Economic Mid-Year 2001

Disconnection
on policy front

Suphaphan Plengmaneepun

TELECOMS
The absence of a regulator and inability to solve thesticky problem of concession conversions has created a vacuum. But with the market closed to new operators until new rules are in place, existing players are competing feverishly to increase their shares

The Telecommunications industry countries to drift, with no end in sight to the formation of the National Telecommunications Commission (NTC), already nine months behind schuedule.

It now appears likely that the powerful new seven member reulatory body will not be appointed this year. The long delay, industry executives warn, will put the sector further behind in its drive to become more compettive. Under a World Trade Organisation agreement, the industry must be opened to all foriegn and local competition by 2006.

Strictly speaking, the reguiatory authority of the Telephone Organisation of Thailand (TOT) and the Comunications Authority of Thailand (CAT) expired in March last year as stared in the Frequency Allocation Act.

In the current regulatory vacnum, no new players are allowed to enter the industry unless their business plans had been approved under the previous regulatory regime Exiting players complain of unfair compettion due to different terms set out in exisiting concessions granted by the state agencies

No progress has beeen made in converting concessions to equity or other arrangements. The Thaksin Shinawatra government has signalledits intent to rewrite the conversion guidelines, which the private sector has criticised as costly and unwork able.

The NTC is seen as the only hope to help level the playing field and create falr competition in which new services can be introduced to serve consumers.

With a six-year term, and sweeping powers, the NTC will be a formidable force. That is why the selection of its , seven. members has been fraught with controversy. The Senate threw out the first list of 14 candidates chosen by a selection saying they represented toomany vested. Meanwhile, the new Telecommunication Bill still awaits debate in Parliament, creating further difficulties as the WTO's 2006 deadline creeps closer. The new act is essential because it involves regulations to support liberalisation and to protect consumers' rights in using telecommunications services.

All the delays have held back innovation, with private companies reluctant to take new initiatives amid regulatory confusion.

No new licences have been granted to any companies, though attempts have been made to exploit legal loopholes to start new ventures. The prime example has been the TOT's attempt to allow companies to provide Internet services over its network-something the CAT bitterly opposes or to allow more companies to provide public telephone services.

The legal points are debatable, but the business ethics of striking such deals have been questioned. "As long as there is no telecommunications commission, existing companies are able to benefit from these loopholes," said an industry executive.

Olarn Pientham, the TOT's senior executive vice-president, acknowledged that the absence of a regulator would allow the agency- the market's biggest player- to enlarge its business as it still maintained the right to expand its networks or add more services. In contrast, private companies can do no such things.

For all their complaining, though, existing companies can exploit the long delay to continue building their customer bases. Those waiting to enter the industry can only watch with envy as the incumbents snap up more customers that could have belonged to newcomers.

Price wars have been the key strategy in drawing new users, particularly in the mobile-phone business.

Handset and airtime costs have been falling for several months. Total Access Communication raised the stakes when it began its huge DTAC rebranding campaign in March. Topranked Advanced Info Service Plc (AIS) fought back,and consumers responded by snapping up handsets at record rates, and at half the prices of a year ago.

The number of new subscribers rose dramatically during the period. As of the end of April, AIS had 2,624,700 customers and was aiming for 200,000 new users a month in the second half of the year. TAC had 1,825,100 customers with growth of about 100,000 new users a month. The number of mobile-phone users is now expected to surpass that of fixed-line users by early next year as the latest.

Mr Olarn of the TOT agreed that mobile growth had surpassed all expectations. Less than a year ago, the TOT was forecasting that fixed lines would remain in the majority for five more:years.

However, fixed-line operators including the TOT are battling back with services such as data transmission for the corporate market, and new marketing campaigns. They have accepted that when it comes to voice services, they will not be able to compete so easily with celular companies in the future.

Somwong Pongstaporn, assistant chief operating afflcer of TAC, said the first half of this year was the golden era For the cellular business. However, the second half would be more challenging with the entry of CP Orange, the new venture of the Charoen Pok hand Group and the powerful European operator Orange.

TAC managing director Boonchai Bencharongkul has said that CP orange could be an even more feared competitor than longtime rival AIS.

The background of WCS are Thailand's conglomerate Charoen Pokphand (CP) and Britain's telecom giant Orange who are ready to battle or triumph. WCS quietly prepared he network and budgetted to offer the service in October.

CP Orange has denied widespread report that it intended to gain market share quickly by giving away handsets. However, Orange's marketing savvy and strength in international roaming are expected to make it a formidable player.

Come what may, AIS is ready to take on the runners-up, according to Yanyong Akarajindanon, vice president for marketing. He said DTAC's price-cutting strategy produced only short-term gains. When thousands of new DTAC users began to strain the company's network, AIS fought back with a campaign that stressed quality over low cost.

Mr Yanyong said the competition in the second half would mainly involve a war of information, with all operators trying to send the right messages about themselves. "Beside telling of their own strengths, all operators will also emphasise the weak points of competitors," he said.

It is estimated that the value of handsets sold in this year will exceed 30 billion baht while the value of accessories will double to two billion baht. Combined airtime fees of the whole industry are expected to exceed 80 billion baht double the amount of fixed-line billings if CP Orange meets its schedule.

Given the current cellular boom, the existing oligopoly might not be too concerned about how long it is taking to form the NTC.

But without the new regulator, other social gaps, could remain unfilled. There are no regulation to force companies to allocate certain profits to expand investments in underserviced rural areas or for the disabled, for example.

A TOT report shows that the proportion of public telephones in Thailand is only 0.3 lines per 100 people. Associations representing disabled people have been asking for special facilities such as "visual phones" for the deaf or phones installed at levels suitable for wheelchair users. Only a body like the NTC will be able to compel the industry to respond to special needs.

In the meantime talks on the conversion of 20-plus telecommunications concessions have come to a cornplete halt. Industry eXecutives had expccted.the Thaksin gorvernment to take a more serious interest in expediting matters, given the premier's own background in the industry.

Under the existing terms, private companies have to share revenue with the two state agencies, but the amounts very greatly from one agreement to the next. "The current unfair practice will continue in the future." said an industry source.

Most private cmpanies want their concessions converted in oder to improve flexibility in operating their business. The conversions framework developed hy the Thailand Development and Research Institue will likely be changed because operators said it would virtually bankrupt them.

Essentialy theTDRI had proposed that operators pay cash up front equivalent to the entire revenue share that state agencies could expect to receive for the remaining life of the concessions, some of which have up to 20 more years to run.

Much will depend on the privatisation of the TOT and thc CAT, another process that has been moving slowly. Plans had been well advanced to set up a holding company that would oversee three businesses: TOT Co CAT Co, and the CAT's postal operations.

However, the Thaksin government now wants a singie mega holding: company to be the umbrella for all state enterprises on its privatisation schedule. Legislation is still pending.

Employees of the TOT and CAT are also a force to be reckond with.

They have been seeking generous compensation in cash and shares for agreeing to become employees of limited companies and giving up some of the security and famous perks that come with state enterprise employment.