This content is from: Local Insights

Draft telecom law

Just two years since Vietnam's accession to the World Trade Organisation (WTO), preparation for further and comprehensive reform in the country's telecommunications sector has been unveiled in the recently released draft law on telecommunications.

The first notable point under this draft law is the reduction of state control in facilities-based operators except those considered of "special importance" to the entire national telecom networks, economy and security. This will be considered a breakthrough in lifting market access limitations under Vietnam's current WTO commitments and telecom regulations, which only allow foreign investors to own 49% of the capital of such enterprises.

There is no doubt that the above approach will bring new momentum to the privatisation (locally known as equitisation) of the giant network operators, which has been slowed down by the long-delayed equitisation process of Mobifone. This will be good news to foreign investors that are eager to enter the Vietnamese fast-growing mobile market as strategic investors. Currently, strategic investors may only hold up to 24.5% of the capital of a facilities-based operator via its equitisation under Vietnamese laws on equitisation and telecommunications.

This will also help encourage M&A in the mobile industry, where there are already seven licensed enterprises with tough competition amongst them. At the same time any M&A may also need tightened competition rules. The total ownership of an investor in two or more telecommunications enterprises may therefore be limited. On the other hand under the draft law, approval of the Ministry of Information and Communications (MIC) must be obtained in any economic concentration in telecommunications business that results in an accumulated market share of the involved enterprises accounting for over 50% of the related market.

While State control of telecommunications enterprises may be loosened, the draft law still provides methods for allocating telecommunications resources. For one the "beauty contest" method used by the MIC for granting 3G spectrums will be officially legalised together with the methods of public auction and "first come first served". Telecommunications resources with a high value will be allocated either via public auction or "beauty contest". Other resources will be allocated on the "first come first served" basis.

In addition, the transferability of telecommunications resources will for the first time only be recognised if the resources are obtained via public auction. Unfortunately, the draft law ignores the transferability of telecommunication resources obtained via other methods by a telecommunications enterprise, such as when it makes capital contributions to form a new telecommunications company (for example a joint venture with a foreign partner under Vietnam's WTO commitments).

Furthermore, under this draft law small carriers and new entrants may particularly be interested in the regulations on interconnection and telecommunications infrastructure sharing. Accordingly, the enterprises that possess telecommunications essential facilities have little room for denying or delaying access and interconnection to others. A strong mechanism for infrastructure sharing is also imposed.

Finally, a specialised telecommunications regulatory authority, as mentioned above, will be established. This body will deal with various telecommunications issues including supervision of competition activities and acting as a dispute settlement body in solving disagreements between enterprises in telecommunications sectors, particularly on interconnection and infrastructure sharing issues. However, the draft law does not exactly confirm the independence of this body and only mentions that it is an "assisting" body of the MIC, who still serves as the telecommunications policy-making body and the current ultimate owner of many key facilities-based operators in Vietnam.

The draft law will be proposed to the National Assembly for the first time this May and it is hoped there will be better regulations than the current law on telecommunications.

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