Socialist Republic of Vietnam

The Far Eastern Economic Review
April 2, 2003

By Margot Cohen in Hanoi

THE VIETNAMESE GOVERNMENT has long refused to let foreign intruders bypass state control of international telecoms gateways. So it was quite a surprise in late March when Deputy Prime Minister Nguyen Tan Dung approved a trial run for a satellite-linked Internet service provided by Loral Skynet, a unit of New York-based, publicly listed Loral Space & Communications. The move could signal new opportunities for local and overseas telecoms and software companies.

Local industry analysts, however, are cautioning that the Loral link-up -- at one-quarter of the cost of a rival state-owned service -- could be just a temporary setback for the powerful state telecoms tsars at the Ministry of Post and Telecommunications and Vietnam Posts and Telecommunications (VNPT). They will fight to ensure that Loral doesn't get a permanent licence, analysts believe.

The Loral trial run is aimed at Vietnamese software developers who are clamouring for cheaper, faster Internet access in order to secure more outsourcing contracts and increase software exports, which totalled $75 million in 2002. They're pressing the ruling Communist Party to deliver on repeated assurances that IT development is a national priority. Their supporters in the government may have swayed Deputy Premier Dung, though he hasn't publicly explained his decision to approve the Loral service.

So far, Loral is only providing VSAT -- short for "very small aperture terminal" service -- to Saigon Software Park, which currently has about a dozen corporate tenants. But other software parks in Ho Chi Minh City and Danang seem eager to jump on the VSAT bandwagon, if they can obtain licences. "Maybe we can follow them. It's a positive development," says Nguyen Bao Lam, manager of the IT department at E-Town, a new hi-tech complex in Ho Chi Minh City.

Dung's green light for Loral was surprising for several reasons. First, it appeared to legitimize a contract inconsistent with government guidelines. The Saigon Software Park asked Loral to install VSAT in July last year, despite the fact that Vietnamese policy enshrines state control over international gateways so that the government can reap profits, police firewalls and ensure social stability -- all of which it fears could be jeopardized by unrestricted Internet access.

But Saigon Software Park's managers complained to the central government about the slow, costly terrestrial leased lines operated by VNPT subsidiary Vietnam Datacommunication Co. (VDC). Alarmed by tenant departures, Saigon Software Park decided to procure Loral's satellite services at $7,000 per month, far cheaper than the $37,850 rate charged by Vietnam Telecom International, the only state-owned firm offering satellite-linked service. The state telecoms tsars allowed the Loral deal to go ahead. It was only five months later, in December, that they clamped down, issuing a March 4 deadline for the park to abandon Loral's service or face hefty fines or prosecution. But in late March, Dung stepped in.

Meanwhile, in the middle of this struggle, some park tenants decided to switch from VDC's terrestrial leased line to that of the Military Electronics Telecommunications Co., or Vietel, which obtained a licence to offer international leased lines in mid-2002. Vietel won fans by offering free two-month promotions, other discounts and swift service.

So the Loral deal undercuts both the entrenched state providers and the growing success of a military company.

Indeed, some state telecoms officials are bristling that the Loral trial will encourage other deals with foreign telecoms companies, hurting Vietnam's ability to subsidize phones for rural areas. "We don't want other companies who are only engaged in highly profitable services like the international gateway. They do not contribute to the development of infrastructure in remote areas," insists one Telecoms Ministry official.

Given such high-level resistance, some Saigon Software Park tenants are sticking with Vietel and ignoring Loral's service. "There's too much risk. They can close it down anytime, " says one IT company manager who declines to be named. But the Loral link-up draws praise from Hoang Van Tam, director of the Huong Sen Joint Stock Company, another tenant. "In this country, we need someone to be a pioneer," he says.

With or without Loral, Vietnam is clearly responding to the demand to reduce telecoms prices and provide more incentives for the IT industry. Beginning in April, the cost of international leased lines will decline 30%. Privately owned software firms are being offered new tax breaks. And a few more satellite licences could be on the way.