US embassy cable - 04HANOI2758

UNCLAS SECTION 01 OF 04 HANOI 002758 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CIP ANDREW HYDE 
STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA JBELLER 
STATE PASS USTR FOR JMCHALE 
STATE PASS USTR FOR CKLEIN AND EBRYAN 
GENEVA PASS USTR 
 
E.O. 12958:  N/A 
TAGS: ECPS, ETRD, EINT, EINV, VM, WTO 
SUBJECT:  MPT DISCUSSES WTO TELECOM OFFER WITH USTR TEL DIR 
 
SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY 
 
1. (SBU) Summary.  On September 27 USTR Telecommunications 
Director Jonathan McHale consulted with the Ministry of 
Posts and Telematics (MPT) on Vietnam's fourth WTO offer. 
They also reviewed the current situation of Vietnam's 
telecom market (see septel) and MPT's progress in meeting 
their BTA requirements, to include implementation of the WTO 
Reference Paper.  McHale also called on Vice Minister Mai 
Liem Truc (see septel).  In both meetings McHale emphasized 
that Vietnam's current telecom offer is not sufficient. 
USTR's goal is to secure 100% foreign ownership in the 
telecom sector within a reasonable amount of time.  MPT 
continued to promote a slow approach to opening this sector 
primarily for reasons of national security.  However, MPT 
was receptive to some suggestions on how to accommodate 
security concerns and still open the services sector and 
parts of the facilities sector.  MPT officials would not 
commit to making a revised telecom offer before the next 
bilateral meeting in October.  END SUMMARY. 
 
2.  (U) On September 27 United States Trade Representative's 
(USTR) Telecommunications Director Jonathan McHale discussed 
Vietnam's fourth WTO offer with the Ministry of Posts and 
Telematics (MPT).  MPT's Chief WTO Negotiator, Deputy 
Director General for International Cooperation Phan Tam 
represented the GVN.  Officials from his office and MPT's 
Telecommunications Department were also present at the 
meeting.  ECON/C and Econoff also attended.  McHale also had 
a separate meeting with a member of the National Assembly's 
Committee for Science, Technology, and Environment. 
 
GVN SECURITY CONCERNS DELAY OPENING 
----------------------------------- 
 
3. (SBU) Tam cited security as the primary reason for the 
GVN's reluctance to open the telecom sector more quickly to 
foreign investment.  A slow opening was in the national 
economic interest and would save space for domestic 
investors, he added.  McHale pressed him to describe how 
U.S. investment would hurt domestic investors and whether he 
had any proof or experience that would show how FDI would 
overwhelm domestic investors.  McHale cited the experience 
of Japan and the United States to illustrate the slow growth 
of foreign investment in liberalized markets.  Tam did not 
respond with any proof to support his contention. 
 
MPT AND VNPT FEAR SIGNIFICANT LOSS OF MARKET SHARE 
--------------------------------------------- ----- 
 
4. (U) MPT projects that VNPT will lose significant market 
share, possibly from 70% to around 25-35%, once the telecom 
sector is opened to greater foreign investment.  Tam noted 
that VNPT currently only controls 35% of the market for VOIP 
services.  McHale noted that VNPT still collects significant 
revenue from other VOIP service providers by virtue of 
owning the infrastructure.  McHale added that in most 
foreign markets U.S. fixed-line investors seek to offer 
services in niche markets usually to other multi-national 
corporations that require global communication services.  In 
markets open to competition this type of investment has been 
targeted and thus foreign market share of the overall market 
usually constitutes less than 10% of market share. 
Furthermore, since competition is typically slow to develop, 
threats to incumbents' business are minimal.  McHale said 
that it was unlikely that Vietnamese companies would be able 
to attract capital by listing on the international stock 
markets like many Chinese companies.  Therefore, welcoming 
investment through liberal investment policies would be 
critical to attract capital, new technologies, and 
managerial experience required to support the next 
generation of businesses that will need telecom services 
that decide to invest in Vietnam. 
 
ALTERNATE INVESTMENT MODEL: SERVICES vs. FACILITIES 
--------------------------------------------- ------ 
 
5. (SBU) In response to various questions about the lack of 
interest in Vietnam among U.S. investors, McHale pointed to 
the confusion of what constitutes value-added services 
versus basic telecommunications services in Vietnam's 
offer/system.  He also predicted that there will be a good 
deal of confusion about what will be defined as internet 
services when the BTA allows joint ventures in this sector 
in December 2004.  Tran Quang Cuong, an officer in MPT's 
Telecommunications Department, tried to provide a better 
definition of value-added and basic services, but had some 
difficulty.  McHale asked for clarification about the three 
areas of greatest interest to U.S. investors, Voice Over 
Internet Protocol (VOIP), Internet Protocol Virtual Private 
Network (IPVPN), and Managed Data Network Services (MDNS). 
Of these three, Cuong was certain that VOIP and IPVPN are 
classified as basic telecommunications services.  While they 
were uncertain about the third, Cuong believes that it may 
be considered value-added based on McHale's description. 
Concerning internet services there was even less certainty, 
and Econoff was tasked to follow up with the various 
ministries concerned (Trade, Planning and Investment, and 
Posts and Telematics) to clarify whether or not U.S. 
companies could enter into JVs as Internet Service Providers 
(ISP). 
 
6. (SBU) In order to avoid confusion between value-added 
versus basic services for Vietnam's WTO offer, McHale 
suggested that Vietnam look to Singapore's model that 
divides the market into service-based operations (SBO) and 
facilities-based operations (FBO).  Furthermore, McHale 
suggested that USTR could consider being flexible if Vietnam 
chose to open up the FBO sector more slowly while allowing 
for a more rapid opening in the SBO sector.  He noted that 
this type of model could help allay the fears of those 
within the GVN who are concerned about the security of 
Vietnam's telecoms sector, which is presumably more an issue 
for facilities-based services.  Trieu Minh Long, an officer 
in MPT's International Affairs Department, was reluctant to 
accept these classifications.  He said he would prefer to 
keep the traditional classifications and discuss services on 
a case-by-case basis, but Tam replied that he would take 
note of this model and consider it. 
 
 
ADDITIONAL CLARIFICATIONS AND COMMENTS ON VIETNAM'S OFFER 
--------------------------------------------- ------------ 
 
7. (SBU) Removal of provision for Internationally licensed 
partner.  McHale suggested that MPT should consider revising 
language in several sections that restricted foreign 
investors to dealing only with Vietnamese companies with a 
license for international services.  This could slow down or 
discourage investment and competition in many types of 
services, which might want to contract directly with a 
domestic operator (Note: For example, a domestic ISP may 
need to have international bandwidth. End Note).  A more 
flexible approach would be to require that foreign investors 
seek to partner with a licensed telecom service provider 
only.  In each case, MPT noted the suggestions and agreed to 
consider them. 
 
8. (SBU) U.S. Interest in Satellite Services.  MPT 
reaffirmed that for purposes of political reassurances 
foreign investors need to have domestic partners in order to 
provide telecommunications services in Vietnam.  McHale 
noted that satellite services is an exception that should be 
considered in the near term.  Several U.S. firms have an 
interest and the capability to provide this service to 
Vietnamese customers directly; there is no need for a 
partner.  To require satellite companies to have a domestic 
partner would be inefficient and needlessly drive up prices 
with no value-added.  Greater flexibility in this area would 
bring much needed educational and communications technology 
to Vietnam.  MPT did not object on technical grounds, but 
noted that this subject is a gray area as it also comes 
under the jurisdiction of the Ministry of Cultural and 
Information (MOCI).  (Note: Many satellite services, e.g. 
corporate data services, do not involve broadcasting, so the 
MPT answer was not on point.  End Note.) 
 
9. (SBU) Vietnamese policy on cable modem services. 
According to Tam, Vietnam will not make a commitment on 
market access for cable modem services.  Cable is only used 
to provide audiovisual services.  There are no plans to 
provide internet or voice telephony over cable lines.  This 
area also falls primarily under the jurisdiction of MOCI, 
and according to Long, security concerns dictate audiovisual 
limits. 
 
10. (SBU) Cable landing stations.  McHale explored the 
possibility of allowing U.S. firms to own and manage 
international cables all the way to cable landing stations. 
He described their displeasure with the current half-circuit 
model.  McHale suggested that MPT review Hong Kong's model 
that determines HK territory to begin beyond the station and 
thus allows foreign firms to land fully owned cable capacity 
on Hong Kong's shores.  Tam showed interest in reviewing 
McHale's sketch of this model, but did not offer a comment. 
 
11. (SBU) Restrictive licensing criteria.  McHale cautioned 
MPT to avoid including market access barriers through 
licensing criteria in any decrees or implementing 
legislation.  He cited China as an example noting that they 
require high amounts of capitalization and several years of 
experience for new entrants into the market.  Such 
restrictions would stifle new investment from young 
innovative companies bringing new technologies to market in 
Vietnam.  According to McHale, while the priority of the 
USTR is to encourage greenfield investment, a blanket 
restriction to 30 percent ownership of existing companies 
(Vietnam's current offer) was serious cause for concern.  If 
Vietnam wishes to guarantee a certain amount of protection, 
McHale suggested that they might consider negotiating 
specific limits or restrictions on investment on specified 
companies such as Japan and Korea have done. 
 
MPT TRIES TO SHIFT BLAME TO NATIONAL ASSEMBLY 
--------------------------------------------- 
 
12. (U) In citing the obstacles to a wider opening of the 
market, Tam stated that a "majority" of the National 
Assembly (NA) is "opposed to integration."  In countering 
this argument, McHale cautioned that Vietnam had to show 
that it was committed to liberalization if it wanted the WTO 
process to progress and that expecting quick negotiations on 
the basis of a weak offer was not realistic. Comment:  While 
there is debate within the NA about the pace of integration 
and how best to balance the amount of foreign investment, 
post has no evidence to indicate that the NA is the locus of 
opposition to integration.  For example, in McHale's meeting 
with NA member Dr. Mai Anh, a member of the Committee for 
Sciences, Technology, and Environment, Anh described the 
NA's efforts in terms of trying to limit SOE monopolies in 
various sectors to allow greater foreign investment.  End 
Comment. 
 
WILL MPT REVISE THEIR OFFER FOR OCTOBER BILATERAL? 
--------------------------------------------- ----- 
 
13. (SBU) In concluding consultations on MPT's offer, McHale 
reiterated Ambassador Zoellick's strong interest in telecom 
liberalization and encouraged MPT to consider his 
suggestions and revise their offer.  ECON/C inquired whether 
MPT would be able to submit a revised offer before the 
bilateral meeting at the end of October.  Tam said that such 
a decision would have to be made by the GVN's Chief 
Negotiator at the Ministry of Trade. 
 
14. (SBU) COMMENT:  Tam seemed to express a genuine interest 
in many of McHale's suggestions.  Some of his responses 
indicated that these were quite novel suggestions and that 
they have possibly not been raised in Vietnam's bilateral 
negotiations with other WTO members.  This could indicate 
that MPT has yet to be pushed hard to make a compromise on 
their telecommunications offer.  END COMMENT. 
 
IMPLEMENTATION OF WTO REFERENCE PAPER 
------------------------------------- 
 
15. (U) McHale also addressed MPT's efforts to implement the 
WTO Reference Paper as part of their BTA obligations.  While 
they have made significant progress towards improving the 
competitive environment and making information publicly 
available, McHale observed that much work remains to be done 
to meet interconnection requirements. 
 
16. (U) Reference Interconnection Offer (RIO).  MPT 
instructed VNPT as the incumbent operator to provide a RIO 
about 1 month ago, and they anticipate receiving the initial 
RIO by the end of 2004.  McHale requested that MPT provide a 
copy to the embassy.  He also briefly described how this 
process worked in the United States and how a precedent had 
been set to use the Long-run Incremental Cost to determine 
interconnection rates.  McHale added that recent studies 
showed that interconnection rates did not vary greatly 
between developed and developing economies, and that they 
should generally be less than .01 USD.  In the U.S. 
interconnection rates are between .002 - .005 USD compared 
with .009 USD in Mexico.  MPT officials agreed that 
interconnection rates in Vietnam could be somewhere between 
.02 - .05 USD.  Cuong also agreed that MPT does not 
currently know what the actual market costs are and that the 
long-held assumption that VNPT operates local fixed-line 
services at a loss (120 VND/minute, approximately .007 USD) 
in order to expand tele-density may be incorrect.  Tam 
admitted that MPT would need assistance to determine if 
VNPT's RIO is cost-based.  McHale described how the World 
Bank had provided assistance for Peru to hire consultants to 
provide such expertise. 
 
17. (U) Spectrum Allocation Plan.  MPT has met its 
obligation, per the WTO reference paper, to produce and make 
public a spectrum allocation plan.  It is available online 
at www.rfd.gov.vn/view/vn/index.html.  Post will encourage 
MPT to produce an easily readable diagram as well. 
 
18. (U) Licensing Process and Public Comment.  On September 
18, 2004, The GVN put into effect Decree 160 describing the 
licensing process in greater detail than the Ordinance on 
Posts Telecommunications of 2002.  It was published in 
Vietnamese in September and will be available soon on-line 
and in English.  McHale inquired whether the GVN allowed for 
a period of public comment on this and other 
telecommunications decrees.  Tam described a system whereby 
comments were sought from service providers and various 
departments within MPT, but did not reply to the public 
comment question. 
 
19. (U) This cable has been cleared by USTR Telecom Director 
Jonathan McHale. 
MARINE