Telcos bidding for Thailand’s 3G licences may be forced to accept the controversial foreign dominance notification (FDN) in order to participate in the upcoming auction.
The finance ministry is also reportedly considering slapping on an excise tax of up to 50% to telecoms revenue to help shore up government coffers.
The FDN as it stands allows the regulator wide-ranging discretionary power to punish and even revoke a licence on national security grounds, from everything ranging from foreign dominance in voting rights, foreigners in management positions or even those foreign managers acting dishonourably, whatever that means.
A watered-down version is in the works which removes many of the national security clauses but still allows the regulator much discretionary power.
The NBTC has argued that the FDN simply enforces existing equity laws that have proven unenforceable under current legislation. Critics say that it has gone far beyond equity, is protectionist and goes against Thailand’s WTO commitments.
Worse, the revised FDN draft has an escape clause, saying that it is only enforceable inasmuch as it does not conflict with Thailand’s treaty agreements. Academics have pointed out that including such a clause is irresponsible as it will immediately be challenged in the courts once the FDN is enacted, putting the October timeline of the 3G auction at risk.
This is a repeat of the situation three years ago where the previous regulator resorted to regulating everything, even 2G concession conversion, through threat of exclusion from the auction.
To date, the brunt of the FDN has been aimed at Dtac, which is 49% owned by Telenor. When Dtac and Digi recently upgraded their billing systems to a new common platform, executives stressed that it was only that the design of the two that were common, allowing for upgrades, maintenance and new products to be rolled out on both systems, not any operational integration.
AIS, which has a similar shareholding structure with Temasek of Singapore holding 49% has not been targeted, despite the One Singtel restructuring program.
The investigation, initiated by TrueMove, was in retaliation to Dtac suing CAT Telecom to halt the TrueMove H 3G network, a move that Dtac CEO Jon Eddy Abdullah said he was duty bound to do to protect his shareholders’ investment.
Away from the FDN, another threat to the 3G auction has emerged in the form of the controversial telecom excise tax that played a part in the downfall of former Prime Minister Thaksin Shinawatra.
Mobile operators used to pay 10% excise tax between 2003 and 2006. The constitutional court ruled on the asset seizure case of Thaksin that the telecom excise tax that his cabinet pushed through directly benefitted him alongside the state-backed loans for Shin Satelllite.
It was the way that the revenue share was to be calculated - less the telecom excise tax, not in addition to the tax - that was at the heart of the conflict of interest ruling. TOT, AIS’ concession holder claimed to have lost over $2.5 billion (80 billion baht) from the excise tax calculations, while CAT claimed to have lost 41 billion baht from Dtac and TA-Orange/True.
TOT’s claim was quietly dropped in October 2011, soon after Thaksin’s sister Yingluck Shinawatra became Prime Minister.
Former junta-appointed ICT Minister Sitthichai Pokai-udom explained after the ruling that in his opinion, the real value of the excise tax was that of a kill-switch that would prevent new entrants. Unlike the concessions and the revenue share which were set in stone, excise tax could be varied at will by the finance minister. This level of uncertainty was, he reasoned, critical to propping up Shincorp shares during that period by preventing new entrants to the market.
Today, the prospect of the excise tax has been revived in order to fix the government’s finances in light of huge social-welfare programs and huge budget deficit. Quite why it has been revived at this juncture, just months before the proposed 3G auction, could be just a coincidence, or it could be part of the greater protectionist tendency that Thailand is suffering from.