US embassy cable - 04HANOI886

UNCLAS SECTION 01 OF 04 HANOI 000886 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECPS, EINT, EINV, VM, IPROP, WTO 
SUBJECT: ICT REFORM: WILL REALITY MATCH ENCOURAGING WORDS? 
 
 
1. SUMMARY.  Ambassador David Gross, Coordinator for 
International Communications and Information Policy (CIP), 
came to Hanoi February 27 for discussions on Vietnam's 
telecom and ICT market.  He met a Vice Minister of Posts and 
Telematics (MPT), a Vice President of Vietnam's state-owned 
telephone monopoly, the President of a local software 
association as well as the IT Committee of AmCham Hanoi. 
Discussion topics included reforming Vietnam's ICT sector, 
developing Internet content, raising ICT literacy, 
protecting IPR, the state of the local software and 
outsourcing industry, WTO accession, and Internet governance 
issues at upcoming international conferences.  Gross also 
advocated for Lockheed Martin on VINASAT.  END SUMMARY. 
 
2. On February 27, 2004 Ambassador David Gross, Coordinator 
for International Communications and Information Policy 
(CIP), met with Vice Minister Mai Liem Truc of the Ministry 
of Posts and Telematics (MPT) and Vice President Bui Thien 
Minh of Vietnam Posts and Telecommunications Corporation 
(VNPT).  Gross also met with about 20 members of the IT 
Committee of AmCham Hanoi and the President of the Vietnam 
Software Association (VINASA), Dr. Truong Gia Binh.  Andrew 
Hyde, CIP Director for Asian and Pacific Affairs, ECONCOUNS 
and Econoff accompanied him. 
 
 
MPT: The Non-Independent Regulator 
---------------------------------- 
 
3. Gross met first with MPT Vice Minister Mai Liem Truc. MPT 
regulates postal and telecommunications and related 
information technology services.  Vice Minister Truc, who 
has met Gross at numerous international telecommunications 
and technology events, received him warmly. 
 
4. ICT REFORM.  According to Truc, the recent restructuring 
of MPT was a good start in Vietnam's effort to reform the 
ICT sector, but he admitted much remained to be done.  In 2- 
3 months MPT will submit a strategic plan for the next 10-15 
years to the Prime Minister.  Truc believes Vietnam must 
implement four basic changes to create an ICT sector that 
will continue to grow; a) a good infrastructure with 
widespread access, b) a diversified manufacturing base, c) a 
critical mass of digital commerce and services, and d) human 
resource development and societal adaptation of ICT.  While 
he sees government playing a role of creating a legal 
framework and acting as a significant consumer, he views 
enterprise as the primary enabler. 
 
5.  INDEPENDENT REGULATION.  Gross urged Truc to consider 
establishing an independent regulator and strong IPR 
legislation as an integral part of ICT development.  Truc 
noted the difficulty that Thailand has experienced in 
establishing an independent regulatory body, and he believes 
Vietnam would have a similar result.  Gross noted that this 
was largely due to the slow pace of Thai reform process and 
a swift reform would be most effective. Truc doubted that 
Vietnam could reform swiftly enough to avoid similar 
problems.  Gross encouraged Truc to consider the possibility 
of rapid transition and added that Vietnam's robust mobile 
communications market gave it an advantage over Thailand. 
 
6.  U.S. INVESTMENT AND TRAINING.  Truc requested USG 
assistance in attracting greater U.S. investment.  He is 
very pleased with IDG's plans to invest 100 million USD in 
Vietnam, but he noted the lack of U.S. investment in the ICT 
service sector.  There was, he noted, only one significant 
U.S. manufacturing operation: the VNPT-Corning's fiber optic 
plant near HCMC.  Asked why investors preferred China to 
Vietnam, Gross pointed out that there are no significant 
United States service sector investments in China either. 
MPT would like to promote Vietnam as a good springboard for 
foreign investors who are interested in investing in Laos 
and Cambodia, Truc said.  He mentioned a long-term 
commitment for investment between Comvik and VNPT worth 200 
million USD signed during the recent Swedish Royal visit. 
Besides increased U.S. investment, MPT is also very 
interested in increasing its participation in training at 
the U.S. Telecommunications Training Institute. They were 
receptive to Gross' offer to coordinate an exchange with or 
a visit by the Federal Communications Commission. 
 
7.  PROMOTION OF ELECTRONIC SERVICES.  As part of the 
restructuring that resulted from the 2002 Ordinance on Posts 
and Telecommunications, MPT got complete responsibility for 
promoting ICT applications in all sectors including 
electronic governance, commerce, and education.  Part of 
MPT's strategic plan will include a road map for improving 
and increasing the amount of online government services 
available.  Gross commended this effort noting that it will 
increase transparency and reduce corruption.  To further 
support an increase in electronic commerce, the GVN has 
encouraged banks to facilitate wider use of credit cards. 
Econcouns suggested promoting prepaid cards for those who 
were unable to qualify for credit.  Gross lauded MPT for its 
efforts to bring ICT to schools throughout the country, and 
encouraged MPT to avoid managing ICT too intensively, rather 
to create a framework that encourages adaptation and use of 
new technology. 
 
8.  ONLINE CONTENT.  Although lack of Internet penetration 
is currently hindering the increase in Vietnamese language 
content and opportunities to generate revenue, MPT noted the 
success of VNExpress, an Internet news service with three 
years of online operations.  In 2003, VNExpress had 800,000 
readers and over 30 million visits per month. 
 
9.  ICT LITERACY PROGRAM.  Truc described a new volunteer 
program designed to increase ICT literacy called "1,000,000 
volunteers to teach 20,000,000 students."  This five-year 
project in partnership with the Youth League focuses on 
educating rural youth.  MPT has requested in-kind support 
from several U.S. corporations such as Cisco Systems, Intel, 
HP, and Sun Microsystems. 
 
10.  VINASAT.  Gross asked Truc if he knew of recent 
developments in the selection process for the VINASAT 
procurement.  Truc had originally been involved in 
establishing the selection committee, but as a result of 
some recent changes, he is now just a member of the 
selection committee.  He said the process was almost 
complete and mentioned the difficulty that VNPT is having 
regarding the orbital slot.  VNPT's negotiations with the 
Japanese government to secure a slot have been unsuccessful. 
Truc said VNPT asked contractors to guarantee an orbital 
slot, and that Lockheed Martin (LM) would not make such a 
guarantee.  Gross said that he is also concerned about an 
apparent Japanese lock on orbital slots.  He cautioned that 
a private company could not make any guarantees about 
orbital slots, and VNPT should be wary of any company that 
would make such a claim.  He said the USG is very interested 
in this matter and would be very supportive of the project 
should LM receive the bid (Note: LM has subsequently 
reported renewed Vietnamese interest in their bid). 
 
11.  WTO ACCESSION.  Truc also requested USG support for 
Vietnam's bid to join the WTO in 2005.  When Truc made this 
request for support he said that MPT considers Vietnam's BTA 
commitment to be a good point from which to join the WTO. 
 
12.  INTERNET GOVERNANCE.  Gross also mentioned that he 
hopes that the GVN will work more closely with the USG on a 
variety of issues at the upcoming second phase of the World 
Summit on the Information Society (WSIS) in Tunisia in 2005. 
One issue of particular interest to the USG will be Internet 
governance.  Truc said he looks forward to the event as 
well, but he made no comment indicating support or lack of 
support for the USG position on this issue.  However, during 
his introductory remarks he did express his appreciation for 
USG support of GVN resolutions at the recent ITU conference 
in Marrakech. 
 
VNPT: The Monopoly 
------------------ 
 
13.  VNPT and MPT TOO CLOSE FOR COMFORT.  Gross met VNPT 
Vice President Minh about thirty minutes after his meeting 
with MPT.  Instead of meeting at VNPT headquarters, a short 
walk from the MPT offices, VNPT hosted Gross in the very 
same reception room where he met with MPT Vice Minister 
Truc.  VNPT is the monopoly provider of telecommunications 
services in Vietnam and dominates the market. 
 
14.  PRIVATIZATION.  Although Minh avoided answering 
questions about future plans for privatization, he said that 
VNPT anticipates that its current market share will decrease 
significantly over the next couple of years and stabilize 
around 25%.  Minh estimates that VNPT currently enjoys a 70% 
market share.  By 2010, VNPT also anticipates an overall 
subscriber rate of 30-35%. 
 
15.  AREAS OF TRAINING INTEREST.  In addition to requesting 
increased U.S. investment, VNPT requested support to 
increase the number of exchanges with U.S. companies and 
training opportunities for human resource development.  VNPT 
is particularly interested in receiving exchanges related to 
three areas; a) managerial experience, b) better 
understanding of how to exploit the existing network, and c) 
how to increase internet revenue. 
 
16.  BUSINESS INCENTIVES AND IPR.  In his discussion with 
VNPT, Gross mentioned that one way to help boost content 
generation would be to create incentives for small and 
medium businesses to enter the market.  Gross also noted the 
important role that Vietnam's young population would play in 
boosting the growth of online content.  It would be wise, he 
observed, for the GVN and SOEs to facilitate this growth. 
At several points in the discussion, Gross and Econcouns 
also the need for good IPR policies.  IPR was noted as 
another critical factor in encouraging growth in the ICT 
sector.  Minh did not respond to these comments. 
 
17.  VINASAT.  During the meeting with VNPT, Gross also 
inquired about the VINASAT contract.  Minh assured Gross 
that VNPT was strictly abiding by the regulations governing 
contractor selection.  He also mentioned that bidders could 
provide additional information during the selection process 
to clarify any questions that might arise during the 
evaluation process.  Econcouns asked if there was anything 
specific that needed to be clarified by LM, but Minh was not 
aware of any specific questions about their bid.  (COMMENT: 
This was a very awkward exchange, and the US side was 
somewhat confused by Minh's statement and demeanor. END 
NOTE.) 
 
VINASA: Software Association 
---------------------------- 
 
18.  VINASA is a trade association representing 78 members 
most of whom are Vietnamese software companies.  Dr. Binh, 
the Chairman of VINASA also runs FPT, a joint stock company 
with 10% equity owned by the GVN in the software and 
internet services business. According to Dr. Binh, VINASA 
views the ICT sector as a promising outlet for the pressure 
to create employment for Vietnam's youthful population, but 
several issues must be addressed for the sector to grow, 
particularly the mismatch between educational curriculum and 
skill requirements.  Further complicating the ICT 
development process is the lack of competition inherent in a 
sector where the only six network service providers are 
SOEs.  Binh believes that the establishment of an 
independent regulator and privatization are a possibility in 
the future, but the reform process will move very slowly. 
Furthermore, today, the pressure to reform is applied from 
the top down only, and it is neither firm nor consistent. 
 
19.  SOFTWARE DEVELOPMENT AND OUTSOURCING.  VINASA sees 
great potential in the software development sector, but Binh 
still believes that this sector lacks adequate quality 
control measures.  As proof of the potential, VINASA has 
recorded an 80% increase in Vietnam's software outsourcing 
sector in 2003.  Of that growth, the percentage of 
outsourcing by Japanese firms grew by 400%.  In response to 
questions about specialization by Vietnamese software firms, 
VINASA considers most software development to focus on 
construction, accounting, and other industry specific 
applications.  There is very little competition from other 
countries for Vietnamese language software, and most SMEs 
buy their Vietnamese language products from local producers. 
VINASA also believes that many Vietnamese firms, especially 
FPT-Soft, one of the subsidiaries of Binh's firm FPT, would 
benefit from understanding how to tap into the small and 
medium enterprise (SME) market in other countries.  FPT-Soft 
has opened an office in Silicon Valley, but they still only 
have contracts with large companies such as IBM and HP. 
 
20.  ICT LITERACY PROGRAM.  VINASA is also a partner of the 
ICT literacy program described by MPT.  Binh described 
another component of this program involving the manufacture 
of cheaper computers for sale to low-income households. 
VINASA said the program plans to offer computers for as 
little as USD 250. 
 
21.  IPR.  VINASA strongly supports improved IPR legislation 
and enforcement.  However, Binh is not optimistic view about 
the GVN approach to this issue. Although the interagency 
committee for promoting ICT, Committee 58, has been 
considering improved IPR legislation, they have yet to move 
forward with any real developments, he said. 
 
AMCHAM IT Committee Rebirth? 
---------------------------- 
 
22.  The luncheon in host of Ambassador Gross was the first 
event held by the AMCHAM IT Committee in about a year. As a 
result of his visit and the lunch, they resolved to resume 
monthly meetings.  AMCHAM Executive Director announced a new 
initiative in partnership with Vietnam Television (VTV) to 
produce and broadcast a thirty-minute program on IPR issues. 
He did not provide exact dates but said that it would air in 
the near future. 
 
23.  INVESTMENTS AND CONTRACTUAL RELATIONSHIPS.  At the 
AMCHAM IT Committee luncheon, Matthew Holden, Oracle's Sales 
Director based in Singapore, said his company had shelved 
its plans to invest in China because of the government's 
handling of SARS.  Oracle is looking at Vietnam as a 
potential site for investment.  Many companies raised the 
issue of the difficulty of moving beyond consulting 
relationships to long-term contractual relationships in 
Vietnam.  Specifically, UNISYS raised the issue of port and 
cargo security operations.  They are interested in providing 
training to the GVN about the new requirements and 
introducing them to their products that can assist with 
implementing and managing security operations throughout the 
delivery cycle, but they are concerned about engaging the 
GVN if this investment of time and resources is not likely 
to lead to a contract. 
PORTER