Time to wake up and start running | Bangkok Post: tech

OPEN Thought

State domain assets. That word last popped up in anger during the privatisation of PTT, the Electricity Generation Authority of Thailand. A group of activists, led by now Bangkok Senator Rosana Tositrakul launched a legal challenge arguing that while PTT, as a company, could be sold off and privatised, the assets which it had acquired as through its expropriate power as part of the state through its dual role as both a government agency and an operator were to be retained by the state.

The courts agreed and the gas pipeline was returned to the Ministry of Finance to be leased back to PTT.

There are parallels between PTT and the gas pipeline and CAT/ToT and the concessions. Today everyone is talking about the huge amounts of money, hundreds of billions of baht, that the concessions are worth. But who owns these concessions? CAT and ToT? Or are they just administering them on behalf of the state, the way EGAT used to administer the gas pipelines, and how much are they worth?

The new draft frequency allocation act, which has been passed by parliament, clearly agrees that the concessions are to the state and not to the state owned enterprises. The draft which made its way up to the senate and was modified hence has to go to parliament again is trying to de-couple the concessions from CAT/ToT. Article 78 of the draft act will shift concession fees directly into the exchequer with either one year (parliamentary version) or three years (senate version) grace period for the two state owned enterprises to adapt.

And adapt, they shall have to.

Flicking through ToT's most recent annual report for 2008, our Turtlephone Corporation paid 5.6 billion baht back to its shareholder, the Ministry of Finance, plus as it likes to point out, another 2.5 billion or so in tax. Sounds nice until one realises that it took in 19 billion in revenue share from AIS and managed to use up most of it to cover operational losses.

There are some patriotic elements of society who have lashed out at the Finance Minister for dancing to the tune of a foreign fiddle in trying to enact concession conversion and sorting out this mess. But under the current scheme, it is the employees of the SOEs who benefit from the billions being raked in, billions that should be shared by 65 million people, not tens of thousands.

Without concession conversion, once 3G is launched, these numbers will fall very quickly through natural market economics. If Thailand has one system with 30 percent revenue share and another on 6.5 percent, operators and users will gravitate to 3G with their wallets even for plain vanilla voice calls. The NTC seems to be trying to prevent such an exodus and "protect" the country by imposing rules such as no 2G to 3G roaming and no operational integration, but that will only serve to add costs to the sector. Nothing short of banning people from using 3G will stop people from voting with their wallets.

In other words, when we have proper 3G, the value of the concessions - the present value of the projected future stream of revenue share - will be decimated anyway.

What Finance Minister Korn Chatikavanij is trying to do would help the operators continue operating fairly and salvage some value out of the concessions. Concession conversion has, as I have often argued, the added benefit of simplifying operational integration and flexibility, greatly lowering costs and improving the user experience and roll-out time for 3G.

Whatever happens, the Bangkok elite will have 3G - they do already with ToT's stunted network and TrueMove's "everyone's invited to join our non-commercial test" network - and when commercial 3G comes, they will enjoy more and potentially at lower costs. It is the poor villager on the other side of the digital divide behind the mountain, as they say, who will suffer most with slower roll-out and lost opportunities in business, health and education if concession conversion does not happen properly.

Ah yes, the poor remote village. But, a patriot would argue, the NTC has helped him by requiring 80 percent coverage within four years as part of the 3G IM (information memorandum or auction rules). That is a contradiction in itself. 3G coverage is much smaller than GSM because of the technology. By forcing 80 percent coverage, a number that operators and analysts alike say is very tough to verging on impossible, the value of the bid will be much less as unprofitable cells are hastily erected. Either that or three and a half years down the line they will re-negotiate the contract the Thai way and leave the poor villager unconnected anyway.

Yes, dear NTC, I also want a brand new Porsche and I want to pay just one million baht for it too.

Malaysia had a "beauty contest" for its 3G bid and licences were awarded at around half a billion baht. Thailand wants 20 times that amount in the opening bid with roll-out requirements almost as tough. Something has to give. Operators are not in the market for charity and high fees and tough roll-out requirements will only mean higher prices when all is said and done.

Another word that springs to mind is rationalisation.

On the one hand we want revenue for the exchequer; we want to tax the industry. On the other, we are subsidising it via USO (universal service obligation) funds and subsidised roll-outs.

As markets become saturated, they will naturally reach out to new pockets of less dense users. Thailand's current 2G coverage is pretty good without USO intervention. Rather than taxing the industry and then subsidising it creating inefficient bureaucracies along the way (ToT and CAT again spring to mind) can the regulator enforce real competition and re-investment in infrastructure and technology?

Crunch time is closer than we think. If parliament does not agree with the senate, the parliament version (one year transition) will pass by default, meaning in one year, we will have a crisis in the sector where CAT and ToT risk going bankrupt. Before that happens, Korn has the impossible task of saving them, kicking and screaming as they are, saving the industry (which seems to be biding time for a new roll of the dice with the NBTC) and investor confidence and saving the national purse at the same time.

In the meantime, technology is evolving. LTE is coalescing into three main bands 700 MHz (analogue TV), 2100 (same as 3G) and 2600 (digital TV). The 15 MHz slices (three 5 MHz standard 3G channels) the NTC is auctioning off on 2100 already look old-fashioned when people are thinking of rolling out technology that was optimised for 20 MHz chunks. Yes it will work, but it will not work well. LTE 1800 is happening in Hong Kong, LTE 850 is in Korea. Dtac has lots of 1800 and CAT (and Dtac) has lots of 850. One might argue that LTE even on oddball frequencies such as 850 or 1800 might be more useful and more cost effective for wireless broadband access than WiMAX.

When the concessions were granted, mobile telephony was for the elite. It made sense to tax the elite for the benefit of the country. Today, 3G is still about smart phones and business users, but the real benefit of 3G and beyond will be for providing Internet access, bridging the digital divide and bringing opportunities to the rural, unwired masses.

Thailand only has seven million copper phone lines out there, lest we forget. Time to wake up and start running.