Cablegate: Mpt Discusses Wto Telecom Offer with Ustr Tel Dir

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A


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.


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.

--------------------------------------------- -----

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.

--------------------------------------------- ------

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

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.

--------------------------------------------- ------------

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

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.


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

--------------------------------------------- -----

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.


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 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.

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