Thailand's mobile communications market has two service providers with an equal share of customers. In economic terms, it is a symmetric duopoly. This is the worst market structure because the two can easily discipline each other to limit competition: "I'll match any lower price you set; I'll limit 5G and 6G investment if you do." This reciprocity limits competition in price and quality, which helps the carriers' shareholders but harms consumers, especially in the long run, through slower innovation in a critical infrastructure industry.
This year, as Thailand prepares for a multiband spectrum auction to allocate essential spectrum to carriers, an effective remedy is needed to promote competition and innovation. Spectrum caps and set asides, which prevent any company from winning too much, are ineffective and indeed counterproductive. Entry is impossible, given the challenging economics of mobile communications today.
Restrictive spectrum caps would lead to unsold spectrum, and a fifty-percent cap enforces the noncompetitive split that carriers like. What is needed is a way to stimulate competition in the wholesale market for mobile communications. Then, mobile virtual network operators (MVNOs) can enter the market. This is allowed today but is ineffective because the virtual operators must negotiate with the duopolists, who do not want competition. The market share of virtual operators remains near zero in Thailand despite a remedy requiring it. The remedy is too difficult to enforce.
In our study for the communications regulator the National Broadcasting and Telecommunications Commission (NBTC), we propose a proven remedy that responds flexibly to market conditions and has few administrative parameters. It is built on the core principles of economics and optimisation, which makes it easy to enforce. It has been widely used to address similar problems in Europe's electricity and gas sectors.
Conceptually and administratively, the remedy is simple. Include a license condition that winners are obligated to sell at each time and location 15% of their capacity on open access terms--that is, offer 15% of their capacity -- without a reserve price -- in the real-time communications market. This marketplace and platform should be run by an independent non-government organisation that is enabled by the legislature and overseen by the communications regulator. We call the entity Timo -- the Thailand Independent Market Operator. Its mission is to conduct a real-time and forward market for mobile communications and related products that maximise social welfare subject to real-time network constraints. Such an entity has operated in the United States' electricity markets for 25 years. Its performance has been excellent and improving.
The proposed Timo model offers a simpler and more effective solution for Thailand's competition problem. Timo is built on an independent trading platform that organises access and pricing between wholesale roaming actors and spectrum holders based on hourly auctions for communications capacity. It allows for spot and forward trading in communications capacity, paving the way for a more efficient and competitive telecoms market.
While the proposed market mechanism may sound like an additional governance roadblock, it is, in fact, a simplification. Timo's mission is to encourage competition and innovation in mobile communications through efficient and transparent trade of wholesale capacity. This arrangement is particularly powerful when congestion is common, as at peak times and locations in network industries. Timo enables wholesale competition among MNOs, MVNOs, and wholesale customers, reassuring the participants about the market's future. This fosters competition and innovation in the retail market, ensuring that the available capacity is put to its best use. The market promotes efficient investment in network enhancements, maximising long-run welfare through transparent and efficient communications pricing. Spectrum rights come with one addition: an obligation to sell a portion of communications capacity in the open access market conducted by Timo. Participants are given a flexible, transparent, and efficient mechanism to satisfy their obligations.
This arrangement will promote a competitive market in mobile communications and improve welfare. The approach encourages innovation, producing a win-win-win for society. Service providers, regulators, and consumers win from vibrant innovation in an enabling sector of Thailand's economy. Market participants and Thai society will benefit from the growth that this regulatory innovation will generate.
Peter Cramton is an Emeritus Professor of Economics at the University of Maryland, an International Research Fellow at the Max Planck Institute for Research on Collective Goods, and an expert on spectrum auctions and competition policy. Erik Bohlin is a Professor of Economics at Chalmers University and the Ivey Business School and is an expert in telecommunications policy. They are advising the National Broadcasting and Communications Commission on its multiband auction. Our views are our own.