Thai government re-examines CAT privatization

The newly established Ministry of Information and Communications Technology, has started to address the long-delayed schedule for privatizing the Communications Authority of Thailand (CAT).

The newly established Ministry of Information and Communications Technology, headed by Surapong Suebwonglee, has started to address the long-delayed schedule for privatizing the Communications Authority of Thailand (CAT) - the state enterprise that owns Thailand's international telecom gateways and operates the country's postal system. CAT also controls the controversial licensing system for Thai-based Internet Service Providers (ISP) with its mandatory equity stake provision in favour of the CAT. That system is widely blamed for retarding the development of the country's Internet industry.

CAT's Plans for Finding a 'Strategic' Partner Prior to its IPO. In recent months the official statements from CAT, and from Minister Surapong since he took office in early October, on just how this state enterprise should be restructured and privatized have created quite a stir, as well caused considerable confusion. At the end of September, CAT President Dhirapong Suddhinond announced that the state enterprise would delay its IPO until after it had secured a  strategic partner which would be offered a stake of up to 25% in the state agency.

The rationale for this decision is that CAT badly needs an infusion of private sector management expertise and marketing savvy if it is to survive as a going concern, especially since post-privatization it will eventually lose the bulk of its income from concession fees paid by private sector telecom operators. Also, like TOT Corporation (TOT), CAT will have to rely much more on brand 'new' sources of revenue, such as its own Internet and mobile phone businesses.

Splitting up CAT into Telecom and Postal Units. Up until now, the instructions from the Ministry of Finance have called for CAT to be broken down into two companies - CAT Telecom with registered capital of Bt2 billion and Thai Post Company with registered capital of Bt750 million.

CAT Telecom was due to have its IPO in June 2003, but there are still no plans to list Thai Post Company because of its loss making operation. Based on advice from the Boston Consulting Group, plans called for CAT Telecom to have five business units - international calling, data communications, mobile phone operations, internet-related services and data provider services.

However, these plans never made it to the stage of seeing CAT Telecom being formally established, or its being registered as a public limited company. In contrast, the former Telephone Organization of Thailand has been restructured and registered as TOT Corporation Public Company Limited, which became effective on 31 July 2002.

As recently as 3 October, the CAT's Board of Directors held a meeting to finalize its restructuring and privatization plans. However, since then, there has been no word from CAT itself on where things stand, including its attempts to find that magical 'strategic' partner.

Too Close for Comfort? After taking office in early October, Minister Surapong immediately began to shake things up at the lethargic CAT. Things kicked off by Minister Surapong moving the offices of the newly established Ministry of Communications Technology and Information into the Communications of Authority of Thailand Building - a gleaming skyscraper located in central Bangkok along the Chao Phraya River just behind Bangkok's Central Post Office and just down the street from the world-famous Oriental Hotel.

This building was planned and approved for construction during Thailand's 'bubble' economy period in the mid-1990's, but it was not finished until after the 1997 crash. Standing largely empty for several years - other than the floors used by CAT's HQ staff - the bureaucrats at CAT can now look forward to frequent face-to-face encounters with Minister Surapong.

The fact that this building has state-of-the-art telecom equipment, satellite links and a helicopter pad must have been appealing for Minister Surapong. But keeping close tabs on what the CAT is doing no doubt influenced his decision to locate himself in the CAT's own headquarters as well.

Merger with TOT Back on the Cards? Perhaps the most surprising development so far this month in the drawn-out saga surrounding attempts to restructure and privatize the CAT, is Minister Surapong's decision to re-open debate on the desirability of merging the CAT with TOT under a single roof before either has their IPO.

As recently as May this year the same idea was floated and then killed off by Prime Minister Thaksin himself. It now appears that Minister Surapong has already had the chance to examine closely CAT's telecom credentials and realized that its chances of operating as a viable private sector concern are somewhat dubious.

This will be especially true after 2006 when Thailand is obliged by WTO agreements to liberalize its telecom sector - including the areas of international gateway and Internet services, which will directly threaten the CAT's existing core businesses. Also discouraging is the stumble and bumble approach by TOT and CAT as they try to launch their joint 1900 MHz mobile phone service (known as Thai Mobile, which is scheduled to be rolled out this month; TOT owns 56% and the CAT 44%).

Progress to date on the Thai Mobile project clearly suggests that neither organization is about to challenge the commanding mobile phone market shares held by Advance Info Service Plc, Total Access Communication Plc and even newcomer TA Orange. Not content with being a silent partner in Thai Mobile, CAT is also attempting to launch its own mobile phone service based on CDMA technology together with Hutchison-CAT Wireless Multimedia Co Ltd, which holds a 15-year concession from the CAT that expires in 2011.

Thus, it appears that the option of merging the CAT's telecom operations with TOT is back on the agenda - at least for now. However, the bitter rivalry between CAT and TOT that spans decades does not hold out much hope for a quick and clean merger of these two entities.

This suggests that Minister Surapong has his work cut out next year both in terms of drumming efficiency into the CAT from his new offices in the CAT's own headquarters, and in figuring out how to merge these two entities into one telecom enterprise that will be attractive for investors.

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