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Are Thailand’s 3G auctions being delayed by state interest?

Thailand’s 3G auction process has become an ongoing saga within the telecommunications industry, and a legal dispute from the state operator hasn’t improved the situation.

CAT Telecom has contested the authority of the country’s regulator, the National Telecommunications Commission (NTC), to issue spectrum licences – and the auctions have been indefinitely postponed in the meantime.

This dispute between government bodies is typical of the Thai 3G auction process, and unfortunately is indicative of the factionalised political interest within Thailand that seems to be overriding national interest.

Thailand is the last country in the Association of Southeast Asian Nations (ASEAN) to launch 3G services. While the last five years have seen 3G going global, they have also witnessed Thailand’s political situation destabilise, beginning with the military coup d’état in 2006 that shocked the world by overthrowing the government of Thaksin Shinawatra.

Following the coup in 2006, Prime Minister Surayud Chulanont declared his intention to merge two state-owned operators, TOT (formerly Telecommunications Organisation of Thailand) and CAT (formerly Communications Authority of Thailand). The aim was to create a ‘Telecom Pool’ to foster growth; in practice, this model was similar to the MVNO model, with suppliers operating on rented spectrum.

The lack of standardisation in the 2G sector has allowed the state-owned operators to profit. The concession terms in Thailand’s 2G sector vary between operators, meaning that different operators pay different amounts in revenue-sharing costs, and that their concessions expire after varying lengths of time. TOT and CAT currently make billions of baht every year from privately owned firms paying for the right to operate.

The 3G auctions aimed to introduce standardisation and competition in the national interest, increasing growth in the telecoms sector. Many observers hoped that the auctions would go ahead following the 2008 elections, but unfortunately the voting was mired in controversy, and the resulting political climate was not a stable one.

Since the 2008 election, Thailand has seen several governments come and go in quick succession, further muddying the political allegiances within various branches of government, and paving the way for conflicts of interest. The Telecom Pool initiative was abandoned and the sector was liberalised, but no standard was introduced – an issue that once again stalled the 3G auction process when it was raised by Thailand’s finance minister, Korn Chatikavanij, in December 2009.

The minister argued that the existing 2G licences needed to be standardised before 3G spectrum was auctioned; while the aim of this move was to prevent state operators from profiting through favourable concession terms, postponing the 3G auctions was widely condemned as unnecessary.

In any case, the move proved something of a red herring: 2G standardisation has still not been achieved, but the NTC approved the final draft of the 3G licensing process in July 2010, getting the auctions underway once again. Following the approval, bids were expected to commence after one month, during which time operators could apply to participate in the auctions.

The timing of this approval was unfortunate; not only were all three members of the NTC nearing the end of their time in office, but the entire regulatory body was due for replacement by the proposed National Broadcasting and Telecommunications Commission – which as of yet has not been created.

Furthermore, the NTC provoked criticism by accepting bids from firms which were largely owned or controlled by foreign companies. The regulator’s defence was that foreign competition would encourage growth in the sector; however, the move was condemned by observers and contested by bidders, as foreign-owned companies were excluded from the auctions by the draft agreement.

Just before the auctions were due to start in September, the state-owned operator CAT filed a legal complaint which contested the NTC’s authority to hold the auctions at all, claiming that the regulator was not licensed to offer the relevant 3G spectrum. In addition, CAT claimed the auction regulations were biased in favour of third-party operators, and would create “unfair” competition.

Another objection was raised by TOT, which requested that Thailand’s administrative court prevent the auctions as they would result in the state-owned operators losing revenue. According to the draft licensing agreement, all licensees would provide the government with 6% of revenue, a drastic reduction from the current fee which is typically around 25% - 30%.

Thailand’s Supreme Administrative Court has upheld the claims, and this has resulted in the dissolution of the entire auction process. The Thai parliament has not yet approved a draft bill to create the new regulator – the NBTC – and there is no indication of when a new auction process will begin.

The state operators appear to be attempting to freeze out competition in order to maximise their revenue streams. TOT is already set to profit from the stalled auctions as it owns 3G spectrum, and the country’s largest operator, AIS, has approached TOT with the aim of launching an MVNO on the state-owned operator’s network.

TOT launched 3G services less than a year ago but has almost filled its 500,000 line capacity. Being a latecomer to the market has not affected its performance, as the lack of competition and now the postponement of the 3G auctions has meant that customers have virtually no other 3G options. The Thai government has granted TOT a US$650 million budget to augment its 3G offering.

In a final twist to the saga, even this 3G rollout has been stalled – by none other than the NTC. Following the disputes over its legality and CAT’s calls for the 3G auctions to be administered by a non-existent regulatory body - the future NBTC - the current regulator has embargoed all 3G spectrum usage until its legal position is clarified.

That a state operator’s 3G rollout should be stalled by a different government body is indicative of the fragmented political allegiances within the Thai government today; unfortunately, the auctions are apparently being stalled by conflicts of interest while national interest takes a back seat. Currently, the 3G auctions will only resume once a regulator with the relevant authority can be agreed upon by all branches of government. If the NTC is able to demonstrate that it fulfils the requisite criteria to conduct the auctions, then there is hope that they will go ahead sooner rather than later.

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