Thai foreign dominance law takes effect
July 24, 2012
Thailand’s controversial foreign dominance notification that governs the ownership structure of telecom companies comes into effect today.
While many academics and industry experts say the rules are vague, subjective and break Thailand’s international trade commitments, the regulator has made voluntary acceptance of the FDN a prerequisite for any company wishing to take part in the 2.1-GHz 3G auction in October.
In its simplest form, the FDN allows the regulator far-reaching powers up to revoking of a licence if a telco is foreign-dominated. The definition of dominance includes shareholding through proxies and shell companies which is widely used in the Thai industry.
Key to the argument against the FDN is that it goes far beyond the foreign business act, beyond the telecoms business act, allows the telecom regulator too much sway and is a sudden and arbitrary change in the industry less than three months before a major 3G auction.
The FDN prohibits eight categories of foreign dominance.
1) Dominance of telcos by foreigners or their representatives through control of shares.
This point has been most discussed as it would consider the aggregate shareholding, including that of companies that hold shares in each telco, and the shares of each company holding shares in the telco, ad infinitum, applying the 49% foreign ownership limit to the aggregate amount.
2) Dominance where foreign shares have a preferred status over domestic shares.
3) Dominance where a foreigner directly or indirectly controls policy, management, operations, appointment of directors and management (the FDN goes into detail listing roles from president, CEO down to purchasing manager and head of HR).
4) Dominance through funding and loans, guaranteeing of loans, provision of loans at lower than market rates or any funding mechanism that is discretionary and controlled by a foreigner.
5) Dominance through control of intellectual property, franchises, sole distributorships where that relationship involves transfer of money or other remuneration to a foreigner.
Phil Marshall / Tolaga Research
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