Cross-border OTT TV services: To operate legally must accept challenges

In this article,  our Managing Partner Nguyen Van Phuc and Lawyer Nguyen Thi Dung (HM&P) will analyze the current legal regulations in Vietnam regarding the cross-border OTT TV services. The article was published in The Saigon Times No. 13 - 2024, dated on March 28, 2024. Below is the English version:

In the fast-paced years, the trend of TV viewers through applications of streaming TV service providers on the Internet has become more and more popular. In Vietnam, nearly 80% of the market share of paid TV service via Over The Top (OTT) application belongs to cross-border streaming TV services providers such as Netflix, Apple TV, Amazon Fire TV, WeTV ...[1]

According to a report by the Authority of Broadcasting and Electronic Information (ABEI) under the Ministry of Information and Communications: In 2021, cross-border TV revenue will only reach about 200 billion VND, in 2022 it came to reach 740 billion VND and in the first 6 months of 2023, it is estimated to reach more than 1,550 billion VND (not including the revenue of cross-border platforms that have not been licensed to operate in Vietnam)[2]. Thus, the question is whether the business of foreign companies has strictly adhered to the provisions of Vietnamese laws in the context of the dramatic growth of cross-border streaming TV services over the years.

Requirements for establishing of a branch or representative office in Vietnam

(Source: https://thesaigontimes.vn)

In the past, there were few requirements for foreign enterprises to provide cross-border streaming TV services over the internet. However, as of the entry into force of the Law on Cybersecurity 2018, foreign enterprises are required to establish branches or representative offices in Vietnam to provide such services. Specifically:

Clause 3 Article 26 of the Law on Cybersecurity 2018 provides: "Domestic and foreign enterprises that provide services on telecommunications networks, the Internet and additional services in cyberspace in Vietnam and engage in the activities of collecting, using, analyzing and processing data on personal information, data on the relationship of service users and data created by service users in Vietnam must store such data in Vietnam for the period prescribed by the Government. Foreign enterprises referred to in this clause must establish branches or representative offices in Vietnam".

Subsequently, Decree 53/2022/ND-CP, which came into force on October 1, 2022, set out a number of detailed provisions of the 2018 Law on Cybersecurity. These include more detailed requirements on data storage and the establishment of branches or representative offices by foreign companies in Vietnam.

However, based on our research, it appears that the majority of foreign enterprises are not in compliance with these provisions.

Requirements for the License for the provision of paid TV services

Television service provision is a business sector with conditional market access applicable to foreign investors. Businesses with conditional market access are specified by Vietnamese laws and international treaties to which the Socialist Republic of Vietnam is a party, as prescribed in specific provisions.

Comparing Vietnam's commitments in international treaties it has joined and signed, in particular WTO, CPTTP and RCEP, Vietnam has not committed to provide TV services on the Internet by cross-border method. At the same time, Vietnam reserves the right to apply the requirements of Vietnamese laws, including registration and licensing. For Vietnamese business sectors that have not committed to market access for foreign investors, but where Vietnamese laws have regulations restricting market access for foreign investors, such regulations will be applied in practice.

In Vietnam today, Decree 06/2016/ND-CP and Decree 71/2022/ND-CP are specialized legal provisions governing the provision and use of broadcasting and television. These specialized legal provisions regulate cross-border TV services on the Internet to users in the territory of Vietnam. In other words, when foreign providers provide cross-border TV services on the Internet in the territory of Vietnam, they are subject to Vietnamese laws.

Under the current regulations, in order to provide paid TV services, the provider must obtain a license to provide paid TV services. To obtain this license, the provider must be a company legally established and operating in Vietnam. For foreign-invested enterprises, the approval of the Prime Minister is required. Thus, this regulation requires companies providing cross-border TV services on the Internet to establish a company in Vietnam.

Regarding Vietnam's commitment to the WTO, foreign investors are only allowed to invest in audiovisual services through business cooperation agreements or joint ventures with Vietnamese partners licensed to provide these services.  The foreign capital contribution cannot exceed 51% of the legal capital of the joint venture.

Accordingly, under the terms of this commitment, Netflix may not establish a wholly foreign-owned enterprise in Vietnam, but only a joint venture with at least one Vietnamese partner licensed to provide these services in Vietnam. The problem is that under the provisions of the current investment law, foreign investors must apply through the appropriate channels to obtain an investment registration certificate. In addition, foreign enterprises must obtain the approval of the Prime Minister for regulations governing the terms and conditions of paid radio and television services. Therefore, there will be two scenarios: (i) a foreign-invested enterprise that initially registers a business line of paid radio and television services, or (ii) a foreign-invested enterprise that initially starts business in another sector (which does not require special conditions) and then conducts procedures to apply for a license to provide paid radio and television services.

In the first case, the question arises as to whether an investment project for the establishment of a foreign-invested enterprise must be approved by the Prime Minister, or whether the Prime Minister only approves the policy on the issuance of licenses for the provision of paid radio and television services, or whether these two procedures are carried out simultaneously because one of the documents required for the issuance of a license for the provision of paid radio and television services is an investment registration certificate, which is only available if foreign investors are allowed to invest in the area of registration. We acknowledge that this issue is still unresolved and requires more detailed guidance from the relevant authorities.

In the second case, the procedure appears to be simpler, in which the foreign-invested enterprise must be approved by the Prime Minister before being granted a license to provide paid radio and television services. However, in this case, there are still some issues to be noted regarding the ratio of foreign capital in foreign enterprises, when recently, a foreign enterprise in Vietnam was approved by the Prime Minister to be allowed to provide paid television services but with a percentage of foreign investors’s ownership are at very low levels (not exceeding 0.002%). The company then had to divest its foreign investment to zero percent in the course of providing paid television services[3].

It can be seen that, with the requirements to establish branches, representative offices, or even companies in Vietnam to meet the above business conditions, the provision of cross-border TV services on the Internet seems to be no longer recognized in Vietnam. Based on the above requirements, foreign companies wishing to provide TV services on the Internet must have a commercial presence in Vietnam. Not only that, in the coming period, when the Law on Telecommunications 2023 and the accompanying guiding decrees officially take effect, the provision of cross-border OTT TV services in particular and cross-border telecommunications services in general will be subject to stricter regulations.