ISP profits drop as fiber optical cable fees fall

The low fiber-optical cable rates and continued departure of subscribers have contributed to a decline in profits for internet service providers (ISPs).

VNPT’s CEO Tran Manh Hung has voiced his concern about the dumping in fixed broadband services, warning that the low service fee will lead telcos having no money for reinvestment to expand optical cable systems.

Hung said telcos tried to force the service fee down in order to attract subscribers for 3G service. Later, as they incurred heavy losses, they had to raise the service fees and then face opposition from users.

According to Hung, VNPT’s broadband service has increased by 20 times in number of subscribers since 2013, but the service fee has decreased sharply.

The stiff competition among network operators has led to a dramatic service fee decrease from 600,000 to VND300,000.

Hoang Trung Kien, deputy CEO of FPT Telecom, said while fiber optical cable service fee is on the decrease, the terminal device price is still high. Besides, telcos also have to pay a lot for infrastructure, maintenance, security and human resources.

Since telcos compete with each other in prices, service users tend to leave networks for other networks to enjoy preferences offered to new subscribers. As a result, telcos cannot take back investment capital and make profit. 

“The average ‘life expectancy’ of a contract is two years, and with such a short period, telcos won’t be able to make profit,” he commented.

Supposing that the subscription fee is VND300,000 a month, a user will pay VND7.2 million after two years. But the fee is not high enough to bring profits to service provider, because the investment rate on fiber optical cables is very high.

Experts warned that the price war will harm the market because the monopoly will return. Since telcos take losses, they will have to leave the market.

Only large corporations such as VNPT and Viettel, which can make profits from other services to offset the losses in fiber optical cable services, can exist. 

Dang Tung Son, deputy CEO of CMC Telecom, said since the service fee is too low, CMC Telecom now focuses on providing services to businesses and institutional clients instead of lowering service fees and targeting households. 

CMC telecom now joins forces with VTV Cab, a TV service provider, to provide internet service packages on cable TV. The two partners have agreed that they won’t lower the service fee further. 

FPT has decided to follow its own way. In early July 2016, it decided to increase the bandwidth capacity by 20-70 percent and adjust the service fee by VND10,000-30,000.