions. However, independent towercos in Vietnam are tough negotiators and the mismatch on valuation might slow down the process.  

Golden Towers and Nisco are the other known towercos of some scale with 350 and 300 towers respectively. The former is now building 100 more towers after closing a BTS deal with MobiFone. 

Tenancy ratios is around  1.5  and MNOs do not have plans to sell and leaseback any tower assets and infrastructure sharing among operators is still limited, but there is still much room for growth and positive expectations. Some MNO executives have highlighted specific sharing initiatives in areas where it is not possible for competitors to deploy their own towers. State-owned operators VNPT and MobiFone are relatively used to sharing access to some sites, as they were once the same company. Additionally, the recently appointed Acting Minister of Telecommunications and Information Nguyen Manh Hung, who was previously Chairman of Viettel, is expected to push operators towards sharing and encourage co-locations.

Lease rates, which are all denominated in local currency, have grown recently due to inflation and an increase in rental fees. The average cost is VND15mn per month (US$640 per month), notably lower than Myanmar (US$900-1500) but still higher than India (US$550) and China (US$350).

As previously reported, operators are often allowed to build next to each other resulting in significant of parallel infrastructure across Vietnam.

The Vietnamese telecom infrastructure industry might not grow much in terms of numbers, but there is room for modernisation and the deployment of new site typology infill sites in urban areas.

MNOs run the whole operation on their towers, from energy management to fibre deployment. Most of the towers are now made in Vietnam and operators do not require sophisticated energy systems nor hybrid solutions since the grid is very accessible and reliable — for example, just 200 of Viettel’s 40,000 sites are off-grid. Specifically, the market leader relies on gensets and lithium batteries for backup - they do not buy acid lead systems anymore - and modern air conditioning and cooling systems are extensively used to reduce energy consumption. Although numbers are not huge, Viettel has worked with a couple local partners and deployed some solar systems in remote locations to overcome grid inaccessibility.

As previously mentioned, a new frequency band could drive a massive deployment of small cellsfrom Viettel and the other MNOs, but in the meantime, operators are focusing on network improvements. As discussed with one of its executives, Viettel deployed its network 15 years ago and most of the equipment is relatively old, so it is very hard for them to monitor and control their sites, with a direct negative impact on efficiency. The company cannot replace all the equipment across its network and they are currently struggling to implement automation or modern monitoring systems. Integrating new monitoring systems, sensors and data analytics tools into their old equipment is presenting a huge challenge. Efficiency is now Viettel’s operational priority and the company wants to progressively modernise its network towards automation to take advantage of data and ultimately reduce cost. 

During my trip to Hanoi, I sat down with one of MobiFone’s tower executives who manages assets in seven out of the 63 provinces that constitute Vietnam. To give an idea of the size of MNO’s infrastructure business, he is managing a yearly budget of VND150bn for infrastructure development and has recently ordered 100 more sites from Golden Towers on a BTS deal.

MobiFone is now implementing an optimisation programme in their power system that aims at reducing energy consumption and cost. Contrary to Viettel, they use acid lead battery for backup as they find lithium-ion very expensive, and they have one to three batteries per site as backup. The company have been implementing 4G for two years and have already 9,000 sites. They have explored small cells for 3G and plan to keep exploring similar solutions now for their 4G rollout, mostly in urban areas such as Hanoi and Ho Chi Minh City.

Markets constrains as well as a potential update on telecom regulation could drive infrastructure sharing and increase co-locations as most of the operators are struggling financially. MobiFone has shared with us its intentions of acquiring some assets from smaller players and they are open to continue working with tower companies if they can help them in reducing cost and improving efficiency.

VNPT is now focusing in urban areas and they have around 3,000 sites in Hanoi, mostly rooftops. They are also keen on collaborating with towercos and currently evaluating new technology deployment in urban areas including small cells and DAS.

The market has almost reached its peak in terms of subscribers but everybody across the value chain can find a role in this challenging context. While the government still needs to grasp the benefits of infrastructure sharing, operators can improve their efficiency and relieve their balance sheets by modernising their networks and transferring some responsibilities to towercos. Infrastructure providers can find great opportunities in urban areas, where fibre, 4G and the future deployment of 5G will require significant network investment. Ultimately, vendors can also play a substantial role in this modernisation process by providing more sophisticated monitoring systems and helping both towercos and operators in optimising their assets.

I would like to extend a big thank you to old and new Vietnamese friends of TowerXchange, who took time to meet with me in Hanoi. I am grateful for your generosity, hospitality, as well as the insights and intelligence shared. 

For everyone interested in Vietnam, we recommend you join the fifth annual TowerXchange Meetup Asia, taking place in Singapore, 4-5 December, to gain direct insights with many leading players from the country that will be joining us in Singapore. Click here for more details.