Thailand
By Edward K Strauss & Paniti Junhasavasdikul
First Bangkok Law & Practice Ltd

The passage of the Telecommunication Business Operation Act in late 2001 led to an expectation that major changes would occur in 2002 in Thailand's telecommunications industry. It was hoped that a granting of operational licences to both the Telephone Organization of Thailand (TOT) and the Communications Authority of Thailand (CAT) would place these institutions on an equal level with other private companies. Unfortunately, political and bureaucratic wrangling has delayed a necessary restructuring of the Thai telecom industry, which will discussed in greater detail below.

On a more positive note, the mobile telephone sector in the past year continued its rapid expansion. The number of users more than doubled during the year with market penetration levels increasing from 12% at the end of 2001 to about 26% this year. This is quite remarkable given that fixed-line penetration in Thailand is only about 6%. Heightened competition in the industry has led to a significant decrease in the cost of mobile telephone handsets, especially after the decision of market leader Advanced Info Services to unlock its network access lock in order to permit any handset to access its network (assuming that the proper SIM card has been installed). This decision was made in response to a similar announcement by its competitors, including DTAC and TA Orange.

Other telecommunications activities including fixed-line access, internet and broadband developments saw only limited growth. As a result, Thailand continues to lag behind other countries in terms of innovation, service and cost in these areas.

Some progress has been made on establishing the criteria for converting the various concessions granted by both TOT and CAT in anticipation of the liberalization of the Thai telecommunications industry in 2006 in compliance with the country's WTO agreements. In mid-December, the newly established Ministry of Information and Communications Technology (ICT Ministry) announced that it expected to conclude a "framework for telecommunications concession contracts" before the end of the year. A major reason for this effort is the government's desire to be able to publicly offer TOT shares during early 2003, which is impossible unless the concession issues are clarified.

Government Institutions Involved in Telecommunications

Ministry of Information and Communications Technology
Under the Bureaucratic Reform Bill approved in October 2002, the ICT Ministry was established to replace the Ministry of Transport and Communications as the government body responsible for telecommunications. This new ministry now has direct control over not only the Post and Telegraph Department, but also the established governmental telecommunications companies, including TOT Corporation (formerly the Telephone Organization of Thailand, see below) and the CAT. In addition, the government decided to expand the original planned scope of the ICT Ministry to also include three additional new agencies: the National Information and Communications Technology Office; the National Information and Communications Technology Promotion and Coordination Office; and the National Information and Communications Technology Research and Development Office. The government also plans to transfer both the Software Park Thailand and the National Electronics and Computer Technology Center (NECTEC) to the ICT Ministry. The goal of this reorganization is to combine all telecom-related policies within a single body.

Post and Telegraph Department (PTD)
Under the Frequency Allocation Act of 2000, PTD was given responsibility for organizing the management infrastructure for the operation of both the National Broadcasting Commission (NBC) and the National Telecommunications Commission (NTC). It is still awaiting its implementation pending final organization of each of these commissions.

Telephone Organization of Thailand
TOT has monopolized domestic telephone services in Thailand for many years. In the past decade it has been forced to grant concessions to meet the overwhelming demand for better telecommunications infrastructure, especially in the Bangkok area. In 1991, TOT granted a 25-year concession to Telecom Asia Co. Ltd (TA) to install 2 million fixed lines within Bangkok and its neighbouring provinces. In 1992, TOT granted a 35-year concession to Thai Telephone and Telecommunication Co. Ltd (TT&T) for 1 million lines within other outlying provinces. In 2000, TA acquired a substantial portion of the business of TT&T, thus creating a private sector monopoly for these fixed lines. At present, TOT has an installed capacity throughout Thailand of about 3.5 million lines, with TA having an installed capacity of 2.6 million (only 1.9 million billable) and TT&T an installed capacity of 1.5 million (with 1.2 million billable).

TOT was reorganized into a public limited company in mid-2002 and transformed into TOT Corporation. An eight-member board of directors, initially selected from various governmental agencies, will control the company. TOT Corporation's initial registered capital will be 6 billion baht or 600 million shares at 10-baht par value. As of conversion, the new company has 270 billion baht in total assets and 83 billion baht in debts.

Throughout 2002, speculation about the public offering of shares in TOT Corporation has been rife. However, the public offering has been delayed due to the continuing controversy surrounding the organization of the NTC (as discussed below), and the uncertainty regarding a proper valuation method in view of the ultimate requirement that the company's concessions be divested. Delays also resulted from the government's announcement in February 2002 that both TOT and CAT should be merged into a single company that would then be listed; this plan was shelved however, due to legal obstacles to a merger and strong opposition from employees in both organizations. TOT Corporation initially planned to raise between 20 billion and 30 billion baht via its public offering to be used to expand its nationwide network and its new 1900-megahertz mobile phone service, which is currently undergoing a limited trial run.

Communications Authority of Thailand (CAT)
CAT has responsibilities for postal services, telex, money order services and international telephone services, paging, maritime, phone services, mobile radio services and internet services. Under the government's proposed privatization scheme, CAT is to be split into two separate private companies. One will be responsible for postal services (Thai Postal Services Ltd), while the second would assume all telecommunications activities (CAT Telecom Ltd). Although originally scheduled for completion in early 2002, the privatization is now expected to be completed in 2003.

Recent Legislative Developments

Telecommunication Business Operation Act B.E. 2544 (2001)
After several years under consideration, the Thai government finally adopted the Telecommunication Business Operation Act B.E. 2544 (2001) (Telecom Act) on November 9 2001. This Act now establishes the essential requirements for any new entity to own and operate a telecommunications business in Thailand. The passage of the Telecom Act was not without controversy. The Senate imposed a 25% limitation of foreign ownership. This caused an immediate outcry; the government has now announced, and the Cabinet has approved, an increase in the limitation to 49%. However, neither the House nor the Senate has taken any further action to revise this legislation.

Another problem is on the regulatory front. The regulatory body responsible for implementing the law, the NTC, has not yet been established. Thus, although the law has been in effect for over a year, nothing has been done to further its goals, and TOT and CAT continue to operate as before. The essential involvement of the NTC should be borne in mind when reading the particulars of the Telecom Act below.

The Telecom Act defines the basic structure for the operation of a telecommunications business in Thailand, which includes "organizations allocating frequency waves and supervising radio/television broadcasting and telecommunications businesses" (Section 4). Whoever wishes to engage in the telecommunications business must obtain a licence from the NTC and operate according to the "descriptions and categories prescribed by NTC" (Section 5). There will be three types of licences issued by the NTC:

A Type One Licence is for a telecommunications business operator who has no telecommunications network of its own, and its business will be operated free of charge. However, the business must still obtain a licence from the NTC.

A Type Two Licence is for a telecommunications business operator, which may have a telecommunications network. However, its business operations will be restricted to providing limited services to a specific group of persons, or it is an operation that will have no significant impact on the free and fair competition or on the public or consumer interest. The NTC must establish the criteria for this type of licence, and if the operator complies a licence must be issued.

A Type Three Licence is for a telecommunications business operator that has its own telecommunications network and whose business operations will provide services to a substantial proportion of the general public, or their business will have a significant effect on free and fair competition or the public interest, or there is a reason to protect consumers on a special basis.

The actual scope of business operations shall be as prescribed by the NTC, which shall be consistent with the Telecom Act. The NTC must establish not only the procedures, but also the standards for granting the various types of licences, including the qualification of the applicants, the documentary evidence to be submitted, and a time frame for consideration and approval of the application (Section 8).

Type One and Type Two Licences will be issued without any necessity for filing an application for renewal. As long as the business continues to operate, no further applications need be submitted to the NTC. However, a Type Three Licence will be subject to both a minimum and maximum period of effectiveness. Upon expiration, a renewal application must then be submitted to the NTC for approval (Section 9).

If the business operator requires a "frequency wave" to operate, the licensee must also have permission to use such frequency under the applicable law (i.e. the Frequency Allocation Act, see below). Any revocation of this right is also an automatic cancellation of the telecom licence. The licensee is also subject to the payment of fees for using the frequency wave, the telecommunications numbers and a fee for the licence itself. These fees and charges are to be determined by the NTC, subject to a requirement that the fees not be a burden on the operator or its customers (Section 11). The NTC also has absolute control over the issuance of "telecommunications numbers" according to a plan to be prepared by the NTC (Sections 12 and 13).

The NTC is further given the responsibility to make sure that basic telecommunications services are available throughout Thailand, and thus has the power to require a licensee to provide such services as a condition of its licence (Section 17). The NTC is also responsible for ensuring that the licensee of a telecommunications business operation does not undertake any monopolistic activities that may diminish or restrict competition as follows: subsidizing of services; owning businesses in the same category of service; exercising unfair marketing powers; imposing restrictions on competition; and protecting small operators (Section 21).

A licensee that has a telecommunications network must allow other licensees to link to the network, subject to the standards and procedures established by the NTC. A refusal to allow an interconnection can only be made in the case of: insufficient capacity; technical conflicts which may cause a disruption in service; and other cases allowed by the NTC. Interconnection or linking charges must be reasonable and consistent with those of other users. Any disputes or refusals are subject to appeal to the NTC whose decision shall be final (Sections 25 and 26). All contracts for interconnection are subject to specific standards set forth in the Telecom Act, and are further subject to review by the NTC. The NTC has the power to order amendments to the contract (Section 27). At present there are a number of disputes pending related to both right to interconnect and interconnection charges that involve several of the fixed-line companies and mobile operators.

As noted previously, the Telecom Act covers all aspects of telecommunications operations in Thailand. In addition to providing the framework for the issuance of telecommunications business licences, the law also establishes requirements for the NTC to prescribe technical standards for all telecommunications and network equipment. A Type Three Licensee is also required to employ qualified engineers in a number as fixed by the NTC. The NTC has the power to inspect and certify the standards used in all equipment in the telecommunications network and business. Private companies can also be established to provide such inspection services subject to approval by the NTC, including the approval of rates and charges (Sections 34 and 35).

The Telecom Act also gives the licensee the right to install the infrastructure necessary to operate its business including, for example, poles, cables, conduits and accessory equipment. Where a licensee is unable to reach agreement with a "private land owner" to install equipment on the property, the NTC has the power to require the landowner to permit the use, subject to the payment of reasonable charges as established by the NTC. The NTC also has the authority to consider and resolve complaints filed by service users, including objections regarding fees and charges.

The licensee cannot restrict its customers from connecting their own telecommunications equipment in order to receive services, subject to the requirement that the licensee can establish technical standards for such connection. Any contracts between the licensee and its service users must be approved by the NTC (Section 51). The law anticipates that the NTC will issue regulations prescribing a standard form of contract and conditions concerning the provision of telecommunications services, and that it may then grant an exemption from obtaining approval. The minimum contract conditions shall include: clear and fair terms concerning duties and responsibilities of the licensee and the service users; terms concerning the servicing standards of the licensee; and terms setting forth the categories and scope of fees and expenses to be charged for providing services, including a requirement that the licensee confirm that no additional expenses will be charged or collected. Further, contracts shall not contain terms restricting the utilization by service users without reasonable grounds and shall not contain terms deemed to be inconsistent with similar terms for other service users, or which are obstructive or unfair.

The Telecom Act retains the government's power to establish maximum fees and charges that a licensee may collect from service users. Thus, the NTC will have to publish the categories and maximum rates to be charged by the various types of permitted telecommunications businesses (Sections 55 and 56). The Telecom Act also prohibits a licensee from collecting advance deposits or guaranty money from its service users. As a result, a number of existing telecommunications businesses, including those operating under concessions from either TOT or CAT, refund any such deposits to customers. This has proved to be a financial burden to those companies that are currently in financial distress.

Lastly, the Telecom Act includes other sections relating to the establishment of specific powers of enforcement and penalties.

The NTC is required to issue licences to both TOT and CAT to operate their telecommunications businesses in the manner they were operated on the date the Telecom Act was enacted. In apparent anticipation of a delay in the organization of the NTC, the Act specifically provides that both TOT and CAT will continue operating their businesses as usual until the NTC grants their licences (Section 79).

An extremely important provision of the Telecom Act addresses the rights of the various companies that have received concessions from either TOT or CAT, including in particular the various mobile telephone operators. The Act specifically provides that the persons granted licences, concessions or contracts shall still be entitled to operate the telecommunications business according to the scope and rights previously granted to them, until expiration. However, the NTC will now have the authority to review and supervise such operations in order maintain free and fair competition (Section 80).

The essential problem with the Telecom Act is that it requires the immediate establishment of the NTC in order to have a regulatory body in place to implement essential terms and conditions. Unfortunately, the appointment process for members of the NTC has seen intense political disputes. In May 2001, the Senate rejected a "shortlist" of 14 candidates presented by the selection panel. In February 2002, the Administrative Court ruled that the panel selecting the NTC was unconstitutional, and thus nullified the selection process. With a further appeal to the Supreme Administrative Court, the judge advocate announced in December 2002 that the prior court's decision was correct.

Although many senior executives of the private telecommunications companies have stressed the need for the immediate establishment of these commissions, there does not seem to be any major push within the government to accelerate this process.

Frequency Allocation Act of 2000
The Frequency Allocation Act was passed in February 2000 and became effective in March 2000. It established the management structure for the development of radio, television and telecommunications businesses in Thailand, as well as the allocation and management of frequencies. The Act mandated the establishment of two commissions, the NTC and the National Broadcasting Commission (NBC) that would regulate the telecommunications and broadcasting service providers in Thailand.

The NBC will be responsible for formulating policy and a national plan with regard to broadcasting, television and radio frequencies. It will prescribe the nature and types of broadcasting activities and will grant licences for the use of radio and television frequencies. An office will be set up for the Committee to deal with claims arising from broadcasting activities.

The NTC will formulate policy and prepare the Master Plan for telecommunications and radio frequencies, and prescribe the nature of telecommunications activities. A support office will also be created to service this committee. These committees, acting as a joint committee, will jointly administer the rights to use frequency waves. As discussed above, the NTC also has primary responsibility for the implementation of the Telecom Act.

Privatization of the CAT and TOT
A primary government goal is the privatization of a range of state enterprises. After the successful public offering of the Petroleum Authority of Thailand in late 2001, it was expected that similar success would be achieved with TOT. However, the failure to organize the NTC has adversely affected this process since, as mentioned above, the NTC has the ultimate responsibility to grant a new licence to both TOT and CAT. Another problem is that the existing concessions granted by TOT and CAT are subject to possible re-negotiation and buy-out.This must be approved by the NTC since the concession holder would also be subject to NTC licensing procedures. There is nothing under the Telecom Act that requires either TOT or CAT to divest themselves of the concessions. However, this is an implicit requirement under Thailand's agreement with the WTO to liberalize its telecommunications industry by 2006 and effectively reduce the government's monopoly through TOT and CAT. As noted at the beginning of this article, the ITC Ministry has recently announced that it will undertake this task in place of the NTC. However, there is always the possibility that this will also become the subject of intense criticism and possible litigation because of the diversity of views as to the amount of money to be paid to the government for releasing these concessions and ownership interests.

The Internet and CAT
CAT has a monopoly over the right to grant licences to internet service providers (ISPs). CAT requires that 32% of the shares be issued to it as a condition for granting an ISP licence. A further 3% must be issued to CAT employees. These shares are acquired without any payment by CAT or its employees, and cause an immediate dilution of the share value of the ISP. In addition, where additional capital is required, further shares must be issued in the same proportion without any payment by CAT or its employees.

Many commentators have pointed out that these provisions put CAT in a very bad light and constitute a serious obstacle to the development of, and investment in, internet services in Thailand. After public pressure, CAT has now agreed to discuss with ISPs the buyback of CAT's ownership interest. It appears, however, that CAT will require payment at some market value, although it made no investment to acquire the interests. In late 2002, Loxley Information and CS Internet merged. These were two of the largest ISPs in Thailand. They have offered to buy out the CAT interest for about 25 million baht. At the time this chapter was written, this offer was still under consideration by CAT.

The Future
It is hoped that the controversy surrounding the selection process for the NTC and the NBC will finally be resolved such that each of these commissions will be able to begin operations by the end of 2003. In addition, the disputes regarding the concessions held by both TOT Corporation and CAT should be addressed, especially in view of the desire for the government to make a public offering of TOT Corporation during the first quarter of 2003. The economic incentive from the public offering may more than offset the potential losses to be realized from the release of the concessions.

Other areas that must be addressed during 2003 include issues of telecommunications networking as well as providing access to other foreign satellite operators to the Thai market. The eight-year exclusivity period originally granted to Shin Corporation expired recently, but until the NTC is established, there is no regulatory body in place that can issue the necessary licences for this business.