Thailand works to establish itself as the IT leader of ASEAN

 

Thailand is quickly going from being a secondary player in the world of technology to a regional, if not global, leader. The relevant sectors are rapidly beginning to take off with the introduction of 4G and the build-out of fixed-line assets. Greater bandwidth, higher speeds, lower latency as well as increased consumer demand have led to a burst of activity.

The country is now arguably the centre of ICT in ASEAN, with a significant percentage of regional traffic and the most active smartphone users. Meanwhile, the government is supporting technology with official policies and programmes. Its goal is to transform not only specific sectors, but also the economy, and the country as a whole (see analysis).

Legacy concerns remain, while some new issues are also coming to the fore. The country still has a number of weaknesses in terms of connectivity and the consistency of that connectivity, especially since the main operators spent a large sum acquiring 4G licences and building a 4G customer base.

Structural issues around capital formation and investment exits could also be a factor in inhibiting participation in the market. Finally, the government is indicating that it hopes to control the internet to the point where performance and flow of data could potentially be affected. As the exact nature of its oversight is still a matter of discussion, the precise level of control adds an element of uncertainty to a market that is otherwise on a clear path forward.

Regionally Strong

Thailand ranks competitively on international surveys. It came in at 82 in the International Telecommunication Union’s (ITU) 2016 ICT Development Index. That is down from 74 a year earlier, but up from number 90 in 2010. It was the only country in the region to see a fall in rank. Nevertheless, it stacked up well overall and by some measures was near the front of the pack. In the global ITU ranking, Thailand was ahead of all ASEAN countries except Brunei, Malaysia and Singapore, and was just behind China (Korea was number one). Mobile broadband penetration is the highest in the region outside of Singapore, at 52.3%. Affordability of mobile broadband measured as a percentage of average GDP is 3.11%, ahead of all countries in the region except for Malaysia and Singapore. Thailand also ranks respectably in terms of its download speeds. At 21 Mbps for fixed-internet access, it was ahead of all countries in ASEAN, except for Singapore.

Facts & Figures

Fixed broadband is still relatively expensive in Thailand. A wired connection is about 5.02% of the average GDP per capita. That compares with 2.42% in Malaysia, 2.03% in Vietnam and 0.44% in Singapore. But costs are actually lower than some regional peers. In Indonesia the affordability figure is 6.87%, while it is 8.64% in the Philippines, 14.97% in Cambodia, and 13.67% in Laos.

Thailand had an estimated 29m internet users in 2016, up from 27.4m a year earlier and 11.4m a decade before. A full 42.7% of the country is now connected. However, growth has slowed somewhat, down from double digits in 2014 and 2015. The country is home to 0.8% of the world’s internet population (which stands at 3.4bn), and is ranked 24th globally in terms of total numbers, behind Vietnam, Indonesia and the Philippines. In regards to the percentage of the total population connected to the internet, it is behind the Philippines at 43.5%, Singapore at 82.5%, Malaysia at 68.6% and Vietnam at 52%.

E-Commerce

Thailand is clearly outperforming in specific areas within the technology sector. The country was reported to have the fastest-growing e-commerce market in South-east Asia, for example. A combination of improving infrastructure and the development of numerous online retailers has led to this transformation in internet trade.

According to the Electronic Transactions Development Agency, Thailand’s e-commerce sector is expected to grow by 20% in 2017, while in the period spanning 2015 to 2025, the sector is expected to grow 16-fold. Thai consumers are extremely active online shoppers and are quick to adopt new technologies; outside of the urban centres a full 85% of the people shopping on the internet are doing so via their mobile phones (see Telecoms overview).

Purchasing Trends

At the moment, only 3% of consumers shop online, and in some ways the sector is quite underdeveloped. An estimated 50% of online shoppers purchase goods on social networks, while cash on delivery still accounts for 70% of all payments. It is also notable that e-commerce, where it is more formalised, is quite concentrated. Lazada is by far the largest shopping site in Thailand. The next two most-popular operators – weloveshopping and wemall – combined have only a quarter of Lazada’s traffic. Lazada is also active in the ASEAN countries of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. In 2016 China’s Alibaba acquired the firm in a transaction valued at $1bn.

But the sector is fast evolving. The trend has clearly been from consumer-to-consumer (C2C) to business-to-consumer (B2C) transactions, with traffic of the former dropping and the latter picking up steadily. The sector is also becoming increasingly crowded and competitive, with a number of large retail groups moving into Thailand. These include 11street, Zalora and Uniqlo. Thai companies are also becoming increasingly active in the market. Local fashion names include Pomelo and wearwhatyouwant, while the agribusiness conglomerate Charoen Pokphand Group has Shop24 and 24Catalog. Meanwhile, the Thai retail conglomerate Central Group has said that it will be spending BT1bn ($28.8m) on developing a warehouse system as well as implementing robotics to cater to the country’s e-commerce orders.

Lazada has the top C2C app, while Shoppe tops the B2C category. Other leading C2C apps include eBay, YUPIN, Taobao, Big55, Plaza, Blisby and ShopSpot. On the B2C side, top apps include Chillindo, Aliexpress, PizzaCompany, 11Street, Konvy-Cosmetic Shopping, Makra and Goxip. Amazon is number nine in the iOS B2C category. Other names include Tarad, Pramool, OfficeMate, pantavanij, ThaiSecondhand, Zilingo, foodpanda, happyfresh and Orami.

E-Payments

E-commerce is expected to be boosted by the development of Thailand’s cashless society and the establishment of e-payments infrastructure. The state has been active in promoting the relevant technology by, for example, introducing PromptPay for peer-to-peer transfers in August 2016. The system is being expanded to enable a variety of transactions which include tax payments, payment for goods and services, and welfare payments.

In 2016 Alibaba signed an agreement with the Thai government to assist it in developing its e-payments systems and support the state with other related tasks. The Chinese company will train small and medium-sized enterprises as well as individuals in Thailand to help improve the e-commerce sector. Late in the year, Alibaba’s Ant Financial unit entered Thailand. It formed a joint venture with Ascend Money, part of Charoen Pokphand Group (Ascend is now 20% owned by Alibaba). Alipay is transferring technology to the Thai company to allow it to engage in offline e-payments and micro-loans. CAT Telecom has also partnered with South Korea’s SK Telecom and NHN KCP to form the e-payment joint venture Tree Pay, which has begun operations.

Commentators predicted that 2016 would be the tipping point for e-payments as a result of the combination of the growth in smartphone sales, the strong and fast-developing infrastructure, and official efforts to promote e-payments. The government’s e-payment strategy is expected to generate savings of BT75bn ($2.1bn), with BT30bn ($845m) saved from the reduced use of cash and cheques and BT45bn ($1.27bn) from the fall in paper invoicing.

Fixed Line

According to Fitch Ratings, competition in the fixed-line broadband subsector is certain to heat up as a result of the entry of the mobile operator AIS into the fixed-line business in 2015. The company is aggressively marketing its service to gain market share, offering higher speeds than its competitors at about the same price. It is also coming into the market with FTTx technology, which should provide better connections than ADSL. AIS would like to become the number-two fixed broadband operator in the next five years. Others using FTTx technology include CAT Telecom, which currently operates the service under its C Internet brand. As of the end of 2015, True Corporation was the largest provider of fixed-broadband connections in the country, while Jasmine International’s Triple T Broadband (3BB) was the number-two provider, and TOT number three. TOT is currently losing market share to the other companies in the market.

TOT is discussing possible partnership arrangements with four foreign companies, two from China, one from Japan and another from Indonesia. The hope is that such a deal would help the company gain an advantage in the fixed broadband market.

State-owned TOT and CAT Telecom are combining some of their businesses into two new units. These are the National Broadband Network (NBN) and the Neutral Gateway and Data Centre (NGDC).

TOT is in charge of the creation of NBN, while CAT Telecom will lead on the NGDC. The NBN will use both wireless and broadband connections to bring internet access to more than 40,000 villages, while NGDC is in charge of providing the international gateway and developing data centre and cloud business.

Fitch is anticipating continued growth in fixed broadband in the country; the penetration rate is currently only about 30%. It writes that the provision of media online is a key factor driving growth.

Clouds Rolling In

When it comes to cloud solutions, advanced offerings are being introduced, but adoption was mixed at first. Individuals and small companies were the easiest to sell on cloud solutions, as they were most interested in keeping costs down. However, large enterprises have become more accepting of the technology in recent years, especially in the face of the economic slowdown.

Thailand’s IT infrastructure spending grew by 3.9% in 2016 to BT400bn ($11.3bn). It is expected to reach BT500bn ($14.1bn) by 2020. Cloud computing outperformed expectations, growing by 16% in 2016. Most growth is coming from infrastructure as a service (IaaS) offerings as companies retire existing systems to use services hosted in the cloud.

At present, however, Thailand ranks poorly in terms of cloud services in the Asia Cloud Association’s Readiness Index. It was number 10 out of 14 countries in the survey, with Hong Kong in the top spot and Vietnam coming in at the bottom. Commercial operators are increasing their cloud offerings. AIS aims to build its market share based on the fact that so many individuals and companies in the country use its network to connect with the internet. Additional providers of cloud services include CAT Telecom, Internet Thailand, True Corporation, CS Loxinfo and NTT Communications. Due to its strength in international connectivity, CAT Telecom is focused on carrier-neutral data centre services to serve carriers and global content providers. It currently operates six submarine cables with a total capacity of 10 TB.

Government Push

Official efforts are also supporting cloud computing. In early 2017 the Bank of Thailand issued a notice allowing the use of the technology by financial institutions in the outsourcing of services. Thailand is now one of the few jurisdictions in the region that permits this.

A major concern in the sector is that computers in Thailand are infected with Trojans, worms and viruses at a higher rate than in the rest of the world, and that the offending code sits undetected for longer in comparison to the global average.

In 2016 the government reversed its plans to have its own data centres and require migration to them. Instead, it is promoting both public and private data centres. The government will limit its role mainly to setting standards for the data centres, though The Electronic Government Agency (EGA) said it will be building its own centres. It is expected that the migration of government agencies and state-owned enterprises to publicly or privately owned data centres will encourage further growth in this area, helping to position Thailand as a centre for cloud services in Asia. Suroj Lamsam, president and chairman of the management board of Loxley, told OBG, “The government is in the process of adapting to an age where investment in ICT services is a necessary endeavour, rather than just the purchase of new hardware and equipment. It has, however, done well in supporting the private sector to adopt new technology.”

Money Business

Financing for IT is fast developing, with total funds raised for relevant investments up 100-fold over the last four years. Support is active and varied. The National Innovation Agency and CAT Telecom have engaged in a collaboration entitled the IoT City Innovation Centre, to promote startups by providing incubation facilities. DTAC operates Accelerate, which provides $15,000 to $400,000 in funding. It has supported 21 start-ups in a four-year period. Siam Commercial Bank, Kasikornbank and Bank of Ayudhya are funding fintech developments. Ananda, a real estate developer, is opening a venture capital firm, Ananda Urban Tech. The fund will target other funds and investments that are developing solutions for urban living. Shift Ventures has formed a club designed for start-up angle investors, while Google held a start-up bootcamp in Thailand in early 2017.

The Stock Exchange of Thailand is forming a special marketplace designed specifically for start-ups. The hope is to have it up and running in 2017. Companies will not be required to have any history of performance; they can list from the day of their formation (see Capital Markets chapter). The government is hoping that start-ups will help boost the economy as the country moves from being a manufacturing centre to an economy that is more knowledge based.

Thailand would like to increase the number of start-ups to 10,000 by 2018 and is making BT20bn ($563.4m) available for these new companies.

Regulatory Changes

In 2016 the Information and Communication Technology Ministry was renamed the Ministry of Digital Economy and Society. The agency is responsible for the management of a number of public bodies including: the National Statistics Office, the Electronic Transactions Development Agency, the Thai Meteorological Department and Thailand Post. The National Disaster Warning Centre was moved to the Ministry of the Interior. Additionally, two new agencies were formed: the National Digital Economy Committee, the Electronic Government Agency and the Digital Economy Promotion Agency (formerly known as the Software Industry Promotion Agency). In early 2016 a 20-year Digital Development Plan for Economy and Society was published by the government. It called for not only the development of relevant “hard” infrastructure, but also for steps to be taken to transform Thailand into a more digital society. The government plans to introduce or amend a wide range of legislation in pursuit of digital development. These laws will cover everything from electronic transactions to personal data.

Thailand’s Computer Crime Act is set to become law in 2017. The act will tighten control over the internet. Some critics say that it is too broad and will limit freedom of expression, allowing the government to punish anyone whose activities on the internet are considered likely to cause perceived damage to the public. However, strong cybersecurity is seen as being a vitally important part of the country’s overall technological development.

The Electronic Transactions Development Agency is working with IT solutions provider NEC on improving cybersecurity in the country. Government employees have been receiving relevant training from the Japanese IT company. The focus is on preparing systems administrators for attacks on their networks.

Outlook

Thailand is setting the stage to establish itself as the ICT centre of the ASEAN region. While that role has traditionally been played by Singapore, the reality is that Thailand is continuing to rapidly develop technologically, making it more likely that it is set to become the centre of gravity for the IT sector in South-east Asia. Whether the country can take advantage of that shift depends largely on government policy. If the authorities can control the internet without overly burdening its users, while at the same time providing the right incentives and proper environment for tech companies, the IT industry will thrive. If Thailand pursues security at the expense of establishing more far-reaching connectivity, and if it fails to address certain taxations, immigration and company formation issues, the technology sector’s development could very well fall short of its potential.

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The Report: Thailand 2017

ICT chapter from The Report: Thailand 2017