The Southeast Asian nation is planning to upgrade its internet infrastructure after experiencing recent outages at its five major underwater fibre-optic cables. Vietnam also needs satellite service for its vast mountainous areas and at sea, where it is often at odds with China over contested boundaries.

Talks between Elon Musk's company and Vietnamese authorities had been under way for months, an industry source briefed on the discussions said, with SpaceX officials participating in a large U.S. business mission to Vietnam last March.

A Vietnamese official confirmed that SpaceX and information ministry representatives had held several meetings from at least the middle of last year until November 2023.

But the discussions were interrupted in the last quarter of 2023 when it became clear that lawmakers in the Communist-ruled country would not soften foreign ownership limits for SpaceX, the industry source told Reuters.

The suspension of talks led to the interruption starting in November of Starlink's previously unreported pilot services for Vietnam's coast guard, which used the satellites to guide drones in the South China Sea and the Gulf of Thailand, a second Vietnamese official said.

None of the sources knew whether talks would resume.

The three sources, one from the private sector and two from Vietnamese state bodies, declined to be named because the information was not public.

SpaceX and Vietnam's information ministry did not respond to requests for comment. Vietnam's defence ministry did not reply to a request for comment.

SpaceX had been seeking an exception to Vietnamese rules limiting foreign ownership to a non-controlling 50% stake of telecommunication companies with network infrastructure, the industry source said.

But a revision of the country's telecommunications law approved by parliament in November did not soften the limits.

In a draft decree released in February, meant to implement the revised law, authorities added requirements for satellite service providers regarding local presence and data traffic controls.

The industry source said SpaceX had also been in discussions with Vietnam about providing technology services for military outposts.

Chinese vessels, including coast guard and research ships, frequently sail through Vietnam's Exclusive Economic Zone (EEZ), according to data from vessel tracker services, triggering protests from Hanoi.

China claims almost the entirety of the South China Sea, including areas within Vietnam's internationally recognised EEZ, which extends about 200 nautical miles (370 km) from its coastline.

Last month, an op-ed in one of China's military publications described the deployment of Starlink as a "serious threat to the security of space assets of various countries".

China's defence ministry did not immediately reply to a request for comment.