Global MBA Program


Individual Term Report
Report maker:

Pham Le Minh (GMBA 08- 2008417060)

Title: “S-FONE AND THE STUMBLE OF CDMA PROVIDERS AT VIETNAM MARKET” Content: 1. Sfone’s entry in Vietnam market 2. Vietnam mobile network operator market before and after Sfone’s entry 3. Sfone: Unsuccessful breakthrough 4. The case of Viettel and Sfone: A smile and a disappointment 5. First-mover in technology but Follower in business 6. Critical failures of Sfone in Vietnam Market 7. Way To get out of difficulties 8. Solution ----------------------------------------

1. SFONE’s Entry in Vietnam market: In 2000, SK Telecom decided to invest in Vietnam telecommunication market after an alliance SLD had been established with LG and Dong-Ah. In 2003, in company with SPT (Saigon Postel), SLD officially launched the CDMA mobile service S-FONE in Vietnam. This investment made Sfone become the fourth largest mobile communication operator in Vietnam that uses the CDMA technology. Founded on July 1, 2003, in Ho Chi Minh City, Vietnam, S-Fone became the third network of Vietnam. It is the trademark of S-Telecom (CDMA Mobile Phone Center) (a joint venture between Saigon Postel Corp. and Korea SK Telecom). Sfone is holding small proportion of Vietnam market share, however, Sfone is the only one mobile communication operator in Vietnam could provide value added service and 3G, such as Mobile TV, mobile internet (enabling internet access for PCs and laptops via Sfone network) Until May of 2007, the total invested capital for Sfone reached to USD 543 million. 2. Vietnam mobile market before and after the entry of Sfone:




Diagram 1: Mobile Network Operation Industry in Vietnam Since Sfone officially launched on July 1st 2003, it was the critical turning-point in Vietnam market. Before the entry of Sfone, the Vietnam market had been monopolized by 2 main domestic operators: Mobifone and Vinaphone.

Diagram 2: Market share of Mobile Network Operation in Vietnam ( Sept 2008)

Calling rate in average (Before the entry of Sfone) Local call: VND 3,500/ minute Outside of region call: VND 6,000/ minute Calling rate in average (After the entry of Sfone) Sfone: VND 300/ block (1 block= 10 seconds) => VND 1,800/ 1 minute



Others: VND 1,500/ block (1 block= 30 seconds) => VND 3,000/ 1 minute The entry of Sfone broke the exclusive positions of Vinaphone and Mobifone, as well as open the new era in this area. Consumers will be beneficiaries of Mobile operators’ race . The entry of Sfone change the structure of Vietnam market, which used to be monopolized market, encouraged the growth. Especially, Sfone brought to consumers a brand new choice. Sfone’s entry was elected to be one of Top 10 events of Information Technology in Vietnam in 2003. After the impressive entry, Sfone continues to be pioneer in the Vietnam market, in terms of value added services, new tariffs, programs. Sfone achieves the following targets: - Pioneer for the calling rate per unit block (6 seconds) - Pioneer for the united calling rate throughout the country, created the premise for cancelling the regional calling rate system in Vietnam had been existed. - Created discount tariff for users in Vietnam market 3. Sfone: Unsuccessful breakthrough a. Expansion and Investment for Sfone run into difficulties: Since April 2007, SK Telecom declared to make additional investment of USD 300 million for Sfone, however there are some challenges: - Government’s approval for launching 3G in Vietnam - CDMA is still unpopular in Vietnam, where GSM is holding the upper hand in term market share According to the General Director Kim Shin Bae: “ We invested in Vietnam market since 5 years ago, however, the market is changing too fast. Therefore, because of that we have some difficulties” In term of technology level, CDMA is better than GSM in term of data speed, call quality, effective network station. However, there are disadvantages of CDMA because End-producers tend to prefer GSM mobile to CDMA mobile (because of profit and market share), and Mobile Software makers such as Symbian, Microsoft, Palm are not interested in CDMA, especially in Vietnam. In Vietnam, CDMA has been invested since 2003, however, the situation is not so promising in comparison with GSM. Vietnamese consumers’ essential demands are only: Calling, Text Message and fashionable cell phone designs. Therefore, Sfone must cut price lead to quality’s decrease. One more reason is: Vietnam’s telecommunication infrastructure is not able to be compared with Korea’s. Sfone is a joint-venture, every decisions need to be negotiated and approved, technology has to be transferred from SKT, for those reasons, procedures tend to take more time than it should be.



b. Exclusive mechanism barrier: Sfone is stuck in exclusive mechanism and has to rent telecommunication infrastructure of VNPT (Vietnam Post and Telecommunication Group). For those reason, Sfone is not able to launch its strengths c. Strong domestic competitors: In Vietnam market, GSM providers are holding approximately 89.6 % of market share; CDMA providers hold only about 10.4%. Especially, consumers prefer GSM to CDMA and they tend to pay much attention at cell-phone design and quality, which are current weakness of CDMA providers (Sfone and EVN) 4. The case of Viettel and Sfone: A smile and a disappointment a. Overview of Viettel: Viettel Mobile, a major mobile network operator headquartered in Hanoi, Vietnam. Operated in 2004 as a GSM launcher ( 1 year after Sfone), Viettel Mobile is the fourth network in Vietnam (after Mobifone, Vinaphone and S-Fone) and currently the contributing 37% to Vietnam market. Viettel attained 200,000 subscribers after only 4 month, meanwhile, Sfone was only able to attain 100,000 subscribers after 1 year, the numer that Viettel attained after only 1 month. b. Reasons of Vettel’s success and Sfone’s failure: Strategy: - Network coverage zone: Sfone started operated within few major cities and slowly expanded. However, Viettel started with network coverage zone throughout Vietnam. This factor helped Viettel attained equal positions with c. Expert in market: As a Vietnam telecommunication company, Viettel has well- informed about Vietnam market, impressive marketing, flexible tariffs Meanwhile, as a joint venture with Korean partner, Sfone is not able to be flexible in business. Flexibility is very important to be successful in Vietnam. Viettel is also the cheapest operator with impressive promotional campaign to create good brand image and popular brand awareness. Furthermore, Viettel accepts subscribers from other operators change to Viettel without changing their cell phone number. On the other hand, it is difficult for Sfone to launch strategy as Viettel does. Because the number must go together with cell phone Currently, Vinaphone, Mobifone and Viettel have same advantage, which Sfone is able to possess: secluded telecommunication infrastructure and “protection of VNPT (Vinaphone and Mobifone) biggest telecommunication provider,



and Vietnam Army (Viettel). Sfone has to face to a lot of difficulties in terms of mechanism and procedures to rent infrastructure, negotiate with Government and national telecommunication network operators. 5. First-mover in technology but Follower in business Sfone broke the monopolized market had been existed for many years in Vietnam and expressed willingness to serve Vietnamese consumers with appropriate tariffs. Since that moment, Vinaphone and Mobifone started to decrease calling rate and paid more attention at customer care. To some extent, Sfone could be considered as revolutionary maker in Vietnam telecommunication market. Consumers are able to realize that Sfone has spent huge amount of investment for promotional campaign, opened the new way for Vietnamese consumers to telecommunication services. However, the growth of Sfone is still a critical question. - Late in expanding network coverage zone - Value added services are still on standby - Unattractive cell phone design According to Mr Ho Hong Son, Operational Manager: “Sfone has 3 critical difficulties need to be solved: coverage zone, cell phone design and services” Until now, Sfone is doing business in unfair treatment in comparison with competitors, Sfone has to pay for connection fee with 2 operators of VNPT via Toll. Meanwhile, Sfone absolutely has ability to operate direct connection. Although when Sfone only connected to 12 cities and provinces, Sfone had to pay the frequency fees for all of 64 cities and provinces - Cell phone model design: With regard to this issue, Sfone still provide poor design and trivial models The belief of Sfone comes from the preeminent features of CDMA with high speed and high quality wireless connection. This features will create great condition for the development of email, video, music, TV…. Those value added services aim at convenient life for mobile consumers. Therefore, the goodwill from VNPT is not only expected from Sfone but also Vietnamese consumers and foreign telecommunication investors. 6. Critical failures of Sfone in Vietnam market: a. Failure of “Free cell phone” promotional campaign: Cell phones for this promotion were the used phones from Korea. After they were given to customers, there were a lot of complains about quality.



During the period when Sfone was launching this promotion, Sfone’s customer care centers often received customers’ visit to return and complain about “free cell phones”. This failure leaded to the fact that Sfone’s brand image got worse in market and slow development.

Diagram 3: Weaknesses of Sfone b. Lack of understanding Vietnamese consumer’s taste: Sfone came to Vietnam market with the successful model in Korea. However, it caused serious problem in Vietnam market. In Vietnam, a developing country, the demands of mobile users are different with Korean users. Vietnamese users do not pay much attention at convenient functions of mobile besides calling and sending messages. Especially, Vietnamese users pay a lot of attention at Cell-phone design and fashionable models. They tend to use cell-phones as an accessories together with watches, jewelries, rings…. Therefore, cell-phone must be flexible to mobile network. However, Sfone’s cell-phone are not flexible. Only Sfone’s cell-phones are able to be access the CDMA in Vietnam, but Vietnamese users do not like Sfone’s cell-phone design. Most of users tend to prefer Nokia, Sony-Ericsson, Samsung in Vietnam. GSM operators smartly take advantage of this issue. Every cell-phone of those favourite brands could be accessed easily to GSM network. For those reasons, Sfone is known for its poor design and low-class cell-phone. Nobody in Vietnam consider Sfone’s cell-phone as user’s proud. On the other hand, people tend to prefer cellphone, smart-phone that they are able to express their stylish and characteristics, such as Nokia series, I-phone, Sony Ericsson….



c. Increase monthly payment of “Forever couple Tariff”: Is it a strategy to reduce subscribers? Since 10th Oct 2008, Sfone announced to increase the monthly payment of Forever Couple tariff, one of the most favourite by Vietnamese subscribers because of its reasonable monthly payment. The payment was increased from VND 40,000 /1 month to VND 180,000 /1 month (450%), this leaded to strongly rejection and objection from subscribers. The serious thing effect Sfone's brand image was not only because of 450% increase of payment, but also because of the attitude of Sfone in this issue. According to many subscribers, they were totally surprised and passive when they received messages from Sfone about the monthly payment increase. The “Forever tariff” was launched in order to maintain and increase market share in Vietnam because Sfone's market share is extremely small in comparision with domestic competitors. However, this goal is probably unsuccessful because of this trouble. By using “Forever Couple” tariff, subscriber are able to call and send message free to another selected subscriber, and monthly payment was VND 42,000/ 1 month. Sfone hoped that they could gain market share from competitors by Forever. On the other hand, subscriber has to pay expensively when they contact with others at the rate VND 2,700/ 1 minute (average rate is about VND 1,000 to VND 1,500/ 1 minute). Therefore, most of Forever's subscribers' reason is their demands are just contact with only one another selected subscriber for each subscriber, such as couples, family, business partners... Actually, it does not mean that Sfone gained market share from competitors, because Forever's subscribers use 2 cell phones. Besides Sfone's Forever, they use domestic operators' services for contacting people. They only use Forever for free call to selected person. Therefore, Sfone was totally fail in term of market share increasing.



Diagram 4: Failure of “Forever Tariff” and the target of gaining Market share from GSM

During the launching period of Forever, Sfone had never announced to subscribers that the monthly payment could be increased. Additionally, Sfone increased at the same time when all competitors were launching their price-cut strategy for increase market share, Sfone suddenly put themselves in the opposite position but in a negative way. Probably, Sfone's subscribers would leave Sfone for

low-price competitors. More than that, there were some opinions that Sfone took advantage of Forever to sell all cell phones in stock. 7. Way to get out of difficulties: a. Telecom Content Service: Promising section of telecom services USD 53,6 million is the revenue of Content Service by mobile operation in Vietnam market in 2007. This is the highest revenue in Digital Content Industry of Vietnam, and 2nd rank of revenue in Content Industry of Vietnam, which includes Game, Mobile Service, Internet. There are about 100 businesses in Mobile Content Service. They focus on: Value Added Services (Download ring tones, logo, background, photos...), Games, Lottery, Information Provide, Consultancy Services… However, until now the Mobile Content Service’ quality still has not satisfied consumers in Vietnam. Sfone focuses on Mobile Content Service through some programs, such as download ring tones, games. Sfone is facing to the critical competition of strong competitors such as Mobifone and Viettel. They surpassed Sfone with plenty of interesting content services.



Sfone competes by the programs for downloading music, soccer match result. Additionally, Sfone cooperated with Game Loft to develop mobile games… Sfone believes that they can help consumers customized their cell phones. b. The case of HT Mobile: HT Mobile (Hanoi Telecom), another CDMA operator in Vietnam had to their totally failure in business and transferred all of their customers (about 200,000) to Sfone. The reason of these failure and transfer are HT Mobile got huge amount of loss and impossible to achieve their targets. HT Mobile entered to the market in 15th Jan 2007, they set a target for 1 million subscribers after 1 year launch. However, all they could attain were 200,000 subscribers. This leaded the HT Mobile must leave CDMA for GSM. The failure and withdrawal of HT Mobile will leave a bad image of CDMA in Vietnam Market. This negative issue affected to Sfone and EVN as well. Even Sfone received 200,000 subscribers from HT Mobile, it does not mean that Sfone received benefit. However, Sfone and EVN strongly confirm their belief and continue to invest for their business and serve customers. 8. Solution: In order to survive and compete with strong GSM domestic competitors, there are some possible solutions for Sfone:

Diagram 5: Solution for Sfone

a. Develop telecom infrastructure and strategic alternatives: Continue the projects for enhance telecom infrastructure and network in Vietnam Propose new projects and alternative plans in order to substitute or supplement for current business



Expand the quality of network coverage zone Improve the current telecom infrastructure and technology to strengthen quality of call. b. Adjust competitive strategy: Establish Strategic Alliance with another CDMA operator in Vietnam: Currently, after the failure of HT Mobile, there are only 2 CDMA operators (Hold 10.7 %) in Vietnam in comparison with 3 GMS operators (Hold 89.3 %). Therefore, it is necessary to establish an alliance of CDMA operators Sfone and EVN to: - Share costs and associated risks of developing new services, products and processes. - Set up a new way to bring together complementary skills and assets. - Establish technological standard for CDMA in Vietnam market - The most important thing that EVN is a domestic operator, therefore, Sfonce can take advantage of telecom infrastructure and avoid disadvantages of exclusive mechanism in Vietnam c. Marketing and Promotional Campaign to be more Customer-oriented: Do market research about consumers’ behavior and taste in correlation with internal competence and capacity to overcome the weakness of understanding consumer’s taste especially in term of Cell-phone design. Strengthen Marketing to customers in order to affect consumers’ perception of product’s value. Expand network of distribution Improve flexibility: Not only Sfone’s cell phones are able to use Sfone’s network, make Sfone become more accessible. Improve Customer Care service Strengthen promotional campaign more focus on gaining market share. d. Continue to be First-mover: Focus on potential area: Content services in order to take advantage of high technological breakthrough from Korea. There’re a lot of room for Sfone in Vietnam to develop Content service. ----------------------------------




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