New minister tries to break log jam in the Thai telecom sector

Concession conversion. As an interim measure aimed at diffusing tensions on the prickly issue of concession conversion, Minister Surapong has suggested that private sector telecom operators stop making revenue share payments to TOT Corporation Public Co Ltd (TOT) and the Communications Authority of Thailand (CAT). Instead, he is advocating that the revenue share payments, as well as the "ownership" of the concessions themselves, be transferred to the Ministry of Finance (MOF) until such time that that the ICT Ministry and MOF can come up with a solution on concession conversion.

Currently, the private sector telecom operators vigorously oppose making compensation payments to TOT and CAT related to concession conversion since these two state enterprises are scheduled to be fully privatized in the future, thus making them potential rivals on a private sector basis. However, under Minister Surapong's proposal, TOT and CAT would continue to collect access charges from private sector operators for use of the their networks.

In order to take this proposal to the next level, Minister Surapong is now seeking the guidance of legal experts to see whether the concession contracts can be transferred to the MOF prior to the establishment of the National Telecommunications Commission (NTC).

If realized, Minister Surapong's initiative will have a far-reaching impact on both TOT and the CAT. The immediate concern for TOT and the CAT would be how to replace the lost revenue from concession payments. For example, nearly half of TOT's annual revenues currently come from revenue share payments linked to the concessions granted to private sector telecom operators.

While both TOT and CAT are rushing to launch mobile phone and internet-based services to plug the hole in their revenue streams longer-term in preparation for the day when the gravy train of concession payments ends, neither state enterprise is prepared for the "shock" of a sudden end to such payments. And while it has been suggested that the MOF could compensate TOT and CAT by issuing to them state-guaranteed bonds, such a move would not address the problem of maintaining current levels of cash flow.

The Thailand Development Research Institute (TDRI) has also weighed in with its criticisms of Minister Surapong's proposal, primarily in terms of its unclear timing. For this initiative to work, the timeframe under which the MOF would collect revenue share payments needs to be specified, for example should it be until 2006 when Thailand is obligated under WTO agreements to liberalize its telecom sector, or until the NTC is established, or until the end of each concession?

Since many of the private sector telecom concessions have 10 or more years to run, citizens' advocacy groups are unlikely to accept an early termination of the private sector's obligations. Yet most of the private telecom companies want the whole concession system ended as quickly as possible. However, at least one major player in the sector - TelecomAsia Corp Public Company Limited - has said it would be willing to continue to make revenue share payments to the end of its fixed-line concession (expiring in October 2017; revenue share at 16% of revenues), just as long as the money does not go to TOT.

However, a company like TTT Corporation Public Co Ltd, which is saddled with a revenue share burden of more than 43%, is unlikely to share this view.

Just how Minister Surapong plans to mediate on this sensitive issue remains to be seen, especially since his critics are already accusing him of being a "rubber stamp" for Prime Minister Thaksin and the Shinawatra Group telecom empire. As a novice on telecom issues (he was formerly Deputy Minister of Health and a practicing medical doctor), Minister Surapong reportedly relies heavily on advice from newly appointed Deputy Prime Minister Prommin Lertsuridej, who is a former executive of Shin Satellite Public Co Ltd.

While Minister Surapong continues to insist that he is his own man who intends to find an acceptable compromise between public and private sector interests, based on his proposals to date is seems clear that TOT and CAT will be holding the short end of the stick on the issue of concession conversion. Largely for this reason, it now appears certain that both TOT and CAT will have to have be revalued well ahead of their IPOs should these recent proposals on concession conversion be approved.

Ad Hoc National Telecommunications Commission. The other huge uncertainty facing the telecom sector is the fact that there is still no timetable for establishing the industry's new proposed regulator - the National Telecommunications Commission (NTC). Now more than three years behind schedule, the absence of a functioning NTC means that there is nobody to sort out concession conversion, grant telecom operating licenses or to create the "level playing field" that is the whole point of deregulating Thailand's telecom sector.

The most recent snag in setting up the NTC occurred in 2001 when the Administrative Court ruled that the 17-member panel set-up to nominate members to the seven-member NTC was unconstitutional since its procedures were not transparent. Minister Surapong is aiming to reactivate procedures for nominating candidates to and establishing the NTC. But even he admits that the earliest that this is likely to be achievable is October next year.

Therefore, as stopgap solution, Minister Surapong has agreed to set up an Ad Hoc NTC based on proposals submitted by the Post and Telegraph Department (PTD). The temporary NTC is being given the brief to draft market liberalization regulations and a regulatory framework ahead of the formal establishment of the NTC at a future date. According to Minister Surapong, this move will save at least one year since if the government waits till late next year to draft these regulations it could be well into 2004 before the NTC would be able to function as intended.

In effect, this temporary NTC will act as the formal NTC's "back-office" once it is established. Already, plans call for this Ad Hoc NTC to have a staff of more than 400 people who will be transferred voluntarily from other government departments to this new entity.

So far, the private sector operators have welcomed this proposal, since without any progress towards setting up the NTC the deregulation of the telecom sector would continue to remain frozen in time. Yet while Minister Surapong has promised that the this temporary NTC will not be given the power to make any "substantive" decisions, again there must be concern in the corridors of power at TOT and CAT that private sector interests will have considerable influence over the regulations that will be drafted by this secretariat, especially since the staff for the Ad Hoc NTC are due to come primarily from the PTD and not the state enterprise level.

Danial Nielsen is an analyst for the Brooker Group. For more information about the Brooker Group please click here.

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