The sale of 2100-megahertz spectrum licences by the National Broadcasting and Telecommunications Commission has attracted a storm of controversy over the process and the pricing. Chiratas Nivatpumin and Komsan Tortermvasana tackle some of the questions behind the auction.
Was the auction fair?
Critics have lambasted the National Broadcasting and Telecommunications Commission (NBTC) for setting the reserve price below fair value. Somkiat Tangkitvanich, the president of the Thailand Development Research Institute, said on the day of the auction that the state and taxpayers would lose over 16 billion baht from the results. The calculation is based on the difference between the reserve price and the valuation price of 6.44 billion baht previously proposed to the NBTC by a team of Chulalongkorn University economists.
The NBTC argues that the 4.5-billion-baht reserve price actually exceeded the 4.3 billion baht price set for the 2010 auction. The NBTC also argues that maximising revenues was never the aim _ its primary purpose is to strike a balance between the interests of the state, consumers and operators.
One view of the pricing issue comes from telecom consultancy Value Partners, which argues that the auction price was higher than that received for recent auctions in Korea, Germany and Singapore, once adjusted for economic size.
For instance, the total price received of 41.65 billion baht for 45 MHz of spectrum compares with a 2010 auction for 40 MHz in Germany, which netted only 14 billion baht for the state from bids by Vodafone, O2 and E-Plus.
Regardless, the issue of the reserve price would have been moot if there was greater competition.
Why only three bidders?
According to the NBTC, 17 companies requested applications for the auction, with applications ultimately received by four. One was disqualified for failing to to submit proper documentation, including the need to present bank guarantees of 1.3 billion baht.
Which left three bidders, all representing the main private mobile phone operators _ Advanced Info Service, DTAC and True Move.
Analysts agree the single greatest factor that dissuaded others from participating in the bid was the foreign dominance issue _ foreign shareholding for licence-holders is limited at 49%, and debate has swirled for months over how the NBTC would interpret the foreign dominance clause in its regulations. Foreign telecom companies are understandably wary about participating in the auction so long as this legal risk remains, particularly given the $1-2 billion in new investment required for a new network. The two largest players have been subject to numerous questions about their own compliance and the roles played by their foreign partners _ Singapore's Singtel for AIS and Norway's Telenor for DTAC.
Why did all three bidders receive the same amount of bandwidth?
Once it became clear only the three incumbents would bid, could the NBTC have adjusted the auction to encourage greater competition? Yes. For instance, it could have reduced the bandwidth offered from 45 MHz to 30 MHz, or reverted to an original plan to allow each bidder up to 20 MHz each.
But Col Settapong Malisuwan of the NBTC says changing the auction design would have had even worse consequences, and would have invited allegations that the commission was favouring the wealthiest operators. Restricting the number of bidders would also ultimately hurt consumers by delaying the rollout of next-generation networks as well as the goal of ensuring all operators are on a "level playing field".
Was there collusion in the bidding?
There is no evidence that the three bidders explicitly colluded with one another in their bidding. Indeed, it was unnecessary _ once it became known that only three bidders would participate, all three knew they would receive spectrum allocations simply by submitting bids at the reserve price.
Why did AIS bid over the reserve price?
Under the auction rules, the bidder submitting the highest combined bid would receive the first choice of bands. Of the nine slots made available during the auction, only three were auctioned at prices over the reserve price _ two slots at 4.95 billion baht and one slot at 4.725 billion baht.
The identities of the bidders at each stage of the auction were confidential. But since the NBTC announced that AIS was the highest bidder, and that DTAC and True both submitted equal combined bids, it is clear that AIS was the only one that bid over the reserve price.
Why? The logical answer is that of the three bidders, only AIS gave value in having the first choice. What is not clear is the bidding strategy used by AIS to make the highest combined bid while presumably keeping to the goal of minimising the final price. In the three slots that it won, AIS submitted multiple bids _ in two cases, it bid successively in three rounds, in the third case, the company bid for straight two rounds.
It may be that AIS was concerned that DTAC or True would also compete for the top position, and thus sought to quickly raise the pricing from the early stages of the auction to dissuade the others.
In hindsight, it is clear that both DTAC and True were content to simply submit minimum bids, and allow AIS to pay a premium on its own.
What benefit could AIS receive from choosing frequency slots?
Technical experts say there is little difference between the frequency bands with regards to 3G service. But it is important to note that the spectrum licence is "technology-neutral" _ while the operators will certainly use the new frequencies for 3G voice and data technologies, each is undoubtedly considering the potential commercial and cost benefits to introducing 4G and more advanced standards in the future.
The 2100-MHz spectrum can and has been used worldwide for LTE (Long Term Evolution) 4G networks, which offer considerably higher data speeds than 3G. 4G networks based on LTE may be designed around different channel widths, from 5 MHz to 20 MHz, with wider channels offering higher speeds.
The NBTC auction offered a maximum of 15 MHz of spectrum per bidder, and AIS ultimately chose the 2140-2155 MHz (downlink)/1950-1965 MHz (uplink) pair.
The choice places AIS right next to state-owned TOT Plc, which currently is touting its own nascent 3G service using the 2155-2170 MHz (downlink)/1965-1980MHz (uplink) band. Considering the long-time partnership between the two _ AIS is the concessionaire to the TOT for its mobile services _ it is not unreasonable to imagine the two firms joining hands with their adjacent spectrum allocations to offer a 4G LTE service over 30 MHz of spectrum, double the width awarded to DTAC and True.
What about the second choice?
Since DTAC and True both submitted the same final combined bid, a random draw decided the second choice. True won the draw, and selected the middle slot, at 2125-2140 MHz (downlink)/1935-1950 MHz (uplink), leaving DTAC the final band at 2110-2125 MHz/1920-1935 MHz.
Why the middle band for True? One theory is that this was a strategic move aimed at heading off a possible collaboration between its stronger competitors if AIS and DTAC ended up with adjacent spectrum. For similar reasons, taking the middle spot could give True flexibility in a hypothetical partnership with either of its two competitors in the future.
Noppadol Dej-udom, the True chief financial officer, said the middle spot offers a sense of certainty with regards to competition and potential interference issues. "Each of the bidders gave thought [to slot location], and it comes down to each firm's long-term strategy," he said.
Some argue that the licences are a handout to the private sector ...
It depends on one's point of view. For all three operators, there is no question that the move to a licensing structure will lead to lower costs. All three operators under concession must now pay 25% to 30% of their revenues to the TOT and CAT each year. With licensing, they not only escape the revenue sharing requirement, but also gain significantly greater business flexibility than if operating as a concessionaire.
The NBTC and industry argument is that the move to licences should ultimately help consumers, as lower regulatory costs mean that operators have greater incentive to invest in new technology and greater room to reduce tariffs. On the other hand, auction critics and consumer advocates are correct that total payments to the state, if including concession payments to the TOT and CAT, will certainly decline and that there are no guarantees that competition will actually result in lower tariffs.
What would help reduce tariffs?
If authorities scrapped the foreign shareholding limit, and new entrants participated in future spectrum auctions, it would certainly bring new competition to the sector. Since the law calls for existing spectrum to be reverted to the NBTC once current concessions expire, the next auction could come next year, with the sale of 1800-MHz frequency from the expiring concession once held by Digital Phone Co.
The NBTC could also impose tariff caps to limit charges, and is reportedly already planning to do so for data charges, similar to the current voice tariff limit now set at 99 satang per minute.
Profit margins of all three existing operators, even once revenue-sharing costs are included, are on par with telecom companies operating in other countries. If the revenue-sharing costs are excluded and costs of a licence are factored instead, then the profitability of Thai telecoms companies is even higher, suggesting that there is further room for tariff cuts or that assuming the proper regulatory reforms are made, there would be interest from new competitors to enter the Thai market in the future.
What about the legal challenges?
Suriyasai Katasila of the Green Politics group is expected to ask the National Counter-Corruption Commission today to investigate the auction. Supa Piyajitti, a deputy permanent secretary of the Finance Ministry, has also questioned whether the auction violated procurement laws. The court could conceivably void the auction, forcing the NBTC to issue refunds and start anew, which in turn could prompt lawsuits from the bidders for losses from the failed auction.
