The Charoen Pokphand (CP) Group is on the move again to swell further in size, weight and power over the market. Having recently acquired Tesco's operations when the British retailer sold out and exited Thailand and Malaysia, CP is now aiming to consolidate its grip on the telecommunications industry in a planned merger between its True Corporation and Total Access Communications (DTAC), the local subsidiary of Norway's Telenor. If successful, the merger would reduce Thailand's major telecom players from three to two and further concentrate market dominance over the telecom market to the detriment of consumer choice and welfare.
It would also send the wrong signals to foreign investors and governments everywhere that Thailand's playing field is lopsided, stacked in favour of a home-dominant big business oligarchy. True's partnership with China Mobile Communications Group, a Chinese state-owned enterprise, poses further risks that Thailand's telecom market could become susceptible to Beijing's influence.
The $8.6 billion (287 billion baht) True-DTAC deal would create a new entity reportedly with equal ownership between the two sides, while the remaining stake would be held by minority shareholders of both. As True holds a 32% market share of the mobile phone market compared to DTAC's 22%, with the remaining 46% belonging to Advance Info Service (AIS), which is partly owned by Singapore's Temasek through Singtel, the controversial True-Dtac merger would result in a True-led 55% market dominance.
On the face of it, the True-DTAC deal ostensibly reaps cost efficiencies and economies of scale. It is said that investment costs are so huge for the rollout of 5G, the next-generation telephony, that this merger and industry consolidation is necessary and inevitable. But there is much more to it than that in the eyes of mobile networks users and opponents of unfair and undue market power.
While the focus is now on how the market for mobile phones will be further concentrated with only two players remaining, the real competition issues from this deal extend beyond mobile telephony. Given 5G technological advancement and capacity, mobile network operators like AIS, DTAC and True can become gatekeepers to a range of new business opportunities that need to rely on mobile networks to enable their value-adding applications and services, such as remote robotics in factories and precision surgeries in hospital, not to mention education, gaming, entertainment, and so forth.
The gatekeepers of these networks hold the key to Thailand's digital future, extending far above and beyond mobile telephony. Network operators in the age of 5G hold leeway in allocating part of their networks to other business operators of the digital economy. In other words, mobile networks operators will serve as controllers of pipelines that can access and connect to more consumers and businesses as their pipes become bigger, faster, and smarter, allowing more varieties of usage to come on stream. And as more things around us become increasingly internet-driven and enabled, operators of mobile networks will have control over an ever-widening range of internet-related services.
What is more, operators of mobile networks, such as True, can enter the market as service providers themselves, thereby stifling competitors with unfair ownership advantages. For instance, the CP Group as the parent conglomerate of True owns and operates myriad digital services from education and health solutions to finance, payments, and media content. As an operator of network pipelines, True would have an incentive to prevent, deter and stymie other digital service providers in the areas they are operating, resulting in potential barriers and additional costs on newcomers.
Thailand's telecom regulators need to also think in vertical, not just horizontal, terms. This merger is not about mobile networks as a playing field but about the vertical integration of digital service provisions up and down the value chains that will constitute the shape and form of Thailand's digital economy.
In broader terms, according to AT Kearny, a research consultancy, 5G technology offers potential for mobile operators in Asean to increase their revenues from 9% to 12% by 2025, with a higher percentage of revenues to be generated from enterprise usage (18% to 22%) as opposed to from end consumers (6% to 9%). Without doubt, the control of mobile networks means a lot more to competition issues in the digital economy age. Dominant players exert power not only over retail users of mobile phones, but also businesses and service providers that rely on their mobile networks. Allowing network operators that are also operating additional digital services presents anti-competitive effects to other service providers that rely on the same networks but don't own them.
The far-reaching implications on industry competitiveness therefore extend much further beyond collusion between the remaining players to increasing prices or reducing promotional packages.
In other words, the issue is less about collusion and price-fixing between AIS and True's new entity from its merger with Dtac. The real threat to industry competitiveness and Thailand's digital future derives more from True's control of mobile networks that keep other digital service providers down or out of the market.
For this fundamental reason, Thailand's regulatory bodies from the National Board of Telecommunications (NBTC) to the Office of Trade Competition Commission (OTCC) should be forward-looking with an integrative and holistic approach in their consideration of whether free and fair competition can be ensured in sectors that need to rely on mobile connectivity networks. Without a level-playing field in mobile connectivity infrastructure, a merger that reduces competition among mobile network operators is likely to keep out other potential service providers in the digital economy ecosystem.
In an age when market segments are continuously evolving, regulatory watchdogs must be vigilant and proactive to make sure that changing industry dynamics do not favour one player over others.
Failure to understand how the nature of competition changes and how market forces operate may result in regulatory loopholes that enable a dominant player, such as True, to continue expanding its market dominance from one industry to the next.
Having a handful of local conglomerates dominating the domestic market at will in a vast majority of industries is unhealthy for consumer welfare and undesirable for the development of Thailand's digital economy.
It not only crowds out smaller competitors with lesser means but may also deter foreign investment when external players cannot be confident in having a fair chance because a few local conglomerates get an ever-larger lion's share.
In addition, the CP Group is well known for its connections to China, which is understandable because of its roots and the lucrative market size in the world's most populous country. But the True merger with Dtac may raise risks and vulnerabilities for Thailand's digital infrastructure because of a lack of transparency and the sometimes opaque practices of state-owned enterprises.
Thailand's digital development should be balanced, fair and transparent. For these reasons, the True-Dtac tie-up deserves the highest scrutiny to protect consumers and maximise Thailand's digital economy potential.
While the mobile networks industry cannot afford to have multiple players due to high investment costs and economies of scale, dwindling from three to two with True in the lead would be a risky move for Thai consumers and for Thailand overall.
Pavida Pananond, PhD, is a professor of International Business and Global Strategy at Thammasat Business School, Thammasat University.