4SQT4

A firm can not enter mobile market to do business without the competent authority’s permission, and mobile competition is always accompanied with institutional activities. Institutional activities, at first,must be undertaken to initiate competition via licensing, and then to ensure the existence of the new entrants, i.e. ensure the existence of the introduced competition by nurturing operation of the new entrants andresolving anti- competitive behaviors. Such licensing and ensuring activities are legally put into action by competent authorities, thus legal framework is needed to be created/reformed and functions ofcompetent authorities should be clearly defined/redefined in order to carry out mobile liberalization. In terms of process, institutional reform can be classified as reform to initiate, nurture and acceleratecompetition and reform to ensure the existence of fair competition. Institutional reform can also be divided into two types: reform to create legal framework for competition and reform the competent authoritiesthose are responsible for executing such rules and regulations. In Vietnam, mobile competition policy is initiated and ensured by the National Assembly, the Cabinet, the Ministry of Posts and Telematics (MPT) - who is responsible for licensing, issuing rules andregulations on telecommunications, such as rules on tariff, interconnection, and dealing with telecommunications disputes; the Competition Council (CC) and the Competition Administration Department (CAD) –an organization under the control of the Ministry of Trade (MOT) and is particularly in charge of resolving anti- competitive behaviors. The MPT and the MOT are specially reserved an important role in policymaking process: they are authorized to draft bills and submit these bills to be voted for laws; they are also responsible for drafting related decrees and decisions for submitting to the Cabinet for approval. Further,the MPT and the MOT are in charge of interpreting those laws, decrees and decisions by issuing their own rules and regulations 14. 14 In an interview with the Vietnam Net in March 2 nd 2007, a National Assembly member stated that since all bills of laws are drafted by the line ministries, those bills are mostly reflected subjective viewpoints of
 * Chapter 4. INSTITUTIONAL REFORM **

On the other hand, mobile operators can involve into policy making process in a narrower manner. They have the rights to make comments and proposals to the bills and drafts when a public hearing is opened or when the MPT/MOT sends those drafts to operators to get their particular opinion on the related issues. The role of consumers in the process is limited, since public hearing is normally undertakenwhen reviewing bills of laws. ** Diagram 4-1. Roles of Different Players in Shaping Vietnam’s Mobile Competition ** ** Policy ** the line ministries. In fact, comments and opinions that collected via public hearing will be transferred to the line ministries for the bills’ amendments and revisions; however such comments and opinions are rarely adopted if the line ministries consider that they are not suitable with their purposes. Since time to review and consider a bill to be voted for a law by the National Assembly is sizeable short, there is difficult to make changes during the reviewing process at the legislative level.As affirmed by that National Assembly member, the laws finally are to implement the line ministries’ viewpoint only. See more detail at []

**// Source: author //** As shown in Diagram 4-1, the MPT and the MOT/CAD play an essential role in shaping policy on mobile competition and implementing such policy. Policy related to initiating and nurturing mobile competition is prepared by the MPT, while methods to ensure fair competition are instigated by both the MPT and the CAD. Moreover, these two entities are in charge of interpreting and executingcompetition policy, then establishing and reforming institutional structure of the MPT and the CAD is one of the key issues in institutional reform agenda. Comparing to the CAD, the MPT more deeply involves into governing mobile competition as its duties are ranging from initiating competition via licensing to nurturing and accelerating competition byapplying rules and regulations on mobile-related issues, to resolving disputes among the operators (includes anti-competitive cases), and to protecting the consumers’ rights. On the other hand, the CAD is authorized to deal with anti-competitive behaviors once such behaviors are emerged, and to protect the consumers’ rights as illustrated in Table 4-1. ** Table 4-1. Functions of the MPT and the CAD ** (includes managing scarce resources) ||   || **// accelerating competition //** || Interpreting and implementing telecommunications laws and regulations ||   || **// competition //** || Resolving disputes among operators ||  Inspecting anti-competitive behaviors to resolve or to submit to the Competition ||
 * || **// MPT //** || **// CAD //** ||
 * **// Initiating competition //** || Licensing to operators
 * **// Nurturing and //**
 * **// Ensuring fair //**

**// rights //** || Executing laws on    telecommunications and laws on consumers right protection  ||  Executing laws on    competition and laws on consumers’ right protection  || **// Source: author //** In order to examine hypothesis 2, whether institutional reform has been adequately considered to timely support and ensure mobile competition, and whether an independent regulator and a transparent and workable legal framework exists, this chapter is constructed by two parts: part 1 focuses on the institutional reform relating to the commencement and cultivation of mobile competition, and part 2 aims at analyzing institutional reform concerned to dealing with anti-competitive behaviors. ** 4.1 Institutional Reform: Establishment of the Telecommunications ** ** Regulator, Initiating and Nurturing Competition ** ** 4.1.1 Establishment of the Telecommunications Regulator ** The establishment of modern telecommunications industry in Vietnam was dated back in August 1945, when the then Communist Party formed a division that responsible for posts and communications activities. Telecommunications and posts have been being governed together from that date by a single organization. From 1945 to 1972, telecommunications was considered merely as administrative tools toserve the bureaucracy, and until May 1972, telecommunications was treated as an economic sector. In 1990, after 45 years of development, business and regulatory functions were separated for the first time: regulatory functions were carried out by the Ministry of Transportation; and business functions were authorized to the Vietnam Posts and Telecommunications
 * ||  ||  Council for judgment  ||
 * **// Protecting consumers’ //**

Corporation (VNPT, restructured as Vietnam Posts and Telecommunications Group in   January 2006) which was also under the control of the Ministry of Transportation. In October 1992, telecommunications regulatory and policy making functions were separated from the Ministry of Transportation to a newly established ministerial agency – the Department Generalof Posts and Telecommunications (DGPT). The VNPT still played as posts and telecommunications operator and was put under the authorization of the DGPT. In 1993, a decree on rights, responsibilitiesand structure of the telecommunications regulator was released for the first time (Decree 28/ND), though the VNPT was still considered as a functional arm of the DGPT. The DGPT was restructured twice from 1993 to date, once in 1996, when the VNPT was structurally separated from the DGPT, and once in 2002, when the DGPT was restructured as the current Ministry of Posts andTelematics (MPT). Correspondingly, its responsibilities and structure were clarified in Decree 12/ND (1996) and Decree 90 (2002). Table 4-2 presents milestones of the telecommunications regulator’s development. ** Table 4-2. Historical Development of the Telecommunications Regulator ** tools || an economic sector. Both administration and business function were authorized to a single organization || entities were under the control of the Ministry of Transportation || and policy making function. || under which the single telecommunications operator was treated as a functional division of the DGPT  ||
 * 1945 ||  Telecommunications sector was formally created to serve as administrative
 * 1972 ||  Telecommunications sector was considered as both administrative tools and
 * 1990 ||  Regulatory and business functions were separated, though the two related
 * 1992 ||  A ministerial agency named the DGPT was created to carry out regulatory
 * 1993 ||  A decree on rights, responsibilities and structure of the DGPT was released,
 * 1996 ||  The DGPT was restructured. A newly decree on its responsibilities and  ||

DGPT || structure of the MPT was issued in the same year. || **// Source: author //** Since 1990, the telecommunications regulator has been authorizing to be both a policy maker and a regulator. It is in charge of drafting bills, policy and strategies to submit to the Cabinet for approval, interpreting such laws and policy, and governing telecommunications sector. ** 4.1.2 Initiating Competition via Licensing ** Mobile competition is introduced via licensing activities, then rules and regulations on licensing, as well as the function of the telecommunications regulator in licensing act as decisive role in initiating competition. In Vietnam, mobile licenses are granted under the form of individual acquisition licenses. After receiving acquisition licenses, mobile operators have to apply separately for numbers and spectrumlicenses. However, under the applicable rules and practices, once an applicant receives an acquisition license, that successful applicant will be semi- automatically awarded numbers and spectrum licenses,because one of the license selection criteria is the feasibility of telecommunications scarce resources allocation to that selection. In other words, when approving an application for acquisition license, the regulator has already confirmed the availability of a block of numbers and spectrum to that applicant. The development of institutional reform in Vietnam is also accompanied with the country’s WTO accession; therefore, this part mainly addresses mobile acquisition licensing issues under the impact of the WTO accession.
 * || structure was issued, the single operator was structurally separated from the
 * 2002 ||  The DGPT was restructured as the MPT. A decree on responsibilities and

Development of the telecommunications regulatory framework has a close relationship with mobile licensing practice in Vietnam. The licensing framework is primarily defined in the following legal documents: • documents promulgating telecommunications regulator’s structure, its rights and responsibilities, which normally include licensing responsibility of the regulator; and • documents regulating the telecommunications sector that define the licensing procedures. Historically, mobile licensing regimes can be divided into 3 periods based on the development of telecommunications regulations and such regimes have a close connection with mobile licensing practices as analyzed below. ** Mobile Provisioning without License – Prior 1996 ** In October 1992, the DGPT was established to act as the posts and telecommunications regulatory and policy-making agency. The DGPT’s structure and obligations were defined in the GovernmentalDecree No. 28 dated May 1993. However, until 1995 telecommunications services provisioning was managed under a monopoly mechanism while the regulatory and operation functions were still not fullyseparated. This point of view was legally reflected in the applicable framework, in which terms such as ″market″ or ″competition″ were not referred to and the regulator’s licensing responsibility was limited solely to issuance of licenses to private networks; VNPT was one of the functioning segments of the DGPT and the exclusive telecommunications carrier; and further, VNPT could provide services to the public without licenses. From 1992 to 1995, VNPT built and operated two mobile networks: Callink and MobiFone. Since there was no legal document regulating licensing issues, Callink and MobiFone were operated without licenses for couple years under the control of VNPT.

The year 1995 represents the theoretical shift from monopoly to competition in the telecommunications sector as a whole and the mobile market in particular when the Prime Minister allowed twocompanies: Vietnam Military Electronics and Telecommunications Corporation (Viettel), and Saigon Posts and Telecommunications Corporation (SPT), to build networks and provide domestic andinternational telecommunications services in June and December 1995, respectively as shown in Figure 4-1.

** Figure 4-1. Legal Framework and Mobile Licensing to 1995 **

**// Aug. //** **// 1987 //**

**// Oct. //** **// 1992 Nov. //** **// 1992 //**

**// May10, //** **// 1993 //**

**// May28, //** **// 1993 //**

**// Jun. 1995 Dec. 1995 //**

Issuance of Decree No. 121 on Posts and Telecom municati on. No definition of licensing to operators was included.

Establis h-ment of regulato ry agency

Callin k started withou t license

MobiFo ne started without license

Issuance of Decree No. 28 on the regulator . The only carrier was still consider ed as a DGPT function al part

The Prime Minister allowed Vietel to begin operations in the telecommun ications sector

The Prime Minister allowed SPT to begin operations in the telecommunications sector

**// Source: author //** The most critical aspects of governing telecommunications in this period were the establishment of a regulatory agency for the first time and the authorizations of the regulatory and policy-making functionsand business operating function to separate entities. However, several deficiencies were observed: the absence of a legal framework to

authorize telecommunications licensing duties to the regulator and the necessary procedures to undertake such an authorization; the consideration of the only operator as functional segment of theregulatory agency. As a result, the only operator began establishing networks and providing services without a license; meanwhile two new corporations could not receive licenses for few years even though theyhad been allowed to do business in the telecommunications sector. Permissions that allowed two new corporations to enter the mobile market could be viewed as ad-hoc since no particular legal document existed that addressed such permissions. ** Sound Licensing Period from March 1996 to May 2002 ** In order to overcome the observed deficiencies as analyzed above, a new governmental decree (Decree No.12) that authorized licensing obligations to the DGPT was issued in March 1996. Subsequently, licensing procedures were stipulated in Decree No.109/1997, which had become into effect from November 1997; and detailed by the DGPT’s Circular No.04/1998. Relating to licensingprocedures, these legal documents only provided criteria to choose qualified applications; they failed to stimulate any criteria on how to evaluate and select a successful applicant. Time to screen applicationscould not be exceeded 90 days from the day of their receipt, and the license duration was fixed as less than 20 years in case of applying to establish a network to provide services. A nominal fee, equivalent to approximately 1,570 US dollars, was applied since January 2001 to all successful applicants. During this period of time, four licenses were granted to 3 different mobile applicants. Of these 4 licenses, 2 of them were granted before the effective date of the legal basis for licensing procedures:those were held by VNPT (issued in June 1996 and deployed under the trademark VinaPhone) and Viettel (issued in January 1998 and provided services under the trademark Viettel Mobile from October2004). Since legal descriptions pertaining to licensing procedures were not in effect at the time it reviewed the subject applications, the regulator freely decided to grant the licenses to VinaPhone

and Viettel Mobile based on its own consideration. This free consideration and decision was most visibly reflected in the terms and conditions of these two license durations: VinaPhone was granted a non-duration license, while Viettel was granted one with 20- year-duration. In May 1997, the regulator continued to allow SPT to provide mobile, wireless local loop and paging services in a bundled license. Thisbundled license was separated in April 2002, when SPT was awarded a license to operate a mobile network, which is schedule to expire in September 2016. Another 15-year-license was granted in May 2000 to MobiFone – the network that is owned by VNPT and started providing services without license in 1993 as pointed out in Figure 4-2.

** Figure 4-2. Milestone of Licensing Process from 1996 to May 2002 **
 * **// Mar. //** || **// Jun. //** || **// May, //** || **// Nov. //** || **// Jan. //** || **// Sep. //** || **// May //** || **// Apr. //** ||
 * **// 1996 //** || **// 1996 //** || **// 1997 //** || **// 1997 //** || **// 1998 //** || **// 1998 //** || **// 2000 //** || **// 2002 //** ||

Issuanc e of Decree No.12 on the DGPT’ s structur es and respons ibility. Defined regulat or’s licensin g duty

VinaP hone award ed   non- duratio n mobile license

SPT received non- duration bundle services- license

Issuance of Decree No.109 on Posts and Telecom municati ons. Defined basic provisio ns of licensin g

Viettel awarded 20-year license

Circu lar No.04 detail ed licens ing proce dures

MobiF one receiv ed 15- year license

SPT receiv ed its separat e mobile license

Compared to the scenario in the previous period, the most significant achievement of licensing regime in the second period was the creation of a basic legal framework to deal with licensing issues for thefirst time and the resulting issuance of 4 mobile licenses to different applicants. Further, the framework authorized licensing responsibilities to the regulator on a very broad scale and ensured independency ofthe regulator in licensing: the regulator could self-review and screen applications based only on the legal prescriptions. However, such framework was shown numerous deficiencies: it exclusively classified as by-law documents of the Executive Branch since the Government and/or ministerial agencies initiated all of the elements of the framework. Further, the framework was not fully transparent: it defined conditions to apply for a license, time for considering applications and duration of licenses, but did not include criteria for evaluating and choosing successful applicants for a license. Thus, the regulator could freely choose a successful applicant based on its own evaluation. It appears that the framework seemingly concentrated on surmounting existing problematic licensing issues (i.e. focused on providing the regulator with legal tools to award licenses to entities that had already been allowed to do business in telecommunications sector), but neglected to address prospective aspects of licensing issues in any detailed manner and were not formed by using WTO rules on telecommunications as direction. Additionally, insome cases, the regulator even granted licenses by applying prescriptions on its licensing authorization while stipulations on licensing procedures still had not been enacted (such was the case of licensing toVinaPhone and Viettel Mobile). Non-transparency of the legal framework and the flexibility of implementing licensing duties completed by the DGPT can be seen via the various durations of the fourmobile licenses exhibited in Figure 2. On the other hand, due to the lack of license selection criteria, the two new licensees (Viettel and SPT) were not quite qualified and were financially incapable of starting operations on time, thus they could not provide services as licensed for 5-6 years.

Although Vietnam applied for WTO membership in 1995, regulations on mobile licensing procedures in this period were unclear and significantly incompatible with the WTO rules and regulations. ** Licensing from June 2002 – Legal Framework and Practice ** Before June 2002, there was no telecommunications legal document issued by the constitutional branch, while the constitutional branch is ″the supreme State authority … and the sole organization in chargeof … law-making function″ (WTO, 1998, pp.78). Under Vietnamese legislation, legal documents enacted by the constitutional branch have higher legal effect than those of the executive branch and in cases where discrepancies exist among legal documents the higher effective documents will be applicable. For that reason, availability of complex laws issued by the constitutional branch and in conformance with WTO rulesbecomes one of the basic conditions to ensure success in the WTO accession negotiation process. In addition, the lack of licensing selection criteria created an unpredictable licensing regime during the second period. In 1999, after reviewing Vietnam’s institution on trade in services, the WTOconcluded that there were too many vagaries inherent in the existing regulatory process and stated that, ″Vietnam must give serious consideration as to how to establish more predictability and transparency in itsregime″ (WTO, 1999, pp.168). In 2001, Vietnam responded that together with other relating laws, the constitutional branch would enact an ordinance on posts and telecommunications ″in conformity with WTO regulations on trade inservices″ within the Legislation Program 2002-2003 (WTO, 2001, pp.3). Such an ordinance was promulgated by the Standing Committee of the National Assembly in June 2002 to replace Decree No.109/1997. Additional telecommunications issues that were addressed by the Ordinance are further detailed by Decree No.160/2004, as approved in September 2004. In August 2002, the

regulator and policy-maker (DGPT) was reorganized into the Ministry of Posts and Telematics (MPT). The current licensing framework is mainly created by Ordinance No. 43 and Decrees No. 90 (on the MPT’s structure and responsibilities) and No. 160 (on   Telecommunications). Based on the above legal framework, 2 new mobile licenses were granted. Hanoi Telecom received its 15-year-mobile license in 2003, and in 2005 a 15-year-BCC valued 655 million US$ between Hanoi Telecom with Hutchison Vietnam, a subsidiary of Hutchison Telecom, was approved. Meanwhile, EVN Telecom (Vietnam Power Electric Telecommunications Company, asubsidiary of Vietnam Electric Corporation) obtained a   15-year-mobile license in November 2004. The following figure illustrates milestones of legislative development and results of licensing activities from May 2002 to date. ** Figure 4-3. Licensing Activities and Current Licensing Framework ** **// June 2002 Aug. 2002 Nov. 2002 Apr. 2003 Sep. 2004 Nov. 2004 //**

Issuance of Ordinance on Posts and
 * || || Telecommunic  ||  from DGPT  ||  structure and  ||  year license  ||  Telecommu  ||  awarded  ||
 * ations ||  to MPT  ||  responsibilities  ||   ||  nications.  ||  15-year  ||
 * || under the  ||  which defines  ||   ||  Details  ||  license  ||
 * || National  ||  MPT’s  ||   ||  licensing  ||   ||
 * || Assembly  ||  licensing duty  ||   ||  procedures  ||   ||
 * || Resolution  ||   ||   ||   ||   ||
 * || No.02  ||   ||   ||   ||   ||

Restructure of the regulator

Issuance of Decree No.90 on the MPT’s

Hanoi Telecom received 15-

Issuance of Decree No.160 on

EVN Telecom was

From June 2002, the telecommunications legal framework has been further improved by the enactment of a constitutional branch’s ordinance on posts and telecommunications in which the WTO rules – for the first time - were used as guidelines for drafting the Ordinance. The current applicable framework has overcome the most significant deficiency that was observed in the previous regulations: it provides a set of criteria to choose a successful applicant for a license. However, the current framework reflects a considerable step backward in comparison with the previous one: while in the second period (from 1996 to May2002), the regulator independently exercised licensing activities based on a legal basis, the new framework requires collective cooperation between the telecommunications regulator and other ministerial agencies in reviewing applications for a license. In addition, it is for a requirement that the MPT to obtain the Prime Minister’s approval regarding a decision on successful applicants before issuing a license. Further, itdoes not define clearly time needed to evaluate applications for a license as the framework of the second period. The backwardness and deficiencies of the current licensing regime will be analyzed in detail in the next sub-chapter. ** Evaluating Current Licensing Regime ** The WTO rules on licensing will be employed to evaluate the transparency and workability of the Vietnam’s current licensing regulation in order to understand how far institutional reform supports mobile competition. It would be impractical if this analysis were limited only to analyze the transparency and workability of the current licensing regime while such regulation would not be possible to apply in the future. However, there are several licensing challenges that the regulator must face in the future, and analyzing inappropriate points of the current regulatory regime in order to revise and amend it in a moreapplicable manner is necessary for the following reasons.

First, among 6 existing licenses, only VinaPhone’s license was granted without any specific duration (see Table 1). That situation was acceptable at the time the license was issued (1996 as shown inFigure 2), when matters such as competition and rights to trade in services were not properly considered. Nowadays, Vietnam’s mobile market is shifting towards a more competitive phase and it is imperative that VinaPhone’s license duration be clearly decided and specifically defined in its awarded license. A specific definition of VinaPhone’s license duration is required in order to protect the rights of othermobile network carriers, as well as domestic and foreign investors, especially when the mobile market in Vietnam is going to be further liberalized and opened directly or indirectly to investors in the near future, when foreign investors can directly establish a joint venture to provide mobile services or indirectly buy equity shares of the operating mobile operators when such operators are listed in the Exchange Stock Market. Second, previous licensing practices were done on a case-by-case basis. In other words, at time of reviewing application(s) for a mobile license, only one application was filed and the applicant did not have to compete with others for a license. In that circumstance, the lack of well-designed selection criteria might not strongly affect licensing activities since the regulator did not have the burden of comparingamong applications to choose the best. All six mobile networks in Vietnam are being deployed on spectrums dedicated for second generation (2G) networks. The MPT Vietnam has confirmed that the spectrumavailable for 2G mobile communications has been exhausted and that it is impossible to allow additional mobile operators to use the 2G spectrum 15 (MPT, 2005). This means that there is no challenge for the regulator in the licensing issue if mobile operators satisfy customer demand with 2G services provisioning, including voice, Short-Message-Services (SMS) and a few low-speed Internet access services, such as downloading ringing tones and wallpaper screens. However, when future mobile subscriptions increase to a level that the networkarchitecture depletes 15 In November 2005, application for mobile services provisioning applied by the Vietnam Television was refused due to the exhaustion of spectrum. See Posts and Telecommunications Newsletter Vol.46/2005. Available at []

existing capacity and 2G spectrums are not available for expanding the network, or when customers demand higher quality and various additional mobile data services, the operators will need to use spectrums dedicated to third mobile generation (3G) to meet market demands. Meanwhile, the available 3G spectrum in Vietnam will only support four networks 16. Sooner or latter, Vietnam will have to face a newlicensing situation where either the number of applications exceeds the number of supportable networks, or several applications are filed simultaneously. That potential circumstance requires Vietnam to amend and revise its licensing regulatory regime in a timely manner in order to more effectively regulate licensing activities in the future. Third, the regulator’s licensing duties and responsibilities are not limited to issuing licenses only, but extend to managing proper implementations of the license’s terms and conditions of the respective licensees after issuance. Supplementing and amending the current licensing regime will contribute to timely implementation of licenses when more detailed and quantitative criteria are designed for choosing qualified and successful applicants. Vietnam has had negative experience with cases where license’s deployment was unwarrantedly delayed for couples of years (note for example the cases of Viettel Mobile and SFone). Such delays, on the one hand, showed the ineffectiveness of the licensing practice, and on the other, caused doubts to investors about the feasibility of Vietnam’s mobile projects. ** WTO Rules on Telecommunications Licensing ** Relating to telecommunications sector, WTO rules are defined in the General Agreement on Trades in Services (the GATS), the Annex on Telecommunications (attached with the Fourth Protocol), theReference Paper and specific commitments by members. Of those, GATS, the Annex on Telecommunications and specific commitments are binding obligations, whereas the Reference Paper is considered asadditional commitments.

Two main WTO rules concerning telecommunications are Most-Favored-Nations (favor one, favor all) and transparency (all domestic regulations must be made publicly available). While telecommunications technology development creates borderless- services provisioning worldwide, barriers to market entry, for instance licensing, may be used as one of the domestic regulatory tools torestrain such borderless provisioning. The Most-Favored-Nations rule aims at broadening national markets, while the main objective of the transparency requirement is to abolish undue market entrybarriers that may be established by ETO members and to harmonize telecommunications institutions globally (Mathew B., 2003; Fredebeul-Krein M. & Freytag A. 1997). Paragraph 4 of the Reference Paperspecifically outlines the rule of transparency requirements pertaining to licensing as follows (WTO, 1996(a)): ″Where a license is required, the following will be made publicly available: (a) all the licensing criteria and the period of time normally required to reach a decision concerning an application for a license; and (b) the terms and conditions of individual licenses. The reasons for the denial of a license will be made known to the applicant upon request″. In brief, Paragraph 4 of the Reference Paper requires WTO members to provide the public with: 1/ licensing criteria for obtaining a license (i.e. selection criteria that are requirements the regulators apply to decide successful candidates (Invent H., 2000), 2/ time needed to review and give a decision after applications are submitted; and 3/ terms and conditions of awarded licenses. Reasons for denial are alsorequired to be provided, if requested.

** Current Regime under the Light of WTO Rules ** The above analyzed three WTO requirements that will be employed to evaluate the conformity of Vietnam’s current mobile licensing regime which primarily consists of two 2 major documents: Ordinance No. 43/2002 on Posts and Telecommunications 2002, and Decree No 160/2004. ** Transparency of License Selection Criteria ** Promulgations pertaining to licensing criteria can be found in Ordinance No. 43/2002 and Decree No.160, including not only qualification criteria for accepting an application, but also selection criteria for determining successful applicant(s). Defining selection criteria for choosing successful applicants is an improvement of the current licensing scheme, since the legislation in 1996-2002 period failed to address this topic. Qualified applicants as stated in Article 38 of Decree No. 160/2004 are: • being state companies, or companies in which the State holds dominant or decisive shares; • having adequate financial and professional manpower capabilities suitable to the scale of the schemes for execution as licensed; • having feasible technical plans on network development and services provision plans in compliance with current regulations on interconnection, scarce resource usage, services tariff, technical standards, and services quality; • having contingency plans for assuring safety when technical incidents occur; and • having equipment, facilities and technical plans for assuring network safety and information security. Meanwhile selection criteria to choose successful applicants are listed as 4 conditions (hereinafter called criterion 1, 2, 3 and 4):

1/ licensing to such applicant(s) shall be granted only when the allocations of telecommunications scarce resource is feasible (Article 46.1 of the Ordinance); 2/ licensing to such applicant(s) shall be implemented only after receiving the Prime Minister’s written approval for such licensing (Article 46.2 of the Ordinance); 3/ licensing to such applicant(s) shall be in compliance with the current telecommunications development strategy and master plan (Article 36.1 of Decree No. 160); and 4/ priority is given to applicants that have a high feasibility of deployment with commitment to provide services to the masses for the long term; applications for providing services to remote and mountainous areas; applications for providing universal services (Article 36.2 of Decree No. 160). As shown above, financial and technical requirements are set forth as qualification criteria to eliminate weak financial and inexperienced applicants. In the next step, comparativeevaluation which is based on a set of 4 criteria is used to select successful applicants. Of those criteria, the first 3 are binding and the last one is an alternative criterion. Generally speaking, an evaluation scheme based on a set of 3 binding and 1 alternative criteria provides both predictability and transparency, because applicants can prepare well in advance in order to get significant advantages for their licensing submissions and the regulator can easily choose the best applicant by using the alternative criterion. The only alternative one is criterion 4, which aims at encouraging applicants that promise to provide services in larger coverage areas with faster speed of deployment or applicants that have exhibited auniversal services provisioning orientation. This single alternative criterion is well-designed because it has both alternative and quantitative characteristics.

Among the 3 binding criteria, criterion 1 is quantitative and the easiest to review since confirmation can be given only by reviewing current usage of numbers and frequency. Meanwhile, both criteria 2 and3 are qualitative and can raise discussions on the fairness of choosing a satisfactory application. Criterion 3 aims at reaching harmonization between deployment of a proposed network and the current applicable strategy and plans. However, this requirement is practical only if such strategy and plans are clearly-defined and well-established, while the applicable strategy and plans in Vietnam contain “general contents”(UNDP and MPI Vietnam, 2006, pp.46) and have conflicting objectives 17. Due to such unclearness, criterion 3 may push the regulator to a   matrix of different documents and create more difficulties in selecting successful applicants. On the other hand, criterion 2 hands the final licensing decision to the Prime Minister when no selecting criterion for thePrime Minister’s approval exists. Normally, the Prime Minister will refer to opinions from responsible ministries and agencies on the applications to give final decision. If criteria for Prime Minister’s decision areadded, it will lead to a more complicated licensing regime by using “bridging criteria”. In order to create a more appropriate set of selection criteria, decentralize regulatory activities (telecommunications licensing in this case) and increase independency in licensing, it is imperative thatcriteria 2 and 3 be re-evaluated and revised. Criterion 3 has to be revised in a more predictable and transparent manner by setting forth specific measurable indicators to eliminate unqualified applicants. On the other hand, criterion 2 should be replaced by a new comprehensive licensing procedure to serve as a basis for the regulator to examine applications for a license. A joint-scheme among relatedagencies in further evaluating applications which had basically satisfied technical requirements appears to have been designed by observations and learning experiences from previous licensing practices. In theprevious stage, the legal “corridor” for licensing was quite flexible; there were no selection criteria 17 Such conflicts can be found between the Posts and Telecommunications Development Strategy to 2010 and toward 2020 (Decision No. 158/2001/QD-TTg of the Prime Minister dated October 18, 2001) and Information and Communications Technologies Development Strategy to 2010 and toward 2020 (Decision No. 246/2005/QD-TTg of the Prime Minister dated October 6, 2005) on thedevelopmental objectives.

to select successful applicant and licensing was done on a case-by-case basis. Consequently, the regulator might need outside opinions to confirm the appropriateness of its decisions during that stage. However,legalization of such ad-hoc procedures could lead to a more complicated licensing regime and create dependency of the regulator on other agencies. Replacement of the current complicated administrative licensing procedures with more simplified ones, which authorize the sole responsibility for reviewing applications and selecting successful applicants to the regulator will result in more transparent and practicallicensing procedures. This approach would also ensure independency of the regulator in managing licensing issues. ** Transparency of Time to Reach a Decision Concerning the Application for a License ** Procedures and time for application screening are established in Article 39.2 of   Decree 160. This Article classifies application screening into 2 cases: Case 1: MPT accepts and evaluates application during 75 days from the day of receiving qualified application. MPT will review whether proposed project referred in the application is in compliancewith the national telecommunications development strategy and satisfies technical standards. If such requirements are not met, MPT shall inform applicant of its refusal in written document in which reason(s)for such refusal are clearly stated. Case 2: if the proposed project basically satisfies technical requirements and is in compliance with the national telecommunications strategic plan, the MPT shall consult with relevant ministries and agenciesabout awarding license for such application, then submit application together with all concerned opinions to the Prime Minister for a decision. In case of receiving written approval from the Prime Minister forawarding license to such applicant, the MPT shall issue license during the 15 days following receipt of the Prime Minister’s approval. The duration of 75 days for reviewing application as described above is applied to   Case 1. However, there is no screening duration to apply to Case 2. Furthermore, Case 2

does not describe in which aspects MPT should consult with other ministries and what exactly the regulator should do in case the Prime Minister refuses to approve license to the related application. Lack ofspecific duration of review period applied to Case 2 has caused unfairness to applicants when their applications were considered in different screening durations. In April 2003 and November 2004, two licenses were granted to Hanoi Telecom and EVN Telecom respectively; the time needed to review their applications varied from 3 months in the case of EVN Telecom to 6 months in the Hanoi Telecom case. The WTO Reference Paper defines a qualitative requirement regarding licensing duration, which is “the period of time normally required to reach a decision concerning an application for a license” mustbe transparent. The term “normally” is unspecific and allows host countries to flexibly decide durations that are suitable for their own situations. However, in the case of Vietnam, the lack of providing a specificperiod of time to cover all licensing cases is noncompliant with WTO regulations. A delay in issuing licenses may become problematic for mobile business, especially in an era of rapid technological development. ** Evaluating License Mechanism ** The licensing regime in Vietnam has been gradually improved during the last 14 years and can be divided into 3 developmental periods. The goal of each subsequent period’s framework was toovercome all observed deficiencies in each previous period and helped the regulator to deal with the difficulties that it had faced before. However, a number of additional deficiencies have surfaced in each subsequent period’s framework and created new difficulties for the regulator in managing licensing. It appears that the improvements of each subsequent framework were initiated mainly by the intention of overcoming the previously observed deficiencies, and it further appears that these actions were undertaken without foreseeing the complete scenario of licensing challenges that lay

ahead and addressing all required elements of a transparent and predictable licensing regime. Initially, there was an attempt to create a very basic legal corridor for telecommunications business activities by separating the regulatory and business functions, but it did not provide licensing authorizationand licensing procedures. Subsequently, the framework concentrated on overcoming the two deficiencies on licensing authorization and licensing procedures that were observed in the first period. Such licensing authorization generated independency for the regulator in handling licensing, but the licensing procedures were not transparent. The current applicable framework was thought to have overcome all previously observed deficiencies: it had been initiated by the constitutional branch; the WTO rules were used as directions to establish the framework; and license selection criteria were set forth for the first time. However, four significant deficiencies have surfaced in the current applicable framework and licensing practice: 1/ itdecreases the independency of the regulator by setting up a collective mechanism among various agencies and placing the decisive responsibility for granting a license with the Prime Minister; 2/ it fails to clearlydefine time needed to evaluate applications for a license; 3/ the framework sets forth unpredictable license selection criteria; and 4/ public disclosure of the terms and conditions contained in awarded individual mobile licenses is not a required administrative procedure. Although several limitations have been perceived and commented upon, some of Vietnam’s experiences with telecommunications licensing framework and practices could be useful for other developing countries, for example, countries that do not have strong telecommunications competition, sustainable telecommunications legislation and/or have not fully entered the global economic environment by becomingmembers of the world largest trade organization.

First, both competition and globalization play important roles in strengthening telecommunications regulatory framework toward a more transparent and predictable process. However, in the case of Vietnam, globalization (governmental wills of acceding to the WTO in particular) acts as a dynamic and critical force in fostering the creation of such a framework. Second, the mobile market in Vietnam can be considered competitively limited since all mobile operators must be State-owned and private investors (including foreign and domestic private sector) can not invest in the market under various forms of economic transactions. The government employs a paper screening - a comparative approach - but not an auction mechanism in exercising its licensingobligation. Further, only successful applicants have to pay a nominal licensing fee. By using such licensing approach and financial tool to collect licensing fee, the government could avoid having to redistributeannual budget money between the various affected governmental ministries and State-owned entities, and mobile operators could reduce expenses when obtaining a license and deploying their networks. As aresult, customers may enjoy services sooner and at cheaper prices. Third, the current selection criteria to choose successful applicants combine a set of three binding criteria and a single alternative criterion. This combination is theoretically ideal, if all criteria have beendesigned carefully and transparently, because the regulator can easily select a successful applicant by using the alternative criterion. It is also more predictable for applicants and they can actively draw their proposed plans. Further, the exclusive alternative criterion was designed by using quantitative measures to encourage universal services provisioning, so that it is more feasible for the regulator to both select the best candidate and accelerate the fulfillment of one of the most important regulatory targets. ** 4.1.3 Scarce Resources Management **

The spectrum issues have been properly managing by the Spectrum Division under the regulator’s authorization. Likes the case of licensing regulation, legal documents on governing spectrum thatdedicates to providing mobile services to the mass were released for the first time in 1997, and the first spectrum allocation plan was released by the Prime Minister in 1998. In other words, the first threemobile networks Callink, MobiFone and VinaPhone – all of them are managed by the VNPT – have been assigned spectrum without detail regulation on spectrum. In 2002, the National Assembly issued an Ordinance on Posts and Telecommunications, which also covered spectrum issues. Based on the Ordinance, the Cabinet, the MPT and the Ministry of Financereleased 8 other legal documents on spectrum allocation plan, procedures on spectrum licensing, formula to calculate and collect frequency usage fees. This framework was employed to assign frequency bandwidth to 4 new mobile operators. In principle, frequency allocation in Vietnam is implemented under the first-come-first-serve method. Initially, Vietnam reserved the range between 800 MHz- 900 MHz and 1800 MHz– 1900 MHz for mobile services provisioning, including GSM (Global Systems for Mobile Communications) and CDMA (Code Division Multiple Access). Mobile operators are equal in usingfrequency and, in fact, the spectrum range that was reserved for to GSM technology has been divided equally among the three GSM network operators, while the spectrum that was reserved for CDMAnetworks has been allocated equally between the two CDMA operators. The last CDMA network, one in which the Vietnam Power Telecommunications Corporation holds an equity interest, received a frequency allocation for mobile services in the range 450 MHz. Thismobile services allocation was made possible after the regulator withdrew the subject bandwidth and re-assigned it from its previously targeted service category due to its lack of use. In view of the initialfrequency reservation for mobile services, this regulator initiative could be considered unique; however, it is primarily viewed by the industry as efficient administration of a scarce resource.

However, one component of the scarce resources --numbering plan -- so far has not been covered by any detailed regulation. The lack of a national numbering plan that clearly defines numbers andprefixes that are to be reserved for different networks and services is causing operators -- especially new entrants -- to passively prepare for their network expansion. The recent unnecessary prolonged arguments among mobile operators on the allocation of new network access codes to the VNPT is a typical illustration of the problems that are being caused by the lack of a numbering plan 18. Currently mobile network access codes in Vietnam are numbered by 09x, that means maximum 10 different access codes are available. As of January 2006, six different access codes have been alreadyassigned to 6 mobile networks. The incumbent’s application for 2 other mobile access codes in January 2006 caused to a severe argument among mobile operators, since a legal numbering plan does not exist yetand new entrants argued that it was unfair while there were only 2 access codes reserved for the other 4 mobile networks. The new entrants unwillingly satisfied with the regulator’s allocation when thisorganization declared the intention to reserve numbers from 010 to 017 for mobile access codes (MPT, 2006; Vietnam Net, 2006). ** 4.2. Nurturing and Accelerating Competition ** Once mobile competition was established via licensing and assigning spectrum and numbers activities, the regulator has to nurture and facilitate competition by designing a framework on relatedissues, of which interconnection and tariff are the two most important ones. ** 4.2.1 Designing a Framework on Interconnection ** 18 See more at [|http://www.vnpost.mpt.gov.vn/bao_2006/so05/bcvt/t7b3.htm] and [| http://vietnamnet.vn/cntt/vienthong/2006/01/531907/]

To date, the first and only detailed legal document that governs interconnection issues is a guidance granted by the regulator in September 1998. However, this guidance mainly regulates interconnectionamong PSTNs (Public Switching Telecommunications Network). In 2004, the Government released a decree on telecommunications issues; it contains several articles pertaining to resolution of interconnectiondisputes among network operators. So far, interconnection has being the main reason for almost all telecommunications disputes. Currently, VNPT, - the incumbent, dominates nearly 99% of the fixed-telephonyservices market and 72.2% of the mobile services market. New mobile operators have claimed that VNPT used its network advantages and technical barriers to delay/refuse their requests for interconnections to VNPT’s network. Other related issue – interconnection charge – is also problematic in Vietnam. Since the VNPT is dominating all market segments, interconnecting with the VNPT’s networks is a central issue of businessplan of any new operator. The interconnection charge is submitted by the VNPT and approved by the regulator. However, such charge is not designed on cost-based orientation. In addition tointerconnection cost, the new entrants have to pay a surplus cost for universal service obligations, which are being implemented by VNPT– the incumbent. Meanwhile, new entrants complain that the surchargeis over-calculated (i.e. too high) and does not precisely reflect universal services expenditures. Recently the universal service obligations were separated from the interconnection charges, and theinterconnecting operators have to pay from 3%-5% of their services revenues to a universal services fund managed by the regulator. Although the new universal services payments are set forth and are beingcollected, the interconnection charges still remain the same, i.e. other mobile operators have to pay interconnection charges at the pre-separation level plus the newly calculated universal services surpluscharges. ** 4.2.2 Managing Tariff ** When mobile services were preserved as monopoly provisioning of VNPT, the regulator strictly controlled the tariff. In October 2003, the Prime Minister released a

decision on governing telecommunications tariff (Decision No. 217/2003/QD-TTg dated October 27, 2003), which allowed the regulator to approve services charges applied by dominating operators (which defined as operators occupy from 30% of a service market share in terms of subscriptions and/or traffic volume); all other non-dominating operators have the right to freely set forth its services tariff without approval from the regulator. The application of these promulgations in facilitating mobile competition will be analyzed later, when the research comments on the impartiality of the MPT in managing mobile market. ** 4.2.3 Standard and Handset Management ** In terms of telecommunications technology and facilities, Vietnam is a dependent since the country so far does not initiate any telecommunications technology and is not capable to produce networkfacilities and handsets. Several joint ventures and wholly- foreign owned enterprises have been established mainly to assemble facilities and equipment, and so far, most of the necessary facilities and equipmenthave to be imported 19. The country has set no barrier on mobile network standard and currently, three mobile networks are using GSM technology while the other three deploy their network based on CDMA. Mobile handsets, the first barrier to customers when they consider subscribing mobile services, are provided directly from the handset manufacturers via its distributing systems. The mobile subscribers are allowed to purchase a handset themselves and register for services with the mobile operators. Mobile handset has never been a barrier to the mobile users in Vietnam in terms of ownership like the case of Japanwhen it initially provided mobile services. However, since mobile handsets are imported from 19 In 2006, a joint venture between Qualcomm and EVN Telecom was established for the first time in Vietnam to produce CDMA handsets, though this enterprise’s products are not purchasable in the market yet

abroad and have to bear import tax, so that they are still expensive for majority of mobile users. ** 4.3. Protecting Fair Competition ** While initiating, nurturing and accelerating mobile competition is guaranteed by the telecommunications regulator, protecting fair competition is jointly being carried out by the regulator and the CompetitionAdministration Department. ** 4.3.1 Establishment of the Competition Administration Department ** The Competition Law which prescribes rules and regulations to guarantee competition and to prevent anti-competitive behaviors has been released in Vietnam in   2004. The Competition Law also lays down a legal basis to establish the Competition Council, which is in charge of judging anti- competitive behavior cases and under the direct control of the PrimeMinister. The Competition Law further sets forth a basis to create the Competition Administration Department (CAD), an entity under the control of the Ministry of Trade and is responsible for a broad range ofanti-competitive activities. These two competition organizations were formed in January 2006 by the Cabinet. The CAD, as decided by the laws and regulations, has to deal with anti- competitive activities in telecommunications, include abuse of dominance, refusal to supply essential facilities, cross-subsidization, vertical price squeezing, predatory pricing, misuse of information, locking-in customers, tied sales and bundling, mergers, acquisitions and other corporate combinations. However, since the CAD hasbeen established for less than a year, a number of disputes between the new entrants and the incumbent can not be brought before the CAD for judgment. Further, the CAD sets more complex procedures comparing to the telecommunications regulator, and such

complication causes to a reluctance to the new entrants when they decide to choose a suitable judging organization. ** 4.3.2 The MPT and the CAD in Ensuring Fair Mobile Competition ** In every competitive telecommunications environment, interconnection is one of the most focused upon issues for regulators, incumbents and new entrants, as well as for end users. For regulators, properlymanaging interconnection issues will foster the establishment of a fair competitive environment and bring benefits to end-users. For incumbents, interconnection is one of the key factors in maintaining their marketposition and dealing with competitive expansions. Meanwhile for new entrants, interconnecting with other networks - especially with the incumbent’s network - acts as a most decisive element in their survivalonce they enter the market. Finally, end users need to be able to connect to all other subscribers, regardless of the variously subscribed to networks, at reasonable prices. So far, interconnection is the most problematic issue in Vietnam’s mobile market. During the monopoly period, no mobile interconnection dispute was recorded since both of the first mobile networks wereunder the control of the VNPT, who also dominated the fixed-network. Since July 2003, new operators started providing services; all of them were in need of interconnecting with the incumbent carrier’s networks in order to increase their subscriptions and traffic volume. In response, the incumbent tried to maintain its market share and eliminate the competitive expansion by denying or delaying theprovision of interconnecting services to the competitors. As a result, several interconnection disputes were raised between the VNPT and its competitors, and they were brought before the competent authority for resolution. In some cases, the new entrants received favorable decisions after arguing the disputes; in other cases, they did not get their expected outcome. Several specialists and lawyers, when observing the interconnection dispute resolutions in Vietnam, also commented that in addition to the choice of bringing interconnection disputes before the telecommunications regulator, the

new entrants may submit those disputes to the Competition Council – who is responsible for governing compliance with the Competition Law – for judgment 20. By using game theory, particularly under the type of game of skill, this dissertation proves that currently the MPT is better responding to the operators’ requirement in ensuring fair competition than the CAD. Various types of interconnection disputes are routinely recorded, ranging from disputes raised during the negotiating process on terms and conditions of interconnection agreements to disputes on how toimplement such agreements. So far, submitted interconnection disputes in Vietnam have occurred during the implementation period of negotiated agreements between the new entrants and the incumbent carrierwhen the incumbent always refuses or delays implementing the agreed to stipulations. These breaches of agreement usually consist of the following actions by the incumbent: refusing to provide the Point ofInterconnection that was proposed by the new entrants, declining to provide adequate interconnection capacities to the new entrants, delaying the deployment of physical interconnection to the incumbent’snetworks, or a combination of these delaying tactics. The incumbent almost always argues that technical difficulties are the primary reasons for its non-compliance with the negotiated agreements. When deciding to submit a disputed case for a judgment, besides the MPT and the CAD, the new entrants can also choose the Economic Arbitration Center or the Courts for settlement. Since the newentrants can not submit a case simultaneously to multiple settlement organizations, they need to optimize their selection. Characteristics of each settlement option are briefed in Table 4-3 below. 20 See “Let Create an Independent Entity for Managing the Backbone Network” [], and `Telecommunications Disputes May Find a Fair Solution at the Courts [|` http://vnexpress.net/Vietnam/Kinh-doanh/2005/07/3B9DFAFE/]

** Table 4-3. Settlement Organizations – Basic Procedures, Advantages and ** ** Disadvantages to the New Entrants ** ** Center ** || ** Courts ** || Max: 120 days ||  Min: 262 days Max: 472 days ||  Min: 169 days. No clear definition onmaximum time limitation ||  Min: 173 days Max: 300 days || for advance payment. Financial penalty assessed if case is lost. || Responsible for advance payment. Financial penalty assessed if case is lost. || Responsible for advance payment. Financial penalty assessed if case is lost. || investigation and decision feemay be assessed ||  No    Examination, investigation and decision fee may be assessed  ||  No    Examination, investigation and decision fee may be assessed  || Accept to ||  Reject to review the case; or    Accept to  ||  Judgment will consist of a single set of opinions that the major  ||  Reject to review the case; Accept to ||
 * || ** MPT ** || ** CAD ** || ** Arbitration **
 * ** Time to review the case ** || Min: 90 days
 * ** Settlement fee ** || No  ||  Responsible
 * ** Telecommunications professional experiences and knowledge ** || Yes  ||  No. Examination,
 * ** Potential judgment ** || Reject to review the case; or

case: - ask the incumbent to satisfy the plaintiff’s request - reject that request ||  review the case with thefollowing possible judgments: - reject the plaintiff’s request - require the incumbent to satisfy the plaintiff’s request and impose additional punishment to the incumbent. Additional punishments include warning, monetary punishment up to 10% of the revenue of the previous financial year. The incumbentmay be further required to re- ||  arbitrators have agreed upon ||  review the case. The plaintiff’s requests are either rejected or accepted and the incumbent ismandated tofulfill such requests. ||
 * || review the

abolish unreasonablemethods applied to the new entrants ||   ||   || Under the game theoretic approach, all possible outcomes to the new entrants when deciding to choose the judgment organization is briefed in Diagram 4-2.
 * ||  ||  structure or

** Diagram 4-2. Interconnection Disputes and the New Entrants Choice - Game- ** ** Theoretic Approach ** Diagram 4-2 shows that if the new entrants mainly aim at being interconnected smoothly to the incumbent’s network, the optimal choice – in terms of time and financial consumption – is to submit the case to the regulator since the regulator offers the shortest time frame to deal with interconnection disputes and without a fee requirement. All other settlement organizations require plaintiffs to pay an advance payment. Further, these organizations do not have professional interconnection knowledge, especially technical knowledge (the basis that the incumbent carrier always sets forth as reasons for not implementinginterconnection stipulations). Consequently, these organizations may need a third party’s opinions to examine and decide technical aspects of the case and the loss

that the new entrants may suffer from not being interconnected. The new entrants, as plaintiffs, are also obliged to pay an examining and deciding fee in advance when an organization other than the regulator is selected. Additionally, completing the case profile as required by other dispute settlement organizations normally takes more time and requires more professional and legal expertise than would be required by the regulator. These two factors (time and financial consumption) are the primary reasons that the new entrants are reluctant to present their cases to any settlement organizations other than the regulator. The second best choice – in terms of time consumption – is to pursue the case before the Court, while the CAD is the third choice. As mentioned above, several specialists and lawyers have commentedthat the new entrants could bring their interconnection cases before the CAD for judgment according to the Competition Law. In retrospect, it is noteworthy that the CAD which is responsible for dealing with anti-trust behaviors was only established in January 2006; consequently, this avenue of resolution was not available for interconnection disputes arising in 2005 and before. However, together with forcing theincumbent to satisfy all reasonable and feasible interconnection requests, the CAD has the authority to impose additional penalties, such as monetary punishment, dissolving the incumbent’s dominant position, ororganizationally restructuring the incumbent; so for the long run, submitting a case to the CAD could be the most strategic solution to the new entrants. Noteworthy that since the incumbent was establishedunder the government decision, so that in case the CAD plans to impose additional penalty of requiring the restructure of the incumbent, it may have to get consensus from the government in advance. In fact, inthis initial stage of competition, the new entrants have merely concentrated on being permitted to interconnect to the incumbent’s networks as soon as possible; therefore, all new entrants chose the optimizationand submitted the case to the regulator. ** 4.4 Evaluating the MPT’s Role in Mobile Competition **

The MPT takes part in all mobile competitive stages, from initiating competition to nurturing and ensuring such competition. Particularly, the new entrants tend to choose the MPT in asking for protectingthem from anti-competitive behaviors. Due to the historical development of Vietnam telecommunications sector, the MPT had been operated together with the incumbent VNPT in a single organization fordecades, and these two entities were structurally separated for around 10 years. The MPT, for such an important role and historical relationship, must be independent and impartial in governing a competitive telecommunications market. ** 4.4.1 Independence of the MPT ** Independence of the regulator will be evaluated by examining its interaction with other state agencies, with mobile operators and with consumers. Four other indicators, those are the availability of atransparent rules and regulations, the implementation of public hearing in carrying out regulatory decisions, the publicity of relevant laws and regulations on the regulator’s website and the capability of decision-makers themselves (i.e. the regulator’s staffs) will be employed to thoroughly measure such independence. All of these indicators and triangular relationship is described in Diagram 1-4, Chapter 1. ** Relationship between the MPT and Mobile Operators ** The first and foremost issue concerning “independent regulator” is whether the regulatory function is separated from the operating function (WTO, 1996; Invent, 2000, pp. 1-6) and whether these two activities are being implemented by different entities to ensure that their benefits are not mixed and one entity can not play both as a referee and a player.

In Vietnam, all 6 mobile operators are nation-wide licensed, must be state-owned and the MPT is authorized responsibilities of state ownership in state-owned operators 21. Nevertheless, the existence of 100% state-owned capital in 4/6 mobile operators, a majority ownership in the other 2 operators and the above noted authorization does not fully mean that the regulator treats all mobile operators in a fair andimpartial manner. There are two major reasons that lead to doubt the independence of the regulator. First, the regulator has a unique relationship with the incumbent Vietnam Posts and Telecommunications Group (VNPT) -- who is operating 2 different mobile networks and dominates mobile market with 75% mobile market share in 2005 (MPT, 2006) -- because it is exercising ownership rightsto the incumbent only, while other relevant ministries and organizations perform such role to the other operators. Particularly, the MPT holds responsibility to propose candidates for all positions of the VNPT’s board of management and has its own representative in that board 22. Second, since VNPT operated under a   monopoly scheme in all telecommunications services markets until end of 1997 and maintained such a role in mobile market until 2003, hence there is a close personnel relationship between the regulator and the incumbent: many employees are currently working for the regulator previously worked for the incumbent operator, especially the regulator’s high-ranking personnel. ** Relationship between the MPT and other State Agencies ** Theoretically, a regulator has greater independence if it is less interfered by daily political pressure when performing regulatory activities and not wholly funded by the political allocated budget (Invent, 2000; Wu, 2005). 21 Article 1, Governmental Decree 90/2002/ND-CP dated November 11, 2002 on the Structure, Rights and Responsibilities of the MPT 22 Article 7, Decision 06/2006/QD-TTg dated January 9, 2006 of the Prime Minister on the Establishment of Vietnam Posts and Telecommunications Group

The head of the MPT Vietnam is proposed by the Prime Minister, approved by the National Assembly and appointed by the President 23. The Prime Minister can also submit to re-designate orexempt the minister. Nominally, the minister can serve up to the age of 60 (for male) or 55 (for female), except: • when he/she is a member of the National Assembly (in that case, the individual may keep the position past such age until the term in the National Assembly ends); or   • the Minister is proposed to another position; or    • the Minister did not duly perform the duties and the Prime Minister asks him/her to be exempted 24. In other words, the head of the regulatory agency is not heavily affected by daily political pressure and the Minister has a suitable timeframe to pursue regulatory purposes. However, the regulator is not fully independent in governing licensing. Procedures and time for screening applications for a license are divided into 2 phases (Article 39.2 of Decree 160): Phase 1: MPT accepts and evaluates application during 75 days from the day of receiving qualified application. MPT will review whether proposed project referred in the application is incompliance with the national telecommunications development strategy and satisfies technical standards. If such requirements are not met, MPT shall inform applicant of its refusal in written document inwhich reason(s) for such refusal are clearly stated. Phase 2: if the proposed project basically satisfies technical requirements and is in compliance with the national telecommunications strategic plan, the MPT shall consult with relevant ministries andagencies about awarding license for such application, then 23 Article 3, Law No 32/2001/QH10 dated December 25, 2001 on the Structure, Rights and Responsibilities of the Government 24 Articles 5 and 20, Law No 32/2001/QH10 dated December 25, 2001 on the Structure, Rights and Responsibilities of

submit application together with all concerned opinions to the Prime Minister for a decision. In case of receiving written approval from the Prime Minister for awarding license to such applicant, the MPT shallissue license during the 15 days following receipt of the Prime Minister’s approval. As shown above, the MPT should consult with relevant agencies and the regulator can only grant a license to a successful applicant if such licensing is approved by the Prime Minister. Meanwhile, the legal framework does neither specify terms and conditions that the Prime Minister should refer to when giving a final decision, nor indicate which administrative agencies the regulator has to consult with. Such mechanism causes both dependence and non-transparency of the regulator’s activities. The MPT is generally funded by the national budget, except some regulatory sections have an independent financial mechanism such as the Radio Frequency Department or the National Internet Center;they are fully funded by related collected fees. ** Relationship between the MPT and Consumers ** In a competitive environment, the regulators’ duties toward users are mainly ensuring universal access and protecting users` rights. These two issues are considerably focused upon by the MPT. In 2004, the MPT established a Universal Services Fund, which is administered by the MPT and financed by contributions from operators, the national budget and various international aids and loans. All mobile regulators have to contribute 5% of their revenues to the Fund. A surcharge for universal services obligations is also being calculated into interconnection charges. The concept of providinguniversal services in Vietnam is limited to the provisioning of fixed-telephone services 25, so that only 4 25 Decision 74/2006/QD-TTg dated April 7, 2006 of the Prime Minister on the Approval of the Universal Services Provisioning Plan to 2010

mobile licensees who are also authorized to provide fixed services can indirectly benefit from their contributions to the Fund. In addition to the Consumers` Rights Protection Association, the MPT is responsiblefor protecting users` rights. However, current observations indicate that the users normally do not use this channel to complain about their dissatisfactions with the services provisioning. In case ofdissatisfactions, the users normally raise complaints via mass media channels, and mobile services providers may adjust their services as a result of the pressure exerted by mass media. ** Regulatory Decision Making ** A regulatory decision making process can be classified as clear and transparent if it satisfies 4 indicators: availability of legal framework on a regulatory website, implementation of public hearing,availability and applicability of the framework and qualification of decision makers. The decision making process in Vietnam basically satisfy 2 indicators: availability of legal framework on a regulatory websiteand implementation of public hearing, since all applicable laws and regulations can be found in the regulators` websites and concerned parties are provided opportunities to raise their opinions on the drafts ofmany relevant regulations and decisions. However, problematic matters are being observed in the legal framework and regulatory staffs as analyzed below. ** Availability and Applicability of the Concerning Laws and Regulations ** In any mobile competitive environment, licensing, interconnection and scarce resources allocations are considered key factors in facilitating the development of fair competition. Therefore, the availabilityand applicability of laws and regulations pertaining to these topics will primarily indicate whether regulatory decisions are being well made in pursuit of such competition.

In 2002, an Ordinance on Posts and Telecommunications was approved by the Steering Committee of the Vietnamese National Assembly. The Ordinance provides general rules and principles ongoverning posts and telecommunications issues, contains articles on licensing, interconnection, spectrum allocation and numbering. Accordingly, the competent ministries released approximately 30 legal documents to detail the Ordinance on related issues 26. Particularly, of those 30 documents, 8 of them govern spectrum and 6 legal documents dedicate to interconnection issues. However, one component of the scarce resources --numbering plan -- so far has not been covered by any detailed regulation. Meanwhile licensing is governed by articles of both the Ordinance on Posts and Telecommunications and the Decree on Telecommunications 27, but none of these documents define criteria to select successful applicants or the period of time to review applications for a license. ** Regulatory Staff ** Together with the availability of a predictable legal framework, impartial and timely regulatory decisions making can be guaranteed if regulatory decision makers are qualified and experienced. However, it appears that the regulator has to address staff qualification issues. The MPT is being funded by national budgets and staff salaries are significantly low in comparison to those of employees intelecommunications industries 28, so that the regulator is facing difficulties in retaining experienced and qualified staffs as well as recruiting new professional ones. This problem is especially pronounced when foreign offices and mobile operators are trying to attract the regulators` experienced staffs by offering higher salaries and good promotions. Research completed in June 2004 in   Vietnam indicated that in approximately one year (mid-2003 to mid-2004) around 20 26 This number does not include documents that regulate tariff, since before 2004, each tariff must be approved by a specific legal decision of the MPT and from 2004, all tariff provided by the dominator(s) must also receive such approval. 27 Ordinance 43/2002/PL-UBTVQH10 dated June 7, 2002 and Decree 160/2002/ND-CP dated September 3, 2004 28 Public servants` salaries are calculated based on their serving time in the public sector and positions. According to the newest legislation (Circular 02/2006 dated September 15, 2006 of the Ministries of Internal Affairs and Finance), monthly salary of a fresh bachelor graduated staff is 10 times lower than monthly salary paid to a regular telecommunications engineer by foreign companies [|(http://vietnamworks.com/Newspapers/joblist_oct172006.html)]

employees shifted their workplaces from the MPT to Viettel Mobile, a mobile operator that began operations in October 2003 (Hong Mai, 2004) 29. ** 4.4.2 Impartiality of the MPT Impartiality in Managing Tariff ** At the initial stage of liberalization, the regulator was not impartial toward all operators in managing mobile tariff. When mobile services were preserved as monopoly provisioning of VNPT, the regulator strictly controlled the tariff. In October 2003, the Prime Minister released adecision on governing telecommunications tariff (Decision No.   217/2003/QD-TTg dated October 27, 2003), which allowed the regulator to approve services charges applied by dominating operators (which defined as operators occupy from 30% of a service market sharein terms of subscriptions and/or traffic volume); all other non-dominating operators have the right to freely set forth its services tariff without approval from the regulator. Despite that the above stipulation became into effective from mid-November 2003 as decided by the Prime Minister, but those stipulations could only be applied to non-dominating operators from January 2004, when the MPT issued a guiding document on this issue 30. The strictcontrol mechanism on tariff was abolished in 2004, and from mid-2004, all mobile operators can freely set forth their own tariff, except MobiFone and VinaPhone, who are so far treated as dominators. ** Impartiality in Managing Scarce Resources ** 29 In its annual reports in consecutive 3 years, from 2004 to 2006, the MPT continuously affirmed this controversial issue, when the MPT faces to the short of young and professional officials partly due to the salary restraints. 30 The MPT Official Document No 16/BBCVT-KHTC dated January 6 th, 2004

Frequency allocation in Vietnam is effected based on the requirements set forth in several legal documents that have been adopted by the National Assembly, the Government and competent ministries. These documents govern spectrum licensing procedures, the frequency allocation plan and frequency usage fees. In principle, frequency allocation in Vietnam is implemented under the first-come-first-servemethod. Initially, Vietnam reserved the range between 800 MHz- 900 MHz and 1800 MHz– 1900 MHz for mobile services provisioning, including GSM (Global Systems for Mobile Communications) and CDMA (Code Division Multiple Access). Mobile operators are equal in usingfrequency and, in fact, the spectrum range that was reserved for to GSM technology has been divided equally among the three GSM network operators, while the spectrum that was reserved for CDMAnetworks has been allocated equally between the two CDMA operators. The last CDMA network, one in which the Vietnam Power Telecommunications Corporation holds an equity interest, received a frequency allocation for mobile services in the range 450 MHz. Thismobile services allocation was made possible after the regulator withdrew the subject bandwidth and re-assigned it from its previously targeted service category due to its lack of use. In view of the initialfrequency reservation for mobile services, this regulator initiative could be considered unique; however, it is primarily viewed by the industry as efficient administration of a scarce resource. In brief, Vietnam has a clear and transparent spectrum allocation procedure and this scarce resource was shared equally among operators with impartial and neutral point of view. ** Impartiality in Managing Interconnection ** Two kinds of mobile-mobile interconnection are allowed by the law: interconnection directly between mobile networks and indirectly via a fixed-network. So far, interconnection has being the main reasonfor almost all telecommunications disputes.

Currently, VNPT, - the incumbent, dominates nearly 99% of the fixed-telephony services market and 72.2% of the mobile services market. New mobile operators – SFone and Viettel Mobile – claim that VNPTuses its network advantages and technical barriers to delay/refuse their requests for interconnections to VNPT’s network. For example, it took SFone 6 months (December 2003 to June 2004) to obtaininterconnecting arrangements for the exchange of short messages between SFone’s subscribers and VNPT`s mobile subscribers. In addition, VNPT denied SFone’s request for direct connections to VNPT`s mobile network and required the new company to connect indirectly to its fixed-network. This indirect type of interconnection mechanism requires SFone to pay an additional 1 million US dollars annually forinterconnecting with VNPT. In July 2005, Viettel Mobile also engaged in interconnection disputes with VNPT: the incumbent refused to provide enough channels for Viettel Mobile’s interconnection needs, and it refused to allow Viettel Mobile to connect directly to its tandem switches. Viettel interconnection troubles were dealt witheffectively when Viettel, through the Ministry of Defense – made a complaint to the Prime Minister; and the Prime Minister gave the Ministry of Posts and Telematics a deadline to arbitrate the dispute. The current interconnection disputes showed that the regulator exhibited reluctance and confusion in dealing with the interconnection issues. Theoretically, the MPT is neutral to all mobile operators and impartial in the decision making process, based on the reality that the Government has established a target of creating strong competition in telecommunications services in order to increase domestic competitiveness and to be prepared for the post-WTO accession arena. Moreover, the neutrality of the regulator is normally doubted in countries where the incumbent is state-owned, because as a consequence of the natural monopoly mechanism in telecommunications, the incumbent is initially owned by the State, and the next licenses are granted to different private entities. In such a case, telecommunications regulators may favor the incumbent in order to protect the rights and benefits of the State. The telecommunications context in Vietnam is quitedifferent: all mobile operators are State-owned. In this case, no conflict of interest is likely to occur if the regulator

maintains a neutral position towards all operators. However, since the regulator has been authorized some specific obligations in governing the incumbent (such as proposing candidates for positions on the incumbent’s Board of Management and assigning its own representatives to that Board of Management) 31, observers and the new entrants have reasonable doubts about the genuineness of this purportedneutrality. This dissertation will use game-theory to analyze whether the regulator is impartial in managing interconnection disputes. Logically in this game, the regulator has 2 move-choices. If the regulator decides to foster fair competition and improve domestic competitiveness, it will choose a pro- competitive move that requires theincumbent to satisfy all reasonable and feasible demands of the new entrants (Pro). In contrast, if the regulator is influenced by the incumbent and tends to protect its market power, the regulator may select a non- competitive move (Con) by denying such requirements and making a decision in favor of the incumbent. ** The Incumbent ** The incumbent is dominant in all telecommunications sub-markets, ranging from fixed to mobile to leased line services. It operates the largest national fixed-network, has more than a 90% of the fixed-market, and manages two different mobile networks that had a combined 99%, 93.7% and 75% share of the mobile market in the years 2003, 2004 and 2005 (MPT, 2004, 2005 & 2006). Almost all mobile-related entities are employing dependent accounting systems, while cross-subsidy is applied among VNPT international and domestic long distance services, local services and mobile services provided by VinaPhone – one of the two VNPT mobile networks. The VinaPhone network does not have to pay neither interconnection charge when interconnecting with the VNPT fixed- network, nor leased-line fees for its use of transmission facilities because it is a   31 This authorization is promulgated in Decree 51/ND 1995 and Decree 199/2004 dated December 2004 of the Cabinet, Decision 265/2006 dated November 2006 of the Prime Minister

dependent accounting entity of the mother corporation VNPT. Further, since VNPT dominates all telecommunications sub-markets, both of its mobile networks are provided sufficient capacity and efficientpoints of interconnection as required in a timely fashion. This treatment is not in compliance with the recognized worldwide standard, because VNPT plays as the major supplier in Vietnam telecommunicationsmarket, therefore, it should provide interconnection services to all other operators “under non-discriminatory terms, conditions … no less favorable than that provided for its… subsidiaries and affiliates” (WTO, 1996). During the monopoly period, the incumbent followed Growth-direction: it tried to develop telecommunications infrastructure by expanding network coverage, increasing tele-density as defined in thetelecommunications strategies and master plans that were submitted by the regulator and approved by the government. In that context, the incumbent did not pay adequate attention to profit and operationeffectiveness. In fact, since it is owned by the state, the incumbent did not have to bear any financial burden for any loss and could keep all profit after taxes for re-investment. As a result, telecommunicationscharges in Vietnam were considerably high and the related productivity was low in comparison with those of other regional countries.

** Figure 4-4. Telecommunications Productivity in ASEAN + 3 Countries ** Telecommunications Productivity in ASEAN plus 3 Countries

2000     1500      1000      500      0

Country

1995   1996    1997    1998    1999    2000    2001    2002    2003

**// Source: author reproduced from ITU database 1995-2004 //** Competition was initiated in the provisioning of Internet services in 1997, and subsequently it was commenced in all other telecommunications services, from long distance to local and mobile services. In that scenario, there should be more effectiveness and efficiency in the incumbent’s operations if it shifts to a Profit-orientation. The incumbent then may have two choices in doing business: continuing the Growth direction, or selecting a Profit direction as the strategic way. ** The New Entrants ** There are 3 new operating mobile carriers in Vietnam. SPT is a joint-stock corporation in which 87% of the stock is owned by various State-owned companies (it is noteworthy that 18% of those State-owned stocks is owned by the incumbent, VNPT) (VNCI, 2005) and under the administrative control of Ho Chi Minh City’s governing body. Viettel is a wholly State-owned corporation and under the directcontrol of the

Ministry of Military. The last operating mobile carrier is EVN Telecom (Vietnam Electric Telecommunications Corporation), a wholly State-owned entity under the direct control of the Vietnam ElectricCorporation – which is governed by the Ministry of Industry. For the new entrants, after submitting a complaint, the possible result may either be Win (W) and they can continue to compete with the incumbent, or a Loss (L), in which case if they can not findanother solution to overcome their financial difficulties, they will have to quit the game and exit the market. The new entrants, all of whom are managed by different governmental agencies and administrations,may request their controllers – via administrative procedures – to interfere in the dispute resolution process by asking the Prime Minister to hold up the case if they consider that the incumbent is not fair in implementing the interconnection agreements and that the regulator is bias towards the incumbent’s actions. ** Possible Outcomes of the Game ** As analyzed above, the regulator has two choices: Pro-competitive or Non- competitive; subsequently, the incumbent selects its move either Growth or Profit; and the potential outcome for the new entrants will be a Win or Loss of the case. The following diagram depicts the 8 possible outcomes of the game by combining the various moves of the 3 players.

** Diagram 4-3. Interconnection Dispute Settlement Game ** **// Source: author //** Relating to the interconnection dispute resolution, the questions are: 1/ what is the real attitude of the regulator in dealing with interconnection disputes; and 2/ what is the best equilibrium that thecountry should pursue in order to achieve its strategic target; and in that equilibrium, what actions each player should undertake in order to keep abreast of the situation. ** Analyzing the MPT’s Attitude ** The MPT’s attitude in dealing with the interconnection disputes is one of the concerned questions in reviewing telecommunications competition. Between 2004 and 2006, 3 main mobile interconnection disputes were submitted to the regulator. This paper examines the regulator’s attitude toward competition by using a roll-back method – from the settlement results back – to decide the regulator’s move.

Since the outcomes of these 3 main disputes have already been verified, we should identify the incumbent’s strategic move, i.e. whether it chose a Growth or a Profit direction. ** Incumbent’s Moves: G is the Choice ** As noted above, the incumbent can choose one of the two moves, keeping a growth direction or shifting to a profit-oriented direction. It appears that the growth direction was the selected move since the incumbent still focuses on expanding network coverage and increasing tele-density; it does not appear to consider productivity and profit as vital elements of its business. The incumbent continuesto retain cross-subsidy and a dependent accounting system among long distance, leased-line, mobile and local services. The loss or benefit suffered or gained by providing leased-line services will be counted intothe bundled revenue and does not specifically affect to the subsidiaries that operate the backbone network. Further, the incumbent is not financially responsible for any loss, and it can keep all profit for expanding the network. Such a subsidy operation system and financial mechanism is still applicable today even though the incumbent was restructured in January 2006. This continued use of such financial system indicates that VNPT, to date, has chosen a Growth-oriented (G) direction as its strategic move. ** SPT Case: Point of Interconnection Dispute ** SPT started providing mobile services in July of 2003 and requested to be directly interconnected with VNPT’s mobile networks. VNPT responded by arguing that such requirement could not be implemented due to the technical incompatibility of establishing interconnections between two networks that use different technologies (VNPT uses Global System for Mobile Communications – GSM – for mobile

deplopyment, while SPT employs Code Division Multiple Access – CDMA – to build its network) and forced SPT to indirectly interconnect via its fixed-network. In that interconnection scenario, SPT had topay an extra 1 million US dollars in 2003 and approximately 1.4 million US dollars in 2004 for the additional interconnect charges (Nguyen et. al., 2005). In March of 2004, SPT submitted its case to theregulator for settlement and argued that since VNPT had previously provided smooth interconnection between its own wireless networks that were built using different technologies, GSM and Personal HandySystem, the currently advanced technical difficulties argument was not a reasonable explanation and that such discrimination was not acceptable. SPT further rationalized that the real reason for the delay wasthat the incumbent did not want to allow it to interconnect at any feasible point as stipulated by the applicable regulation. The regulator judged in favor of the incumbent, resulting in a resolution game Loss for SPT.   The equilibrium of this case then would be either L-G-Pro, or L-G-Con and that surfaces the primary question of whether the regulator’s move was Pro-competitive or Non-Competitive. The only arguedreason for not allowing direct interconnection was technical incompatibility; however, that argument did not appear to be a valid one since the incumbent had already successfully implemented interconnections between its two different technology-based networks. In reply to the above SPT complaint for direct interconnection, the regulator said that it could not review the case until the beginning of   2005 (Nguyen et. al., 2005). Understandably, if the regulator’s move had been Pro, another round of arguments would have been announced and SPT would have likely either won the case or beeninterconnected sooner. Therefore, the logical equilibrium in this case was L-G-Con, when the regulator chose Con as its move. ** Viettel Case: Interconnection Allowance and Adequate Capacity ** ** Provisioning ** Viettel Mobile commenced providing mobile services in September 2004. A

number of VNPT provincial telecommunications subsidiaries did not allow the Viettel mobile network to interconnect with their local networks. Further VNPT provided less than 50% of the required capacityfor Viettel to transit traffic between Viettel mobile and the VNPT network (Khiet Hung, 2005). In June 2005, when several complaints had not been resolved in a timely manner by the regulator, Viettelsubmitted its case directly to the Prime Minister, and the case was remanded to the regulator for expeditious settlement (Vietnam Cabinet (a) & (b), 2005). Viettel Mobile won the case by a final judgment that was released in July 2005 (MPT (c), 2005). In this case, the equilibrium must be either W-G-Pro or W-G-Con. Since the incumbent traditionally follows the growth direction and uses technical difficulties to deny implementing interconnection agreements, the new entrants can not win cases if the regulator continues to make Con moves. It appears that finally the regulator’s move was Pro. However, such equilibrium would not have been reached if theMinistry of Military – direct controlling organization of Viettel – had not used its political influences to submit a complaint directly to the Prime Minister. In response to the Viettel complaint, the Cabinet and the Prime Minister confirmed that the regulator was responsible for this interconnection delay and forced the regulator to direct VNPT to provide interconnection services and necessary transit capacity to new entrants(Vietnam Cabinet (a), (b); 2005). Further, the Prime Minister required the regulator to actively review and revise/promulgate appropriate legal documents to foster smooth interconnection and fair competitionamong operators. There is interpretable evidence that the regulator’s Pro move in this case was significantly affected by the upper levels of governmental interference. ** EVN Telecom Case: Services’ Nature and Adequate Capacity Provisioning ** EVN Telecom started operating in early 2006. In addition to mobile services, EVN Telecom provides so-called fixed-wireless services to customers –communications

services that are licensed to be provided on an intra-city basis communications pursuant to an intra-city tariff. However, due to the inherent advantages of EVN Telecom’s deployed technology, these fixed-wireless subscribers could communicate on an inter- provincial basis while they only have to pay an intra-city tariff, i.e. 2 fixed-wireless customers that are registered in the same city can connect to each other eventhough they are located in 2 different provinces and only have to pay an intra-city tariff, which is from 2 to 4 times lower than the current tariff applied to post and prepaid inter-provincial mobile services. Like other new entrants, EVN Telecom was not being provided sufficient capacity for transferring EVN Telecom traffic, and further, VNPT refused to provide short message services to the EVNfixed-wireless subscribers. In June 2006, EVN submitted the case to the regulator for settlement. The regulator judged that EVN’s “fixed wireless” services were actually mobile services and the companyshould either cease to provide inter-provincial communications, or change the service category from intra-city to mobile services. In case of changing the category from intra-city to mobile services, EVN Telecom can not provide such services pursuant to the current tariff, because the interconnection charge which is collected by the incumbent alone is much higher than EVN Telecom’s current collected fee forintra-city services. Relating to the capacity provisioning request, the regulator directed VNPT to provide sufficient capacity to EVN Telecom in a timely manner (NT, 2006). This dispute raises another question relating to the incumbent’s financial mechanism. The interconnection charge is approved by the regulator based on the incumbent’s data submission, but the incumbent applies dependent accounting system among subsidiaries and cross-subsidy among its services, therefore interconnection charge can not be calculated based on any direct cost-oriented principle. The regulator’s judgment in this case exhibited two main issues. First, the regulator chose a Pro-competition move by fostering the provision of transmission

capacity as the new entrant’s requested. In its conclusion of the case, the head of the regulator emphasized that the two parties would cooperate with each other to strengthen the business capabilities of bothdomestic companies and to be well-prepared for the anticipated fierce competition in the post-WTO arena (NT, 2006). Second, the regulator is perplexed in governing competition in an emerging technologicaladvanced world and still can not thoroughly solve the issue of appropriate cost-based interconnection charge. Additionally, interconnection charges – which are important factors in strengthening competitiveness – are not being properly focused upon by the regulator. ** Suggesting the Best Equilibrium and Players` Movement ** Since the most pressured issue for the regulator is accelerating fair competition in the telecommunications market and protecting domestic competitive capability when the country has to open this market forforeign investors, as committed to the WTO, the Pro- competition move is obviously the best choice from a regulatory point of view. In order to create fair competition, the regulator has no alternative but to decide fair judgments in all disputes. The regulator should be independent to all operators and should not play any role of ownership to the incumbent as assigned by the current legislation (including the existing personnel relation with the incumbent’s leadership). Further, there exists a need to abolish inappropriate stipulations when dealing with interconnection issues and to make independent decisions regardinginterconnection charge and not depend upon the charge solutions submitted by the incumbent. On its turn, when the regulator confirms its strategic move is Pro-competition and does not use its power to protect the incumbent’s interests, the incumbent will no longer be in a position to maintain itsGrowth direction; it will then have to shift to a Profit orientation. In order to achieve that shift, the incumbent will need to implement independent accounting systems between all of its subsidiaries andaffiliates, cease the cross-subsidy among services, and concentrate on maximizing benefits and increasing productivity.

When the regulator selects Pro-competition move and the incumbent shifts to Profit orientation, the best equilibrium of the game will be Pro-P-W or Pro-P-L, or in other words, new entrants eitherWin (continue to compete) or Lose (can not survive and will be excluded from the game if they can not show their competitive capabilities). This equilibrium creates win-win-win balance for all players: faircompetitive environment is ensured by regulation and active competition can be displayed by different strong carriers. In addition, the state may generate more profit when the incumbent’s objectives are redirected and it becomes a profit-oriented entity. Subsequently, the second best equilibrium of the game is achieved when the regulator keeps Pro-competition move, while the incumbent still maintains Growth choice, but the new entrants can Wina case if their proofs are acceptable. This pay-off helps to create a competitive environment and maintain the existence of multiple domestic mobile operators in the market. Finally, all equilibriums that are created by a non-competitive move of the regulator and result in new entrant Losses are not likely to advance in the achievement of the competitive policy and targets set forth by the government. The game-theoretic analysis showed that at the beginning stage of liberalization (2003), the regulator did not behave neutrally to all operators and seemed toward the incumbent in dealing withinterconnection issue. When competition in mobile market has developed, the role of the regulator is improved and the regulator shows impartial point of view in managing interconnection dispute settlement. ** 4.5 Institutional Reform in Comparative Contexts **

The dependence and asymmetric regulations of the telecommunications regulators are evidenced not only in Vietnam but also in other developed and developing countries. The following comparison between the institutional reforms in China, Russia and Vietnam – where the telecommunications regulators are not independent as required by the WTO and asymmetric regulations are under applications – shows how far institutional intervention affect mobile development. Telecommunications markets in China, Russia and Vietnam are all managed by the line ministries 32 and so far, independent telecommunications regulators are not created in these countries. The lines ministries are budgeted by the national fiscal sources and carry out their regulatory functions based on the telecommunications laws and ordinance that were enacted by the legislations, except the case of China 33. Relating to mobile communications, China retains duopoly in the market, when China Mobile and China Unicom are licensed to build mobile networks for services provisioning. Meanwhile, Russian mobile market is also dominated by the three big national operators, commonly referred to as the Big Three: MTS, VimpelKom and MegaFon; and Vietnam’s mobile market is covered by 6 mobile networks asanalyzed in Chapter 3. Though the three countries adopted mobile competition for several years, but each applies different approach in carrying out privatization. China and Vietnam accept mobile competitionbetween the state-owned companies, consequently all of their mobile operators are state-owned (the states hold more than 50% of the equity shares of these mobile operators). In the meantime, Russia is moreliberal in privatizing the mobile operators: Russia does not retain any equity shares in the Big Three operators, but keep major shares of the fixed operator Svyazinvest, who is licensed to provide mobile services in 4/7 federal macro regions. However Svyazinvest can not be considered 32 Those are Ministry of Information Industry in China, Ministry of Information and Communications in Russia and Ministry of Posts and Telematics in Vietnam. All of these ministries are under the direct control of the respective cabinets. 33 So far China governs the telecommunications market based on Telecommunications Regulations issued by the State Council in September 2000. In 2001, when China was granted the WTO membership, the country committed to enact a law on telecommunications to govern the market, though so far the bill of law is still under the consideration.

competitor to the Big Three because it provides services in regional scale only and the number of its subscriptions is comparably small to the Big Three. The governments and the line ministries, based on their attitude towards pro- competition, have interfered differently into the mobile market. In China, even the mobile market is reserved for state-owned firms like the case of Vietnam, and the incumbent China Mobile (which has been split from the used-to-be monopolist China Telecom inApril 2000) maintains a close and influenced relation with the former MPT, but the cabinet has strongly interfere into the market and released decisive resolutions to nurture the existence and development of thesecond mobile network – China Unicom. China Unicom was created by the three ministries: Ministry of Electronic Industry (MEI), Ministry of Railway and People Army. Visibly in the political viewpoints, China Unicom has more influences in the Cabinet than China Mobile, when the first “has 3 mouths in the Cabinet while China Telecom has just one” (Xu & Pitt, 2002, pp. 80). The ChineseCabinet also actively financially supported China Unicom by giving it many favorable conditions: imposing low tax, high depreciations rate and flexible and diversified financial resources. China Unicomhad received all assets of the China Telecom’s CDMA network Great Wall and Guoxin Paging Company in 1999; consequently, the telecommunications regulator became the largest shareholder of China Unicom 34. China Unicom has also politically supported in terms of frequency, interconnection, tariff and human resources. By conquering China Great Wall, China Unicom is allowed to use the frequency that allocated for its CDMA. The frequency for GSM network was assigned to ChinaUnicom under the direct intervention from the State Council, when the former MPT was extremely reluctance in assigning frequency for its GSM network 35. Further, it can offer its GSM services with a 10%lower tariff than that provided by China Mobile. The State Council also actively interfered into the interconnection process between China Unicom with China Telecom and China Mobile in order to create asmooth interconnection for the mobile competitive provisioning. In   34 At the time of transferring, China Unicom’s asset valued 2.3 billion yuan, while Guoxin Paging Company’s value was 5 time higher - 13 billion yuan (Lu & Wong, 2004, pp. 45) 35 Such allocation was undertaken when the Vice Prime Minister chaired a meeting to intervene the issue (Xu & Pitt, 2002, pp. 81)

2000, when the MII became the largest shareholder of China Unicom, experienced executives of China Mobile were asked to move to China Unicom in order to facilitate the growth of this new operator (Lu & Wong, 2004, pp. 45). In Russia, two of the most important issues of mobile services provisioning - tariff and interconnection, are flexibly managed by the telecommunications regulator. The Russian MIC has never regulatedmobile tariff, and all mobile operators can apply their own prices without any regulatory interference. Interconnection which plays as an essential and decisive factor in accelerating mobile development is simplytransited by an immediate firm - Multiregional Transit-Telecom (MTT) who owns a nation-wide transit network by integrating all individual mobile and long distance networks. Since each mobile competitor and the fixed network incumbent has its own benefit in interconnecting to each other, and none of them manages the federal transit backbone network, interconnection problem is not emerged ascontroversial topic in Russia. The most problem mobile issue, so far, is the frequency management. The lack of regulatory decisions on frequency allocation plan and frequency usage fee in Russian Federation causes many troubles to mobile operators in expanding networks and further negatively affects the privatization outcome in Russia. Frequency – as is being treated a national scarce resources – is a virtualasset of the state, and once frequency allocation plan and frequency usage fee is not available, the state will financially lose, where almost all mobile operators are completely owned and controlled byprivate sector like the case of Russia. ** 4.6 Chapter Conclusion ** Mobile competition can not be realized without the support of institutional reform, which not only creates a suitable legal framework to initiate, nurture, facilitate and ensure fair competition but alsoestablishes/restructures administrative agencies to perform those regulatory activities. The administrative agencies in Vietnam are reserved an important

position in shaping public policy, from drafting bills and other relevant decrees and decisions to interpreting those promulgations. Mobile competition was introduced in Vietnam in 1995, when the Prime Minister allowed two firms other than the incumbent VNPT to build mobile network and provide services. However such allowance can be considered as ad-hoc case, since there was no particular legal document covered this issue and the licensing duty was not imposed to any governmental agency. Further, the regulator stillkept a very close relation with the incumbent VNPT, and VNPT was legally treated as a functional arm of the regulator. Legal basis for mobile competition was released for the first time in 1996, one year after the introduction of competition, when the Cabinet issued a decree on telecommunications and a decree on theregulator’s rights and responsibilities. The regulator and the incumbent was also structurally separated in 1996, both of them were put under the direct control of the Cabinet. Consequently several legal documents on licensing, spectrum, interconnection etc. were created. Though such legal framework could only be applied in licensing activities, since the competition was not realized until July 2003, then promulgations on interconnection, spectrum, tariff … did not have a chance to confirm their appropriateness. In order to form more suitable framework to govern telecommunications market in a more global integrated environment, telecommunications framework was renewed in   2002, at first via the restructure of the regulator, then through the enactment of the Ordinance on Posts and Telecommunications, and accordingly, via the issuance of various decisions on interconnection, spectrum, tariff …. This new framework, after 4 years of implementation, has shown several deficiencies as follow: • The licensing regime is not transparent, since the duration to screen a qualified application is not described. Further, there is no article to regulate criteria to choose a successful application for a license;

• There is a lack of the numbering plan, which clearly define the numbers dedicate to different telecommunications networks and services, and how to assign such numbers; • A transparent and cost-oriented interconnection charge does not exist to facilitate and ensure mobile competition. Currently interconnection charge is submitted by the incumbent VNPT and approved by the regulator; meanwhile the regulator does not have available database to justify the correctness of such submission, and the VNPT still keeps cross- subsidy schemeamong its services. The current management of interconnection charge, thus, is hardly to be considered as pro- competition; • The regulator at first tended to be in favor of the incumbent VNPT in dealing with services tariff and judging interconnection disputes. Such a non-neutral attitude has changed, but theregulator itself is not independent in managing telecommunications market as a whole and mobile competition in particular. The regulator is dependent on other governmental agencies and thehead of the Cabinet in licensing, still maintains a close relationship with the incumbent as a representative of the owner. Together with the telecommunications rules and regulations, the Competition Law that was enacted in 2004 also plays the role of protecting mobile competition from anti- competitive behaviors. Howeverthe Competition Administration Department and the Competition Council - two organizations which are in charge of implementing Competition Law and judging anti-competitive actions - have just created inJanuary 2006. The game theoretic analysis shows that currently, there are more advantageous for the new entrants in asking for the regulator’s judgment on anti-competitive behavioral

cases: the regulator professionally offers a much shorter time to judge interconnection disputes without fee. The above analysis confirms the second hypothesis of this research: institutional reform has not been adequately considered to timely support mobile competition. Mobile competition was formallyintroduced in 1995, but except operating permissions of the Prime Minister, no legal basis on licensing, interconnection, spectrum … existed to realize such competition. The first institutional reform activitieson telecommunications was undertaken a year later in 1996, and it took years to create necessary rules and regulations to govern a competitive environment. The current framework on telecommunications that was established from 2002, but such framework does not fully support a competitive environment. In its 2006 annual report, the regulator MPTrecognized that the MPT, within its authorization, does not timely draft and enact necessary legal documents to govern telecommunications sector, and there is a plan to build a new law on telecommunications toreplace the current applicable rules and regulations.