Don't curb bids for 3G frequencies

IN Print

It is easy nowadays for Thai society to cite nationalism to support one's own position at the expense of the opposition as is the case with the upcoming 2.1 GHz frequencies (3G) allocation proposed by the National Telecommunications Commission, noted Thira Sutheevarangkoon, Faculty of Law, Thammasat University, writing for Matichon daily.

What is 3G?

3G, or the third generation mobile phone service, is a continuing technology developed to replace 2G as a means to speed up data communication by smart phones, computer notebooks or netbooks.

To operate 3G, the service operator must obtain a frequency bandwidth on the spectrum of 2.1 Ghz which has been designated internationally for this particular purpose. The total investment to create infrastructure for 3G service in Thailand for all the mobile operators is expected to be no less than 300 billion baht.

A study by the GSM Association (GSMA) says if Thailand offers 3G services from 2010 to 2014, up to 80,000 new positions will be created each year.

The study indicates that if internet usage grows 10% a year, the country's GDP will grow 1.3%. Meanwhile, the state will earn revenues from operators who must pay to use allocated frequencies in addition to paying excise tax for 3G equipment imports as well as juristic income tax for operating the 3G service.

Thira noted that with the 3G service in place, there will emerge a number of companies that will offer content to 3G users to help develop the technology and boost economic development in the country.

For Thai users, 3G service will enable easy access to hi-speed internet connections over a wider area, making it easy for people to access health services and education in remote areas.

However, when the NTC revealed its Draft Information Memorandum to gauge public opinion on Sept 28, there was a reaction by a certain mobile phone operator to try to prevent the two largest mobile operators which are owned by foreign investors from obtaining 3G licences.

If this Thai-owned operator is successful in its lobby to prevent foreign-owned operators from obtaining 3G licences, it is possible that the 3G system will be dominated by a single Thai mobile phone operator.

Thira noted that during the public hearing on Sept 28, the Thai-owned mobile phone operator remarked that the two leading mobile phone operators in Thailand are owned by foreign government state enterprises which may contravene the provision of the Thai Constitution's section 84(1).

Thira argued that section 84(1) does not prohibit Thai or any foreign government from holding an equity in a private company to do business as long as that company does not possess state power enacted by a law (such as the power to expropriate land to construct a natural gas pipeline). No matter how much the government owns shares in the said company, as long as that company does not possess state power, it does not break section 84(1) provisions.

Thira cited the case of PTT Plc, the listed company which is majority-owned by the Thai government and which also does business overseas. Nobody considers PTT Plc as representing the Thai government doing business for the Thai government overseas. PTT Plc is just an international company which happens to have the Thai government as a major stake holder due to its origin as a state enterprise.

If PTT Plc is not a state enterprise, then AIS and Dtac are not state enterprises either. Both AIS and Dtac, listed companies on the Stock Exchange of Thailand, just happen to have major stake owners from Singapore and Norway. Neither company possesses any state power.

Another argument cited by the Thai-owned mobile operator is that radio frequencies are national property, which should not be owned by operators dominated by foreign shareholders. For this reason, NTC was urged to use its power under the Telecom Business Act 2001 to issue a special regulation to prevent companies dominated by foreign shareholders from bidding for 2.1 Ghz frequency bandwidths to operate the 3G service.

Thira argued that since radio frequencies including 2.1 GHz bandwidths are national property, it is impossible to fall into foreign hands and that NTC will grant bid winners the use of the allocated frequencies in a limited timeframe to offer the 3G service. NTC will not sell 2.1 GHz frequencies to foreign investors outright.

Furthermore, Thailand has over the years encouraged foreign investors. In 2006, the parliament approved the change in the Telecom Business Act 2001 which used to restrict foreign investors to only 25% in the telecom business to no more than 50% as is the case with other business joint ventures. The law does not prohibit foreign investors from exercising their full voting rights. For this reason, even if foreign investors hold 49% of the listed telecom stock, they would automatically carry the company as the Thai side's ownership is scattered among many local investors. So by law and by fact, foreign-dominated telecom operation is permissible.

Another reason cited to bar foreign-owned mobile phone operators from bidding for 2.1 Ghz frequencies is national security. Thira also discounted this objection saying that 2.1 Ghz is internationally accepted for commercial purposes, not military. In fact, the telecom business itself does not pose any danger to national security, otherwise Thailand would not have allowed foreign investors to come in from the very beginning. If it does concern national security, successive governments would not have tried to privatise both the Communications Authority of Thailand (CAT) and the Telephone Organisation of Thailand. Both state enterprises are now incorporated to work as a public limited company as CAT Plc and TOT Plc.

Therefore, preventing foreign-owned mobile phone operators from bidding for 2.1 GHz frequencies due to national security does not correspond to the facts.

Since the Thai-owned mobile phone operator does not have deep pockets like the foreign investors, it has proposed that the NTC allocates frequency spectrums via a "beauty contest" or set aside specific spectrums for exclusive Thai-owned investors to compete among themselves instead of open competitive bids as proposed by the NTC.

Thira argued that the "beauty contest", whereby only technical aspects are considered, or an exclusive quota is inefficient and not transparent and can be subjected to political lobbying and/or corruption. The most efficient and transparent method is a bid, and those that are prepared to pay the most for the precious frequency spectrum should be declared the winner. Such a method is widely used in several countries that auctioned 3G bandwidths such as the United States, Britain, Canada, Denmark, Switzerland, Hungary and Taiwan. Even Indonesia and Estonia which used to employ "beauty contests" have now turned to auctioning.

Critics of the auction method argue that fierce competition to obtain the limited frequencies would result in excessive fees to be paid to the state, and ultimately 3G users would have to pay higher fees. Thira countered that auction fees are a sunk cost, a one-time payment which is not the main factor in determining the price to charge for the 3G service. In fact, the price for the 3G service depends mostly on the competition offered by various operators to win over customers.

Even Nobel economics laureate Ronald H Coase has endorsed frequency auction as the best allocation method.

Thira also did not think well of the proposal that if a frequency auction is carried out, a certain spectrum is set aside exclusively for Thai operators to compete among themselves and/or for TOT and CAT. Such a proposal is favouring a certain operator with no valid reason and is not good for the country as a whole as it is not the most efficient.

Another reason cited to oppose the 3G licence bid is that users of existing mobile operators which receive concessions from TOT and CAT are expected to win 3G licences and then migrate their existing 2G users to the new one, thus lessening their concession payments to both TOT and CAT.

On this issue, Thira argued that both TOT and CAT are no longer state enterprises as they are now incorporated. Even though both TOT Plc and CAT Plc are 100% owned by the Finance Ministry, they operate like a private company. Since they are no longer state enterprises, the remaining concession period and incomes should be transferred to the Finance Ministry as the rightful owners of the two former state enterprises. In fact, the present concession payments by the three private telecom companies are mostly used by TOT and CAT to supplement their dwindling incomes from their own operations with very little left for the Finance Ministry.

Therefore, trying to prevent the auction of 3G bandwidth in order to protect the two former state enterprises is not legitimate. If existing users choose to migrate to the newer 3G service because of convenience, they should not be prevented from doing so. It is the incompetent TOT and CAT themselves that have run down their own organisations to the present sorry state they are in. If they cannot compete on the same level playing field, they should be allowed a graceful exit.

Thira cited the Thai Constitution's section 84 that says the state must support a free market economy ... it must revoke and/or must not enact any law that limits business, which is not essential to the economic function.

It's time Thailand acted in line with its professed belief in a market economy and a free competition principle, concluded Matichon.