TOT Plc intends to scrap a contract under which it rents transponder bandwidth from Thaicom Plc's iPSTAR satellite, as the state telecom's revenue cannot offset the rental costs.
The decision came after the TOT board last month reached a resolution to halt the rental of satellite bandwidth from the country's sole satellite service provider, said Djitt Laowattana, a TOT board director.
Djitt: Hashing out details of process
But a Thaicom source said TOT rented just 5% of the iPSTAR satellite's total capacity, and a contract termination would not severely affect the company.
The source said TOT could reap a greater benefit from iPSTAR if the state telecom used its transponder capacity to provide public telecommunication services nationwide.
TOT signed an eight-year contract in 2005 to rent transponder bandwidth from Thaicom's iPSTAR broadband satellite for two Gbps of bandwidth, paying 500 million baht in annual rental costs.
The iPSTAR satellite has 40 Gbps of transponder bandwidth.
TOT's management in 2013 extended the rental contract with SET-listed Thaicom for eight more years, according to a TOT source.
Thaicom, formerly known as Shin Satellite, was founded by ousted prime minister Thaksin Shinawatra.
The transponder space was initially to provide broadband internet service, internet protocol (IP) telephony and voice over IP services in remote areas that conventional telecom networks such as copper phone lines and fibre-optic cables failed to reach.
"We are considering the details of the legal process before terminating the rental contract," Mr Djitt said.
He said TOT could generate revenue of just 100 million baht a year from the satellite rental.
Another board director said the use of iPSTAR's transponder was a reasonable choice for TOT in the past as it sought to expand service to remote areas.
But the source disagreed with the contract extension for an additional eight years, saying TOT had continuously expanded its networks and could accommodate services almost nationwide.
"The contract extension seemed unreasonable because TOT's revenue earned from the rental transponder could not offset the rental cost," the director said.
The director suggested TOT provide broadband service on its own networks instead of the satellite-based transponder bandwidth.
Furthermore, TOT is under a business survival plan, and cost reduction is a crucial component of a successful turnaround.
The director added that TOT must inform Thaicom of its plans to terminate the contract, which would become effective one year after formal notice.
Thaicom now operates four satellites.
They are broadband satellite Thaicom 4 (iPSTAR) on the 119.5 degrees East orbital slot; broadcasting satellite Thaicom 5 on the 78.5 degrees East orbital slot; and broadcasting Thaicom 6 and 7 on the 120 degrees East slot.
The company is preparing to launch Thaicom 8 on the 78.5 degrees East orbital slot this year to serve growing demand from the satellite broadcasting industry.
The Information and Communication Technology (ICT) Ministry plans to draw up a new public-private joint venture contract with Thaicom to end ongoing uncertainty over the iPSTAR broadband satellite.
The new contract is a requirement for compliance with last year's recommendations by a committee of the Office of the Attorney General.
The panel said Thaicom might be violating the terms of its concession by launching iPSTAR as its main satellite rather than as a back-up for Thaicom 3.
ICT Minister Pornchai Rujiprapa earlier said a committee, to be set up soon, would draft a new public-private joint venture contract to comply with the Public-Private Joint Venture Act of 2013.
Details of the new contract will include new revenue-sharing terms and compensation payments.
Having a new contract would prevent politicians from using legal uncertainty surrounding iPSTAR to play political games in the future.