TELECOMS

Liberalisation clock is ticking

Vivat Prateepchaikul

Thailand's telecommunications market will be open for full competition by local and foreign operators by 2006. At least, that's what the government has told the World Trade Organisation, but time for putting the country's telecoms house in order is running short.

Ambitious goals were set for industry liberalisation in the telecommunications master plan adopted in November 1997, just four months after the country had been thrown into turmoil by the float of the baht.

Among the sectors hardest hit by the crisis was telecommunications, a capital-intensive business that has been struggling to keep up with surging demand for new services and technology. Most of the country's major telecoms players are still emerging from protracted debt restructuring. To remain healthy competitors, they will need even more funds. But prospective foreign investors have problems of their own, having created a mountain of new debts in the past two years in the frenzy to acquire licences for third-generation technology.

The concept behind the liberalisation plan was simple enough. Authorities wanted to end the old regime under which the state telecom agencies dominated the industry, acting simultaneously as service providers and regulators, while they watched the money roll in from revenue-sharing concession agreements with private operators.

The master plan envisions a new environment in which free and fair competition is guaranteed, ultimately reducing service fees and triggering technological development.

To reach those goals, the Transport and Communications Ministry set deadlines for each step in the liberalisation process. They included reform of the two state telecom agencies _ the Telephone Organisation of Thailand and Communications Authority of Thailand _ by 2000, and conversion all 27 revenue-sharing concession agreements by October 2000.

Also in October 2000, a powerful independent regulator, the national Telecommunications Commission (NTC), was to be in place.

So much for deadlines. All three developments remain a distant dream, with the financial crisis and consequent political changes largely responsible for stalling the process.

Though the financial and political implications of the crisis obstructed the road to market opening, achieving the goal remains a clear requirement of the Constitution that was passed in late 1997. Legislation to achieve the goals has been put in place, most notably the Telecom Business Law, which took effect in November 2001.

It will be the job of the seven-member NTC _ if and when it is formed _ to enforce the law and related regulations. Its mandate will extend to spectrum allocation and use, licensing, standards and technical issues, interconnection charges, tariffs and service fees.

A selection committee proposed 14 candidates, and the Senate was asked to choose seven members. But the senators rejected the candidates, saying the selection process lacked transparency and too many people on the list had conflicts of interest.

The Administrative Court agreed with the Senate, and the selection committee sought a final ruling from the Supreme Administrative Court. The case remains unresolved.

More hopeful signs of progress were seen in the passage of the Telecom Business Law. Its key features included the prohibition of any collection of advance payments for telecom service, and a cap on foreign investment in local telecoms companies.

The foreign investment cap, originally set at 25%, drew immediate criticism. The only major operators that would not be in technical breach of the law would be those linked to Shin Corporation whose founder, Thaksin Shinawatra, also happens to be the prime minister.

Among the major firms, Total Access Communication is 40% owned by Telenor of Norway and its proxies, TA Orange has French-owned Orange holding 49%, and TT&T Plc has foreign partners holding more than 25%.

Although the new law did not apply to existing operators and was not retroactive, the companies said the limit sent the wrong signal to the overseas companies they would need to help them grow. The government agreed, and an amendment that will raise the foreign investment ceiling to 49% is now awaiting approval by the Transport and Communications Ministry.

As a prelude to reform and privatisation of the state telecom agencies, the government in March 2000 also revoked the regulatory roles of both the TOT and CAT. The industry has been in legal limbo ever since, because the TOT and CAT can no longer license new operators. Licensing is the duty of the non-existent NTC.

The policy vacuum has also left the conversion of concessions in the starting blocks. The Thailand Development Research Institute (TDRI) spent a year developing a concession-conversion framework, which was approved by the government in 2000. A conversion subcommittee was set up to handle negotiations with private operators, 24 of whom agreed to enter preliminary talks.

But the talks with a handful of major operators went nowhere because no one could agree how to unwind revenue-sharing agreements in a way that did not disadvantage either the state or private companies.

Operators complained that the TDRI framework was too rigid and impractical. They said revenue-sharing payments calculated under the TDRI protocol were very hefty, given the changing environment and the risk factors such as swift changes in technology.

As well, they said, it would be unfair to existing companies unless newcomers entering the market were also required to pay similar sums, likely in the form of annual licence fees.

The TDRI had proposed that state agencies be paid compensation equivalent to the amounts that operators would have paid through the remaining terms of their concessions. It said compensation could be made through lump-sum payments, debt instruments or instalment payments with interest, within a period of not more than four years. Private operators said such an arrangement would bankrupt many of them.
Talks went nowhere until the Thaksin government took office in January 2001. It agreed that the TDRI formula was impractical and asked the Chulalongkorn University Intellectual Property Institute to draft a new approach. The institute proposed that private telecom operators pay revenue to the government only until 2006, rather than throughout the life of the concession agreements as proposed by TDRI.

But the institute's proposals prompted concern that the government would lose a fortune _ at least 290 billion baht according to SG Research, a consultancy hired by the Transport and Communications Ministry to analyse the new plan.

Private operators said they backed the new proposal, arguing that the reduced financial burden meant that they could pass the savings on to consumers through reduced airtime fees. But they were less happy with another proposal by the institute, which said that they should lease or buy back the networks they had transferred to the state under build-transfer-operate agreements.

Why, the operators asked, should they have to buy back networks in which they had already invested large sums to build? The public sector was wary of the proposal but for different reasons: it felt that the operators would go cherry-picking _ buying back only the assets with a long useful life and leaving the state with equipment that would be costly to maintain or replace.

Both the TDRI and the institute had some points in common in their proposals, though. After the change takes effect there will be no monopoly for any operator and no operator will have any advantage or vested interest in another's operations. Concessions will be entered only with the consent of the state, in agreement with the operator.

But even the notion of paying compensation until 2006 does not sit well with some operators, given the amounts involved. In 2000, for example, the Bangkok fixed-line operator TelecomAsia paid 2.74 billion baht to the TOT. The provincial fixed-line operator TT&T paid 4.26 billion, cellular operator AIS 5.65 billion and TAC 2.52 billion.

Given that many operators were still in debt restructuring after the expansion of the mid-1990s, such heavy payments would leave them too weak to compete with newcomers after 2006.

So the deadlock continues. The prime ministry's advisory board, chaired by former premier Anand Panyarachun, is the latest group attempting to find a solution. For their part, the private operators say they would prefer to take their chances with the NTC ... if it is ever formed.