Reading between the lines: TOT sacks its CEO

22 Feb 2012

One month ago, the board of directors of Thailand’s state-owned telco TOT Corporation sacked its CEO, citing lack of performance, despite the CEO not even getting to the first evaluation round. What does it mean, and what are the consequences for the potential foreign partners TOT is now wooing for its 3G network?

One wonders why most Thai state owned enterprises always seem to have acting CEOs half the time. The answer is that it is a matter of bypassing good governance.

One of the tenets of good governance is the need for a non-executive policy board. Board members whose duty is it to make sure the executives keep to policy and scrutinise their actions without being themselves embroiled in power play and compromise.

By sacking the CEO of TOT, an acting CEO has been appointed, but as acting CEO, any of his major actions has to be countersigned by the board.

In other words, someone in the board who need not be named, rather than being content with a role as overseer, wants in on the action. As his job is supposed to be overseeing the actions of the executive, by becoming the de-facto executive himself, oversight is reduced as he is not responsible to anyone.

In Thailand, when a new government comes in, boards of SOEs are routinely sacked and replaced with political appointees.

The board can say that it’s the CEO’s fault if something happens. Often during these times of uncertainty major projects are simply not signed off, the acting CEO refusing to incriminate himself and the board-cum-executive-cum-political appointee wanting the contract signed without having to be responsible for it.

So what is at stake? Huge budgets for TOT’s 3G network and yet another fibre mega-project as part of the Smart Thailand initiative.

TOT is actively seeking foreign partners to become MVNOs on its 3G network and is also, finally, after two full years of stagnation, is expanding the network.

But for anyone tempted in becoming an MVNO for TOT, the fate of the first set of MVNOs should be re-told to quell any misconceptions of who is in the driving seat or delusions of fair play.

TOT launched its 3G network in December 2009 with MVNOs. What was not clear back then was that the contracts were one-year MVNO contracts, contracts which, in the words of one of the MVNO CEOs, were laughed at when he showed it to potential investors.

It was a one year agreement with no clear provision for extension and, as it turned out, were never formally extended. For 2011 the MVNOs operated rouge on the premise that as long as nobody objected, the contract was implicitly extended. Obviously, none of the MVNOs made any concerted marketing push - why should they without any guarantee they would still be in business tomorrow? This is not how a telco, even an MVNO telco, should be run.

The way out, and one must credit TrueMove for this, is simple. The only way to have bargaining power over a schizophrenic state enterprise is to supply it with what it needs and keep the sleeping beast fed, fat and happy.

True does the network, sells it to CAT and then buys it from CAT to run as an MVNO. CAT is left doing little except collecting rent and pretending to look busy.

The network expansion with TOT is similar. Two of the MVNOs, Samart and Loxley, won the 3G network expansion contract. This means they will have extra say over what happens on the other side when they buy back the capacity from TOT to resell as MVNOs.

An unorthodox way of doing business, but it is the only one that works, given the fickle, changeable and irrational nature of political appointees and their shot-term vision.

TOT has stated that the existing MVNO contracts will have to be terminated. Nobody bothered to ask why. But surely they will need to treat the MVNO-cum-infra providers better than the pure MVNOs to avoid network disruptions.

And where is the regulator? Nowhere to be seen. The new regulator seems to be embroiled in freedom of speech issues and in getting 2.1-GHz 3G out the door to be too concerned with what happens internally in CAT and TOT.

An MVNO CEO has said that he will challenge the TOT termination in the courts, if the order comes, citing the Frequency Allocation Act’s provision for uninterrupted services. It has been said that the worst kind of regulation is one which has failed and where the courts get involved.

To top it off, why is TOT actively seeking to expand its retail business at all? What is the role for the state owned enterprises in a world with an independent regulator and one that is open to foreign investment? Who is in charge? What will the post-concession landscape look like in a few years?

Deregulation and privatisation should not be transfer of a rent-seeking state monopoly (or duopoly) to a private one, but one of opening the market up and letting market forces take hold. The Ministry of Finance seems to be concerned only with revenue, the ICT Ministry prefers not to discuss the matter. Many in the Senate view the two state owned enterprises as crown jewels to be protected and successive governments view them as a quick way to recoup investment.

The buck should stop with the Prime Minister, but even while the previous government spoke a lot of reform and concession conversion, eventually the lure of reaping the status quo was too much and nothing happened. The current government has shown even less political will to sort the mess out.

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