TELECOMMUNICATIONS

Changing the rules

Since the coup, attempts have finally been made to level the playing field for mobile operators. But substantial progress has yet to be seen as full liberalisation could mean the collapse of state-owned players

By SRISAMORN PHOOSUPHANUSORN

The Thai telecommunications industry has been reshaped following the military coup on Sept 19, with smaller operators hoping to level the playing field after what they saw as years of perceived government assistance to market leader Advanced Info Service, founded by deposed prime minister Thaksin Shinawatra.

At the same time, the National Telecommunications Commission (NTC) has managed to push for concrete and fairer regulations and competition frameworks since Mr Thaksin lost political power.

Industry experts shared a common view that state telecom agencies, including the NTC, TOT Plc and CAT Telecom, can operate more independently now that Mr Thaksin is out of the picture and his family has unloaded its holdings in the Shin communications conglomerate.

In practice, however, no agencies under the interim government’s supervision have dared to overhaul seemingly unfair conditions or revoke existing concessions, even though mobile phone operators under CAT Telecom have always claimed that they unfairly pay access charges to TOT.

TOT could lose as much as 14 billion baht a year if access charges are scrapped.

The year 2006 gave new hope for telecom operators to see changes in competition laws and, eventually, full liberalisation of the industry. It also saw a slew of new telecom licences issued and the implementations of new rules and regulations.

But nowhere is the enforcement of interconnection charges more hotly debated than in the mobile phone industry, as they are tied to the thorny issue of access charge payments made by DTAC and True Move to TOT Plc.

The dispute has placed the mobile operators into two camps: one that holds concessions under TOT, and one that holds concessions under CAT.

DTAC and True Move hold concessions from CAT Telecom. They must pay TOT an access charge of 200 baht per subscriber per month for postpaid clients. AIS holds a concession from TOT and pays no access charges, which its rivals say gives the company a significant advantage in pricing strategy and gross profit margins. AIS argues that the access charges are already priced into the concession agreement. DTAC joined forces with True Move in November to sign an agreement on interconnection charges, with the aim of squeezing the NTC to scrap access charges payments to TOT.

AIS then followed suit, reaching a deal on interconnection rates with DTAC, and pushing for a charge on par with DTAC and True Move.

But TOT, unsurprisingly, has asked the NTC to delay the enforcement of the interconnection rates for one year to pave the way for the Information and Communications Technology (ICT) ministry to find a solution that will benefit all parties. The state agency could potentially lose revenues of 14 billion baht per year if access charges are scrapped and operators begin routing most of their call traffic directly through interconnection gateways.

An interconnection regime is seen as a cornerstone of industry reform. The rates are fees that operators charge each other for handling calls across various networks, based on actual call traffic.

With or without liberalisation, phone users are urged to keep on talking at cut-rate prices.

With interconnection, calling charges would be split between the originating and receiving network operators, as well as any intermediaries. The origination rate is to be paid by the receiving carrier to the carrier that originates the call. It will apply to CAT Telecom, which must share international call revenue with operators that transfer calls from subscribers to the CAT gateway.

The termination rate, the most critical part of the negotiations among operators, is paid by an outgoing call’s carrier to the service provider at the receiving end. And the transit rate, which is of greatest importance to TOT, is to be paid by an out going call’s carrier to an intermediary that diverts a call to cross other networks.

Although the access charge issue remains unresolved, the NTC agreed with the ICT Ministry to fix all interconnection charges at zero for one year to pave the way for the ministry to resolve disputes on access charges and interconnection rates.

The year 2006 also emerged as a surprising year for mobile-phone sales, the strength of which confounded experts in the face of the country’s economic slowdown, political uncertainties and high oil prices. In the first nine months, the industry grew beyond expectations, with 6.445 million new subscribers.

DTAC emerged as the champion, reaching a record 2.79 million new customers. TrueMove followed close behind with a surprising 2.34 million net new subscribers.

Rare sight: Mr Brekke (left) and Mr Wichien talk after DTAC and AIS agree on interconnection rates.

Major operators are ready to start providing 3G mobile services by the end of next year.

Both DTAC and True Move enjoyed a windfall from the boycott of AIS services due to the sale of parent company Shin Corp to Singapore’s Temasek Holdings in January. While still the market leader, AIS registered only 1.31 million new customers.

About 55% of Thais, or 36 million, now have mobile phones as of Sept 30, up from 48%, or 30.5 million, at the end of 2005. AIShad17.7 million customers, DTAC 11.5 million and True Move 6.8 million.

The industry expected up to eight million new subscribers in 2006, largely thanks to a price war initiated by AIS. Local mobile-handset sales this year, meanwhile, were expected to reach 8.8 million units, fuelled largely by first time buyers in upcountry provinces.

Nokia saw record highs for both sales growth for handsets and market share. It now commands more than 60% of the market, followed by Samsung with 12%, Motorola and i-Mobile with 10% each, and Sony Ericsson with 7%.

Local handset demand in 2006 was estimated at 7.4 million units, 70% of which are replacements.

Major mobile operators say the mobile industry in 2007 is expected to grow at the same pace as 2006, with seven million to eight million net new subscribers. First-time users upcountry will also be a major growth driver for the mobile industry next year.

Sigve Brekke, DTAC’s chief executive, said interconnection charges are set to reshape the competitive landscape for telecom companies next year.

‘‘I believe all operators will absolutely give priority to on-net [intra network] tariff promotion services to stimulate customers, particularly upcountry, to make calls within the network.’’ Mr Brekke said.

True aims to be a ‘triple player’, providing high-speed Internet, video on demand or broadcasts and telephone service over a single connection.

‘‘For off-net [cross network] services, consumers can expect more than one baht per minute in service rates because each operator will have its actual interconnection cost on call traffic to other networks at one baht per minute, excluding VAT.’’

Wichien Mektrakarn, the president of AIS, said interconnection charges could potentially stimulate customers to have two SIM cards to gain from certain cheaper on-net tariff promotions.

Major mobile operators said they are ready to start providing third-generation (3G) mobile services by the end of next year if the NTC awards licences by mid- 2007.New3Gtechnologyallowsmobilephoneusers to access high-speed Internet and high-quality mobile multimedia services, such as video streaming and downloading large files on demand.

The year 2007 raises high hopes among smaller telecom operators to finally see a level playing field in the highly competitive industry. They are pinning hopes on new ICT minister Sitthichai Pokai-udom to make real progress on excise tax payments, access charges and interconnection charges.

But many in the industry say that the lopsided industry is unlikely to change in a matter of days or months. The new government has many new issues on its plate, such as monopolies, antidumping and industry liberalisation. All of these face huge obstacles.