Thai 3G auction: and then there were three

It has been argued that musical chairs should be banned from schools. After all, it is a game that singles out one child for emotional scarring when losing. Schools should still play musical chairs, but with enough chairs for all the players so that nobody suffers the ignominy of defeat.

After all the delay, suspense and controversy, the same can be said for Thailand’s long-overdue 3G auction - as only the three incumbents will be participating in the auction. However, with 45 MHz up for grabs and a lowered spectrum cap of 15 MHz (down from 20), is it still an auction?

Until recently, the regulator NBTC was so confident of new entrants going for a 5 MHz licence with its relaxed roll-out schedule even though everyone else was telling them that 5 MHz just did not make economic sense in this day and age where scale is everything.

The controversial foreign dominance notification made foreign entrants all but impossible but I admit I had my doubts when the names of a few fiber carriers and business broadband providers were announced as part of the 17 names that had asked for application forms. Was the regulator right after all?

Did Symphony have a radical new business plan to use its backhaul network to make a small, targeted 3G network economically feasible? Or was Jasmine serious about expanding from business broadband to business 3G? In the end, neither company bothered to submit the application forms.

Tantawan, a company set up by the political Phothasoonthorn family, did apply but forgot the 1.35 billion baht cashier’s cheque needed.

As far as publicity stunts went, they were all pretty effective, getting their names up into the headlines for many days.

So what will happen next?

Supposing that AIS and Dtac’s subsidiaries get past qualification (which they should do given that the domestic player now has no compelling reason to invoke the FDN) the quasi-auction will take place on 16 October.

Again, the NBTC has argued that even with just three bidders, a 15 MHz spectrum cap and 45 MHz available, there will be active bidding and we can expect a high price. Colonel Setthapong Malisuwan says that the telcos will fight to the top to get to pick which blocks to go for first. Everyone else says that it will simply go for the reserve price of $146 million (4.5 billion baht) per 5 MHz.

Much of the Thai press and blogosphere is up in arms at the lack of competition and the loss of revenue that lack of competition has caused.

Economic studies commissioned by the NBTC before the reduction in the spectrum cap from 20 MHz to 15 MHz are up to $555 million (17.4 billion baht) higher. The models all expect AIS and Dtac to slug it out for 20 MHz each, forcing TrueMove to settle for 5 MHz.

Setthapong said that the reduction was to prevent a 15-year duopoly of the telecommunications market that would not benefit the people in the long run. Critics, most notably TDRI vice-president Somkiat Tangkavanich accused the regulator of acting in the best interests of the telecom companies shareholders, rather than for optimal economic gain for the debt-ridden exchequer.

At this juncture, we must leave facts and go for speculation. Did Setthapong really lower the cap to save TrueMove? Or did he do so as part of a compromise to prevent TrueMove from using the nuclear option and invoking the foreign dominance law against AIS and Dtac? Perhaps a fix-up that at least allows the industry to function is better than further delays while everyone sues everyone else and injunctions fly.

Or maybe it was a bit of both.

Also worth considering are the numbers. I am not an economist but what strikes me is the way all these academics are proceeding on the presumption that 2.1-GHz 3G is the only game in town. Perhaps five years ago, such a basis would have been reasonable but with multi-band devices and LTE on the horizon, it so obviously is not the case anymore.

There is 25 MHz of 2G 1800 coming out of concession in September 2013 (but might be deferred a year) plus another 25 MHz unused just lying there. LTE 1800 has reached critical mass and is obviously a very viable long-term choice.

Then there is the 15 MHz of TrueMove 850-MHz 3G that is currently in legal limbo. If True prevails and has 15 MHz on 850-MHz in the bank, would it really be that upset with 5 MHz of 2100-MHz?

Well, perhaps True, being True, would be upset.

Higher up, 2.3-GHz seems to be stuck for the next 15 years due to some daft bureaucratic decisions by the regulator, but the top 15 MHz of 2.6-GHz is available for Chinese style TD-LTE. Then there is the True attempt to transfer digital broadcast spectrum on 2.5-GHz and 2.6-GHz from TrueVisions to TrueMove for more LTE.

There's plenty of spectrum to go around, and while not getting a big slice of 2.1-GHz this October would not be good, it would hardly be the end of the world. Someone should tell those economists that and make a model that reflects these viable choices.

Meanwhile, from 1 October until the auction is over, the NBTC office itself is on lock-down with 30 to 50 police officers and extra security deployed to prevent any disturbances. The cost of the auction has been budgeted at 21 million Baht of which 14.1 million was for a consultant to actually hold the auction.

Which brings me back to my original point, is it really an auction if there is no incentive to bid?

The next two weeks will be fun to watch.