New Decree Detailing Telecom Law of Vietnam

Decree No.25/2011/ND-CP of the government which was issued on April 6, 2011 provides enterprises, including domestic and foreign owned ones, some new regulations in the lucrative field of telecom. The decree stipulates details and specifies new guidelines for the execution of several articles of Telecom Law relating to ratio of ownership, foreign investment, commercial right fees and authorized capital.

Ratio ownership limitation causes impact on the two large mobile networks in Vietnam
Pursuant to this new decree, a prominent new regulation rules that an organization or individual who owned over 20 percent of charter capital or stake in one telecom company will not be allowed to hold more than 20 percent of charter capital or stake in other telecom firms operating in the same services in telecom service market.

Due to this regulation, one of the current giant telecom companies in Vietnam – Vietnam Post and Telecommunication Group (VNPT) – is being put in a sort of dilemma. VNPT Group, who currently owns 100 percent capital of the two big mobile networks MobiFone and VinaPhone, may be forced to sell one of the two networks or merge its two affiliates into one in order to be in accordance with the new rules.

At present, there still has not been official plan or solution submitted by VNPT to the Ministry of Information and Communication on this matter. While the merger plan has not been proposed, it is said that schedule of equitizing MobiFone has been determined and VNPT is going to announce and implement the plan which has been delayed for quite a long time.

To comply with the spirit of Decree 25/2011/ND-CP, VNPT must withdraw its capital in either MobiFone or VinaPhone to less than 20 percent. Hence, some big investors have questioned the possibility that MobiFone may have a huge offering to the public or strategic partner. However, the Decree does not forbid the subsidiaries to purchase the share of the group. Therefore, which solution shall be chosen depends on the coming submitted plan of VNPT.

Business cooperation is permitted for foreign investors
Though the permitted capital contribution percentage for foreign investors is still not stated clearly in the WTO commitments (49 percent of capital in company providing telecom network service, and 65 percent of capital in non-facilities based service company since January 2010, three years after Vietnam joined WTO), the decree at least stipulates that foreign investors can conduct direct or indirect investment in accordance with the Law on Telecom, Investment law of Vietnam and relevant international treaties in which Vietnam is a member.

As per Clause 4.2:

“In case of direct investment to provide telecommunications services without network infrastructure, foreign investors are permitted to conduct joint ventures, to do the business cooperation on the basis of contracts with enterprises established in Vietnam. In case of investment to provide telecommunications services with network infrastructure, foreign investors are allowed to joint venture or do business cooperation on the basis of contracts with telecom enterprises who have been licensed in setting up telecommunication networks in Vietnam.”

Legal/authorized capital required
Clauses 19, 20, and 21 of Decree 25/2011/ND-CP stipulate the legal capital required in each kind of telecom services. Enterprises doing business in the telecom services must ensure the legal capital as prescribed. For example, the enterprises who apply for the license of setting up fixed ground telecom network by using radio frequency, number of subscribers within one province/city must have legal capital of VND100 billion and the minimum committed investment of VND300 billion; setting up a national network must have legal capital of VND300 billion and minimum committed investment of VND1,000 billion.

For the enterprises who want to apply for license of establishment of mobile telecommunications network using radio frequency channel must have legal capital of VND20 billion and committed investment of at least VND60 billion, establishment of a virtual mobile network must have legal capital of VND300 billion and committed investment of at least VND1,000 billion in the first three years.

Commercial right fees collected
Pursuant to Clause 30, all licensed telecom and internet operators in Vietnam, including local and foreign ones, shall have to pay commercial right fees. Licensed enterprises shall pay annual commercial right fee based on annual turnover rate of services specified in the license. The payment must not exceed 1 percent of sales of the services but also must not lower than a fixed rate depending on permitted services, quantity and value of telecommunication resources to be allocated.

This Decree takes effect from June 1, 2011 and shall replace Decree No 160/2004/ND-CP dated September 3, 2004 and regulations on telecommunication investment in the Decree No. 121/2008/Np-CP dated Dec 3, 2008 and telecommunication regulations in Decree 97/2009/ND-CP on management of internet services and information content management on the internet.

Dezan Shira & Associates is boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in Vietnam. To contact the firm, please email vietnam@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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