S-fone and Billion-dollar Makeover

In late 2010, S-fone kept 6 - 7 percent of Vietnamese mobile communication market share. At that time, Mr Nguyen Tien Thinh, General Director of S-fone, expected the carrier would have 12 percent of market share in 2012.

 

The year 2012 has gone by a third but S-fone has not achieved that target. According to the annual Vietnam ICT White Paper released by the Ministry of Information and Communication in 2011, about 95 percent of mobile telecom market share was occupied by the Big Three: Viettel, Mobifone and Vinaphone. S-fone, Vietnamobile, Beeline and EVN Telecom shared the remaining 5 percent. S-fone kept merely 0.53 percent of the market share. This figure showed that S-fone’s market share contradicted the company’s expectations.

 

Recently, S-fone got a permit from the Ministry of Information and Communication to switch its network technology from CDMA (code division multiple access) to HSPA (high speed packet access) to advance to the 3G technology - the way major carriers in Vietnam are going.

 

To change, S-fone has a lot of work to do.

 

First, the carrier has to throw away most of its radio network and can only use up a part of basic components like transmitters and base transceiver stations. Mr Hoang Manh Cuong, General Director of CMC Telecom, said this total change is a billion-dollar game, even a multi-billion dollar game. He noted that to cover major cities in Vietnam, the carrier will need 10,000 base transceiver stations (BTS) while S-fone is now running no more than 500 BTS. BTS construction cost is huge regardless of transmission lines, cables and other instruments.

 

The case of S-fone can be easily envisaged from the restructuring of other carriers. Beeline got nearly US$1 billion from the Russian telecom group VimpelCom. Vietnamobile and its partner, Hutchison Telecom Group, invested nearly US$1 billion to switch the technology from CDMA to GSM.

 

Like other networks, S-fone will also need billions of US dollars to convert and develop as Beeline or Vietnamobile did. The matter is where the money comes from?

In 2010, an S-fone official boasted that the network would build 10,000 new BTS. However, no new BTS has been erected since that announcement because it ran out of money (Sai Gon Tiep Thi newspaper). This is understandable because it lost in three consecutive years from 2008 to 2010. In detail, it lost 91.3 billion in 2010, VND15 billion in 2009 and VND47.3 billion in 2008.

 

Meanwhile, Saigon Telecommunication & Technologies Corporation (SaigonTel), major shareholder in S-fone, is in a difficult situation. In 2011, Hochiminh Stock Exchange (HOSE)-listed SaigonTel (SGT) owned by Mr Dang Thanh Tam, one of the wealthiest man on the Vietnamese stock market, made revenues of just VND786.73 billion. In addition to S-fone, SaigonTel also runs many other business projects like AAG fiber optic submarine cable system, smart network, fiber optic transmission network, nationwide Microway transmission network, and office towers for lease. Thus, SaigonTel is not powerful enough to fund this costly makeover. In 2011, SPT tried to look for investors for S-Fone.

 

Thus far, it remains unclear who will help S-fone to change the technology. There is a rumour that a famous Chinese carrier will do this. Many eyes turn to Huawei and ZTE.

 

If Huawei, ZTE or another foreign partner waning to penetrate the Vietnamese mobile telecom market, S-fone is probably the only choice at present. It is very difficult to invest in the Big Three while smaller networks are run by powerful foreign shareholders like VimpelCom in Beeline, and Hutchison Telecom Group in Vietnamobile. EVN Telecom was taken over by military-run Viettel Group.

 

Meanwhile, market potentials are remain unfulfilled. Vietnam's telecommunications market has not reached saturation while the number of real subscribers only comes to 40 - 50 million and opportunities are still tremendous. Viettel quickly made a success with the focus directed to students since the 2000s. This group of customers has now brought in vast incomes for the military-run telco. In 2011, Viettel earned a net profit of VND20,000 billion on revenues of VND116,000 billion - a marvellous rate in telecom industry, according to Mr Cuong from CMC Telecom.

 

In addition, mobile carriers have another attractive market segment - highly profitable value-added services. Music box, ringtones and games are very profitable services and they are still fledging. Thus, there are a lot of room for these services to develop.

 

Wide profit margin and untapped potentials are likely the primary drivers for foreign carriers like VimpelCom or Hutchison Telecom Group to invest in minor carriers like Vietnamobile and Beeline. For this reason, the investment by Huawei, ZTE or any big carriers in S-fone is absolutely possible.