Thai regulator wrong to fix 3G auction

27 Aug 2012

A wise man once told me that many telco regulators do not understand their role. It is not that of a team manager, but one of an impartial referee.

Last week, Thailand’s telecom regulator NBTC dropped a bombshell. The 3G auction rules had been changed at the last moment because it felt that the risk of a duopoly was too high. In other words, they changed the rules at the last minute to help the third-placed operator.

It played team manager again rather than impartial referee, and showed a fundamental lack of faith in market mechanisms by simply deciding it had to fix the auctions coming up in the middle of October.

With 45 MHz up for grabs, three incumbent operators and a foreign dominance law that effectively prohibits any foreign player from entering the market, lowering the spectrum cap from 20 MHz to 15 MHz effectively renders the auction null. Now everyone expects the spectrum to go for the reserve price.

Academics slammed the NBTC as acting in the best interests of the telcos’ shareholders in removing any competition. Colonel Setthapong Malisuwan, chair of the telecom half of the NBTC, countered that an open auction may not have been in the best interest of consumers.

Setthapong argued that the risk was that the two stronger players (AIS and Dtac, though he did not specify names) would end up with 20 MHz each, while the smaller player (TrueMove) would end up with 5 MHz for the next 15 years to the detriment of the consumer.

To put it another way, he felt that TrueMove would lose out so he changed the rules so that everyone would go forward on an equal footing with 15 MHz each.

While this may sound noble, Settaphong’s logic is flawed. 2.1 GHz is not the only game in town. Five years ago, perhaps, with 3G just starting out, but today, 850 and 900 are both major 3G bands supported by contemporary handsets.

What he also conveniently forgot is that, until matters are resolved otherwise, TrueMove has 15 MHz of 850 for 3G for the next 14 years under very favourable terms. Granted, the revenue share is a bit higher than the 2.1 GHz deal (roughly 8% vs 6% on 2.1 GHz) once all the contracts are calculated, but it gets free concrete and steel from CAT which makes it a bargain.

CAT got 14 billion Baht from True, paid it back 3 billion to scrap old CDMA equipment (equipment that already belonged to CAT) and turned around and asked the ICT Ministry for 30 billion for 3G steel, concrete and backhaul. No wonder CAT’s CEO at that time is now facing corruption charges.

Setthapong also conveniently forgot about the rise of LTE. 25 MHz of 1800 MHz is expiring in September 2013 (more on that later) and 25 MHz is unused. So many new handsets and tablets are now coming out with 1800 LTE and Thailand has 50 MHz up for grabs.

Finally, Setthapong conveniently forgot about 2.5 GHz. Most of the band is currently used for digital TV broadcasting in Thailand and guess who has its toes in that pool too? TrueVisions. Last I asked, TrueMove was trying to get some spectrum transferred over to use for LTE.

Setthapong paints a picture of a market dominated by two big foreign companies and his action as patriotic and helping the small guy, the local kid. That could not be further from the truth. That local kid already is already fat on spectrum, and the chances of an AIS-Dtac dominated duopoly because of spectrum hoarding on 2.1 GHz just does not make any sense.

How long has it since he has made up his mind and has been misleading the people of Thailand by saying that the spectrum cap tweak was to encourage small new entrants to the market? How long has he been stringing along the academics and committees who have been arguing in good faith over pricing and market dynamics?

One of the 3G pricing sub-committee members told be back in March that the commissioners were impossible to work with and that they had no time for the academic who tried to get experts to come and talk about the various benefits of different auction formats.

Anyway, the decision has been made. All the telcos are happy at saving lots of money and TrueMove is very happy to see the chair of the telecoms half of the NBTC bend over backwards and take all the flak for them.

As Soviet-style centrally planned markets go, it is not a total disaster of a plan, but it feels like a fixed match; like watching professional wrestling where it has all the trimmings of a real sport but is in fact a carefully scripted show for television audiences.

The only remaining joker in the pack is CAT Telecom. The state owned telco has been flexing its muscles a lot last week, and ICT Minister Anudith Nakornthap has come out saying that the 25 MHz of 1800-MHz that is expiring next September should be returned to CAT and not to the regulator for re-farming.

The concessions were signed between what was the Communications Authority of Thailand and TelecomAsia-Orange (now TrueMove) and DPC (now AIS). Since the communications authority has been corporatized in August 2003 into CAT Telecom and Thailand Post, half the people believe that as state domain assets, the concession revenue and spectrum should be decoupled and returned directly to the state (be it NBTC or Ministry of Finance). The other half think that CAT Telecom is the Communications Authority of Thailand and as such have access to all the concession revenue (which CAT uses to subsidise its other loss-making operations) and, like the ICT Minister, to the spectrum once it expires.

Correction, 99% of the people do not have a clue. Half of the 1% who do have an opinion think that spectrum should be returned to CAT and the other half think it should be returned to the regulator.

The frequency allocation act of 2011 specifically says that expiring spectrum is to be returned to the NBTC for re-allocation.

However, politics being politics, word has it that unless CAT gets the 1800 MHz it wants somehow, it will throw a tantrum and tie up the 2.1 GHz auction in legal action again. Back in 2009 it was CAT that carpet-bombed the courts with requests to have the 3G auction cancelled and one of them hit home (that the law stated that a frequency master plan was needed before any auction).

The next few weeks will be fun to watch indeed.

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