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Burden to bear

Released at: 09:04, 16/02/2017

Burden to bear

Photo: Viet Tuan

A draft decree amending and supplementing certain articles of the Telecommunications Law will affect both subscribers and telecoms service providers.

by Mr. Tran Manh Hung / Managing Lawyer & Director of law firm BMVN

The Ministry of Information and Communications (MIC), at a review meeting in December on a draft decree for the Telecommunications Law, affirmed that the draft’s objective is to minimize administrative bureaucracy, enforce regulations on prepaid subscriber management, and adopt international practice in order to increase accountability in the telecoms sector.

The proposed draft decree was introduced at a time when Vietnam’s mobile market is experiencing significant growth, especially over recent years, with total revenue estimated at VND340 trillion ($15 billion) and profit at VND56 trillion ($2.5 billion) in 2015, according to data from the MIC’s annual report. Currently, the country’s top three largest operators - MobiFone, Viettel and Vinaphone - account for almost 93 per cent of the market, with the remainder controlled by Vietnamobile, Gmobile and S-Fone. The emergence of 4G networks in the third quarter of 2016, combined with increasing demand for advanced IT services, is expected to drive growth in Vietnam’s telecoms sector even further in 2017. New products and services are expected to open doors to more opportunities for foreign investment in Vietnam, with foreign firms and investors looking to develop cooperative business ventures with local operators. The telecoms market is now in its most competitive state yet.

As competition presents more challenging market conditions, it is critical that the MIC maintains a level playing field, where every player in the telecoms sector has equal opportunity. While it is necessary for the ministry to address all persistent problems, such as the poor management of prepaid telecoms services and inappropriate sanctions on service providers violating the Telecommunications Law, it is important that it consider all of the impacts the draft decree may have on consumers, mobile operators, and the telecoms industry as a whole.

Tighter control of distribution outlets

With the passing of the draft decree, the MIC’s aim is to gain a tighter grip on the information of subscribers, starting from the distribution network. Under Article 1.1 and 1.2 of the draft, SIM card distribution outlets and registration units are now combined as “service points”. In order to be eligible to operate a service point, an entity must be an enterprise authorized by the mobile operator or established by the mobile operator itself. Individuals and households who are currently distributing SIM cards must register their businesses as companies and re-apply for authorization from operators.

This regulation prevents individuals, households and those who are reluctant to set up companies from running telecoms service businesses. Firstly, the act of simply selling SIM cards should not fall within the ambit of providing telecoms services as defined under Article 3.7 of the Telecommunications Law. Secondly, this regulation might disadvantage the non-dominant players in the market. While it is relatively uncomplicated for the big three operators to adhere to this regulation due to their developed distribution networks, it would be a real threat to small mobile operators who rely heavily on authorized individuals and households selling their SIM cards. In order to comply with this regulation, small mobile operators will have to convince individuals and households to establish companies and re-join the distribution network. For small businesses, this regulation will incur unbudgeted costs and time-consuming formalities that might result in these businesses ceasing to sell SIM cards. If adopted, the regulation will also have a negative impact on other economic sectors, with millions of jobs taken away from those individuals and households who cannot afford to convert their businesses as required.

Additionally, the implementation timeline proposed in the draft decree will also be an obstacle for small, non-dominant mobile operators. As stipulated under Article 4.1 of the draft, all subscriber registration units, SIM card distribution outlets, and telecoms service agents must cease their SIM card registration and sale functions by March 1, 2017 if they are not qualified to be a service point under the new provisions. The deadline is tight as, assuming the draft is passed, mobile operators will have only two months to refine their distribution networks. Unlike long-established operators, it will be much more problematic for new operators to cope with and adapt to sudden changes in the regulatory scheme, especially under such short notice. The costs and expenses for the implementation of such urgent changes will be high and difficult to bear for small mobile operators. 

Requests and collection of subscribers’ data

Under Article 15.5 of the draft decree, mobile operators must record additional information on subscribers, such as gender and nationality, and subscribers are responsible for updating their information on the mobile operator’s database. Failure on their part to provide the information required would result in the termination of the mobile service. 

With some of the additional information required, especially gender and nationality, being recorded and presented on other mandatory documents that subscribers must submit during registration for services, such as ID cards or passports, one cannot help but wonder whether this requirement is redundant. This provision also requires that mobile operators’ staff manually key in the additional information obtained from existing subscribers, which leaves abundant room for human error. 

New regulations on the subscribers’ database

Article 4.3 of the draft decree provides that, within 12 months of its effective date, mobile operators are required to review and update their subscriber information database. Many commentators, analysts and consumers alike welcome this new supplementation as an effort by the MIC to better restrict the number of prepaid subscribers and SIM cards and, by way of association, the spread of spam and unwanted advertisements. Indeed, it would be virtually impossible to even attempt to resolve this issue without an accurate database as a foundation. The draft decree further introduces a fine of VND800,000 ($35) to VND1 million ($44) per number for providing services to subscribers with “non-compliant information” into Article 30.2 of Decree No. 174. Administrative sanction per number, which appropriately reflects the extent of the breach, is more fitting for the problems at hand than a fixed sum, which again shows the amount of consideration that legislators have invested in this draft decree.

However, concerns were raised again as to the effects these provisions will have on the competitiveness of small operators in the telecoms market. When read together, it is not difficult to appreciate the MIC’s attempt to pass along the responsibility to control prepaid SIM cards to mobile operators. The question of whether the approach is pertinent as a solution to the matter requires a whole different realm of debate, but when given the same responsibility to regulate prepaid SIM cards via subscriber database control, legislators have, intentionally or not, put small operators at an adverse position competitively. 

Even though the draft decree compels big and small competitors alike to bear the same responsibility, and consequently the same type of costs and expenses, the burden would be much heavier on the small operators, who, without the costs associated with the obligations to review and update their subscriber database, are already struggling to compete, given their much more limited resources. The short deadline - 12 months - also does not help these competitors, as the shorter the deadline, the higher the costs that these operators will have to suffer.
For the purposes of this article, let us take a look at the government’s citizen database project, which was proposed and approved in 2015 with a budget of VND3.3 trillion ($148 million) and completion expected in 2028 at the earliest. Given that the database for subscribers of a mobile operator, especially a small one, would require a lower level of sophistication in scope, and therefore a lower budget and shorter completion time, perhaps it is worth noting that, as at January 2016, there were 128 million mobile phone subscribers in Vietnam. With a market share of 9 per cent, small operators are responsible to collect, review and update the information on approximately 11.5 million people. If, hypothetically, it requires $1 to have one subscriber’s information reviewed and updated to be compliant with the draft decree, the small operators together are paying $11.5 million out of their pockets, not to mention the amount of time needed. This expense may be, to small operators, the difference between being able to compete with the “Big Three” and being forced out of business permanently.

The draft decree further diminishes small operators’ competitive position, as they are staring at the possibility of being fined VND800,000 ($35) to VND1 million ($44) per number for providing services to subscribers with “non-compliant information”.

With no specific provision for “non-compliant information” to be found anywhere, small operators, and of course the “Big Three” as well, are exposed to the risk of being subjected to a liability that they have little control over. Who is the party in charge of verifying the subscribers’ information? What is the verification, and subsequently the fining process as the case may be? Small operators are therefore forced to choose between two equally agonizing options: either spend large amounts of money on collecting and storing subscribers’ information in order to avoid being fined, or risk being fined. It is unclear at the moment which option the small competitors would opt for, but both seem to result in the same outcome: reduced competitiveness. This issue could be easily resolved by clarifying the definition of “non-compliant information”, for example to exclude cases of honest human mistakes such as errors in data input or in data collection as required under the draft decree.

Administrative sanctions

Article 30.9 of the draft decree places the onus also on the legal representatives of mobile operators to arrange for the access of a subscriber database by authorities and to establish internal procedures to review and examine subscriber information. My opinion on the rationale of this provision is that legal representatives of an enterprise in general are often persons who have vested interests in the enterprise and would usually hold a managing and directing position at the enterprise. By imposing an administrative sanction on the legal representative, the MIC hopes to pressure the legal representatives into asserting their influence on the firm to be complaint with the regulations.

However, many commentators have pointed out that arranging for the access of a subscriber database by authorities and establishing internal procedures to review and examine subscriber information are obligations on the mobile operators, not the legal representatives. Failure to fulfil these obligations is a breach of duty by the mobile operator, and hence the mobile operator, as a legal entity, should be the subject of the administrative sanctions under Article 30.9 of the draft decree, not the legal representative. Moreover, the Law on Enterprises currently allows multiple legal representatives. There would be certain legal representatives who do not have the necessary authority under the enterprise’s internal policies to conduct the required arrangement and procedures. Would it be fair to impose administrative sanctions on these representatives, who, if given the chance, would strive to be compliant with the regulations but simply are not authorized to do so?

Conclusion

The draft decree is a demonstration by the government and the MIC in particular of their determination to tighten control over prepaid SIM cards and spamming, an issue that has been plaguing the telecoms market for far too long. While this effort should be greatly commended, and in fact is, there still exist certain issues within the draft decree that if left unresolved would bring about detrimental consequences to the sector, in particular damaging the competitiveness of small operators, in which a level playing field is much needed given the history of dominance of the market by the “Big Three” - Viettel, MobiFone and Vinaphone. These issues can be resolved through certain alterations to the draft decree, such as an extension to the deadline for the review and updating of databases, the provision of a detailed definition of “non-compliant information” and the exclusion of human error from such definition, and removal of administrative sanctions against legal representatives in case of non-compliance. The deadlines for implementing some of the provisions, such as those provided under Article 4.1 and Article 4.3, could be extended, for example to 12 months and 72 months, respectively, to allow mobile operators, especially the smaller operators, to appropriately prepare an implementation plan and allocate costs and expenses reasonably. The decision, of course, ultimately rests with the government, the MIC, and legislators.

On December 10, 2016, the Ministry of Information and Communications held a review meeting to evaluate the draft decree amending and supplementing Article 15 of Decree No. 25/2011 on the implementation of the Telecommunications Law and Article 30 of Decree No. 174/2013 on the sanctioning of administrative violations in the telecoms industry.

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