Vietnam - broadband and competition

Broadband makes connections in rural Vietnam

Remote villagers are benefting from a free pilot project as providers angle for business - demonstrating that broadband can be a profitable business but also a way for Vietnam's most remote regions to leapfrog straight to the most advanced form of telecommunications.

Sitting next to an open hearth, Le Anh Phuong is updating her internet blog, which she has called "girl with a changing star", as well as downloading music from Super Junior, a Korean boy band.

The 14-year-old blogger spends about two hours a day on one of the 11 computers that have been installed with a Wi-Max internet connection in Ta Van, a remote mountain village in north-western Vietnam.

One might expect such an initiative to be driven by philanthropic motives. But Intel, the US chip maker, together with VDC, a state-controlled domestic telecommunications operator, are hoping to demonstrate not only that broadband can be a profitable business but also a way for Vietnam's most remote regions to leapfrog straight to the most advanced form of telecommunications.

First fixed phone only installed in 2004

Five months after its launch, the Ta Van pilot project - which is free to the villager's users - still faces challenges. For a start, Ms Phuong's enthusiasm for the internet does not seem to have spread like wildfire in Ta Van, which is home to about 3,000 people from three Vietnamese ethnic minorities. Many seem to be still adjusting to much more basic technology in a village where the first fixed phone was installed at the post office in 2004 and which was only hooked up to the regional electricity grid in 2005.

"My parents have no idea or interest in the internet, but I guess that's normal because they're just old people," says Ms Phuong.

In a communist country such as Vietnam, telecom companies can only proceed with full government backing

Still, Intel says that it selected Ta Van precisely because it wanted to test the technology in a difficult location as well as gauge interest among remote users. And such is Intel's conviction that broadband can be turned into a rural success story that it plans to install high-speed internet in several other remote communities across the country this year.

It is also looking to team up with local operators on similar projects in several other Asian countries, including Malaysia, the Philippines and India.

Andrew Allison, an Intel executive, says: "Some of this technology really sounds like a James Bond movie and would not have been possible 10 to 15 years ago. With something like Wi-Max, you can aggregate demand over a wide area from multiple stakeholders, which makes the operating cost a lot more manageable. We are now finally down to the level where this is affordable."

Intel is not alone in its conclusions. "We expect markets like Vietnam to be booming this year,'' says Nicolas Van Den Abeele, president for south and south-east Asia of Alcatel-Lucent, the Franco-American equipment provider. "And broadband connectivity to rural areas is going to be key".

Foreign companies not expected to directly take part in auctions

Hanoi is expected to hold auctions for both third-generation and Wi-Max licences this year. While foreign companies are not expected to be allowed to take part directly, Mr Van Den Abeele predicts that "some overseas operators or investment groups" will get involved as partners or backers of local bids.

Wi-Max is not the only broadband technology suited to rural areas, with most executives predicting that countries such as Vietnam will end up with a mix of wireless and fixed infrastructure. But wireless offers some advantages, not least the ability to reach mountainous terrain such as Ta Van by beaming straight from IPStar, the Asia-Pacific satellite controlled by Shin Corp of Thailand.

About 5 per cent of Vietnam's population of 85m has access to fixed lines, while mobile coverage has climbed to almost 30 per cent. For broadband, coverage is about 2 per cent, but the number of high-speed ADSL subscribers tripled last year to 1.2m.

Furthermore, the existing copper infrastructure is often of poor quality or corroded because of the humid weather. The loops used in Vietnam are also often excessively long to support DSL technology.

Vietnam has the size and youth to make rural broadband a success

More than 70 per cent of Vietnamese live outside urban centres, according to the World Bank. But with a population bigger than Germany's and an average age of 26 (about six years below that of neighbouring China), Vietnam combines the size and youth required to make rural broadband a success, argue telecom executives.

A literacy rate above 90 per cent is another advantage, as are the family ties that link urban and rural dwellers, as well as overseas Vietnamese who send back about $6bn in remittances a year. Finally, an Alcatel-led survey last year identified 650,000 micro-businesses that were interested in internet access, most of them in the countryside. Their average expenditure on communications is about twice that of households. "This makes the business case definitely a lot more appealing for both operators and vendors,'' says Mr Van Den Abeele.

In a communist country such as Vietnam, telecom companies can only proceed with full government backing. Recently, Hanoi not only indicated it would proceed with the sale of licences but said it would also divert more state subsidies to broadband, with the goal of extending coverage to about a quarter of the population.

There is also awareness in Hanoi that local operators need to embrace broadband before an opening of the country's telecom sector, in line with commitments made when Vietnam joined the World Trade Organisation.

Tran Manh Dung, a director in the ministry of information and communications, says: "Competition is not top of my mind now. But eventually we will be ready to open our doors wide open to [foreign operators]."