While still facing a degree of regulatory uncertainty in 2011, the telecoms sector continued to expand rapidly during the course of the year, backed by strong demand for voice and data services. By the close of 2011 voice penetration had reached 15% in fixed-line (9.8m subscribers) and 109% in mobile (73.7m), according to the Ministry of Information and Communication Technology (MICT).
Yet Thailand still lags behind its regional peers in its telecoms and IT infrastructure, falling 12 places in one year to 47th in the World Economic Forum’s 2011 Network Readiness Index. Similarly, Nokia Siemens’ 2011 Connectivity Scorecard ranked Thailand 11th of 25 countries, ahead of China and India but behind Brazil and Russia. However, these rankings could improve in the coming years as the market continues to liberalise and high-speed mobile data services become more widely available.
ROLE OF THE GOVERNMENT: Despite keen interest from private investors, the sector remains dominated by two state-owned enterprises (SOEs): the Telephone Organisation of Thailand (now TOT), established in 1954 to develop and manage the domestic telecoms infrastructure, and the Communication Authority of Thailand (now CAT Telecom), set up in 1976 to run the international gateway. Both were corporatised in 2003, yet they remain under the supervision of the Ministry of Finance and are the only two spectrum licence-holders.
In contrast to international trends, the Thai SOEs have continued to control the wireless spectrum and hold quasi-regulatory powers while at the same time competing as operators. “The corporatisation process for the two SOEs has only progressed in fits and starts,” Robert Fox, the chairman of the Information and Communications Technology (ICT) Group at the Joint Foreign Chamber of Commerce of Thailand (JFCCT), an umbrella organisation for multiple Thai-foreign chambers or business associations, told OBG. “They haven’t had the opportunity to evolve.”
TOT controls 17.5 MHz bandwidth capacity at the 900 MHz frequency until 2015 as well as 15 MHz capacity at the 2.1 GHz frequency (the international-norm spectrum for 3G services) until 2025. Indeed, TOT remained the only firm with a licence for 3G 2.1 GHz spectrum at the start of 2012. CAT, meanwhile, holds a back-to-back licence for 75 MHz bandwidth at the 1800 MHz frequency and one for 25 MHz capacity at the 850 MHz frequency.
PRIVATE SECTOR PLAYERS: In a bid to cope with overwhelming growth in mobile demand, the two SOEs granted concessions to private operators in the 1990s, agreements that continue to underpin 2G services to this day. Today, three private sector players account for roughly 98% of the market. Two of these – Advanced Info Service (AIS) and Total Access Communication (DTAC) – are part-owned by foreign telecoms giants, while the third (and smallest) – True Corporation – is a 64.7%-owned subsidiary of Charoen Pokphand (CP) Group, Thailand’s largest agro-industrial conglomerate.
As of early 2012, True had 18.5m subscribers (equivalent to about 24% of the market), DTAC 23.2m (30%) and AIS 33.5m (44%). The two SOEs also compete with their concessionaires, CAT directly on a code division multiple access (CDMA) 800 network and TOT through its now insignificant joint venture with CAT on ThaiMobile’s GSM 1900 network, which covers an estimated 100,000 (mostly inactive) callers.
AIS is controlled by InTouch (known as Shin Corporation until 2011), which also owns the kingdom’s sole satellite operator, Thaicom, internet service provider (ISP) CS Loxinfo and mobile operations in Cambodia and Laos. Since 2006 Singapore’s sovereign wealth fund Temasek has held a controlling stake in InTouch, while Singapore-based service provider SingTel holds a 19.2% share in the company. Meanwhile, the main shareholder of DTAC is Telenor Asia, which owns about a third of the operator and is a subsidiary of a Norwegian telecoms firm.
LEASES: TOT has leased all of its 17.5 MHz bandwidth of 900 MHz spectrum to AIS in a contract that runs to 2015 and plans to contract mobile virtual network operators (MVNOs) for its 2.1-GHz 3G network. CAT has leased 12.5 MHz bandwidth of its 1800 MHz frequency to Digital Phone Company (DPC), a subsidiary of AIS, to 2013; 50 MHz to DTAC until 2018 and 12.5 MHz to True until 2013. CAT also wholesales 15 MHz of its bandwidth on the 850 MHz CDMA frequency to True’s RealMove ( formerly owned by Hong Kong-based Hutchison Telecom) and has a non-commercial concession for the remaining 10 MHz of bandwidth to 2018 with DTAC.
Existing 2G concessions are structured on a build-transfer-operate (BTO) basis as part of contracts signed at different times during the 1990s, whereby private concessionaires raise capital and build the mobile network, transfer ownership to the relevant SOE, operate the service commercially and share revenue at a level between 20% and 30%. TOT applies a revenue sharing split of 20% on AIS’s prepaid business and 30% on its post-paid revenue, producing an aggregate split of 24.7%, according to the operator. Meanwhile CAT Telecom applies 25% (after deducting the access charge) on its concessions with DTAC and True. In addition, all operators have been required to pay an interconnection charge of BT1 ($0.03) per minute since 2007. This amount is roughly in line with the fees that prevail in Thailand’s regional peers, higher than the BT0.7 ($0.02) per minute charged in the Philippines but lower than the BT1.05 ($0.03) charged in Malaysia.
ACQUISITION ACTIVITY: The smallest of the big three operators, True, seemed the most aggressive in expanding its market share when, in January 2011, it acquired Hong Kong-based Hutchison Telecoms’s Thai CDMA operations, thereby effectively extending the company’s concession term from 2013 to 2018. Despite concerns that the acquisition may have breached the Broadcast and Telecommunication Frequencies Allocation and Regulation Act (the Frequency Allocation Act) and the Private Participation in State Undertaking Act, which requires appropriate scrutiny for large public-private partnership projects, the deal was approved within weeks with only minor amendments by the then-regulator, the National Telecommunications Commission (NTC).
DTAC reacted by pushing for a ruling by the Central Administrative Court on the full scope of its complaint. This prompted retaliation from True, which asserted that the Norwegian-linked operator contravened curbs on foreign ownership. The MICT reopened the case in March 2012 based on these concerns, raising fears that the deal would be repealed. The friction between the two companies likely stemmed from differing concession maturities and a desire to gain a first-mover advantage in the roll-out of their 3G networks.
NATIONAL COVERAGE: Fixed-line service remains an important component of the nation’s telecoms infrastructure, with 38% of households connected to one of the three fixed-line operators. State-owned TOT has 6.6m subscribers nationwide, but two private sector firms also offer this service. TrueOnline, a subsidiary of True, operates in the greater Bangkok region, with its roughly 2m subscribers making it the second-largest fixed-line operator. TT&T, part of the Loxley Group linked to KasikornBank, provides coverage for all areas beyond the capital, reaching 1.2m clients. Both private operators have BTO agreements with TOT that require them to pay a portion of their revenue to the SOE, with TT&T paying 44% and TrueOnline 16%. Growth in fixed-line penetration is now slowing, but a government effort to bridge the last mile of broadband connectivity will likely increase penetration (see analysis).
Meanwhile, the mobile phone penetration rate is higher. The market reached full penetration (defined as 100%) in 2010, although multiple SIM card ownership stands at around 35%, according to operator AIS. As of November 2011, approximately 90% of mobile subscribers (64.3m) were prepaid while the remaining 10% (7.3m) held post-paid contracts, with the former generating 71% of revenue, data provided by the National Broadcast and Telecommunication Commission (NBTC), the sector’s regulator, show.
FINANCIALS: Voice revenue grew strongly in 2011, mainly due to the improved economic confidence that prevailed in the country until the flooding in the fourth quarter. Meanwhile, revenue from non-voice services, which reflects the estimated 12m subscribers accessing the internet on their mobile phones, also increased significantly, reaching BT35.2bn ($1.1bn) in value in 2011, up some 35% on BT26.2bn ($834.1m) during the prior year. Still, voice remains dominant in both volume and revenue terms. As of early 2012, telecoms revenue was split 53% on mobile voice, 21% fixed data, 15% mobile data and 11% fixed voice, according to the MICT.
Average call rates have followed a downward trend, although the prices of individual providers have varied, with some rising and others falling. While DTAC’s and True’s average call rates rose, from BT0.66 ($0.021) a minute in 2010 to BT0.76 ($0.024) in 2011 for the former and BT0.66 to BT0.67 ($0.021 to $0.0214) for the latter, AIS’s fell from BT0.71 to BT0.54 ($0.023 to $0.017). However, the NBTC is moving to cap voice call tariffs in 2012 at BT0.99 ($0.032) per minute for domestic calls.
REVENUES: With continued expansion in voice traffic and strong growth in data usage, average revenue per user (ARPU) has remained resilient, making Thailand an attractive market despite the lack of regulatory clarity. AIS’s blended ARPU, which includes prepaid and post-paid customers, rose to BT252 ($8.04) per month in the fourth quarter of 2011, from BT243 ($7.75) a year earlier. True, however, saw a drop in ARPU from BT105 ($3.35) in 2010 to BT101 ($3.22) a year later. DTAC also saw a slight drop in blended ARPU, from BT271 ($8.65) in the fourth quarter of 2010 to BT269 ($8.58) a year later.
Nonetheless, DTAC’s earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 6.3% to BT27.3bn ($870.87m) between 2010 and 2011, while AIS’s EBITDA increased by 9.5% to BT56.6bn ($1.8bn) over this same period. Meanwhile, True’s figure dropped by 7% to BT17.1bn ($545.5m) due to higher costs associated with the launch of TrueMove H, the operator’s new high-speed data network.
But the NBTC expects the value of telecoms data services to reach $7.2bn in 2012. “Mobile data growth creates attractive opportunities for foreign investment and bright growth prospects for the telecoms industry, based on converging technology,” Thares Punsri, the chairman of the NBTC, told OBG.
THE LATEST GEAR: Despite some early attempts at operator-subsidised handsets in the late 1990s, Thailand largely remains an unsubsidised personal device market, leaving the cost of buying handsets with consumers. “Thailand is not an operator market, it is an open market, a retail market,” Nattawat Woranopakul, the country manager of handset brand HTC Thailand, told OBG. Moreover, this is not likely to change, according to Adisak Sukumvitaya, the CEO of Jay Mart, a mobile phone retailer. “The operator-subsidised model for handsets is unlikely to take off in Thailand. Although this was tried in the 1990s, the level of non-performing loans in this segment makes it unattractive for both handset vendors and operators,” he told OBG. This is true even for the corporate segment, although some limited discounts are available for bulk purchases.
According to estimates provided by Jay Mart, the lower segment of handsets, i.e., those costing less than BT4000 ($128), accounts for roughly 60% of the total market, while the higher end, priced above BT10,000 ($319), has reached 10%. While Nokia has conceded market share in the middle segment to Apple and Blackberry in the past two years, it remains dominant in the basic handset market, recording over half its sales in provincial markets. Meanwhile, its competitors achieve most of their sales in the greater Bangkok region, which accounts for about half of the market, according to Jay Mart.
Less expensive Chinese-made handsets, such as those from ZTE and Huawei, saw a surge in sales in the lower price ranges – between BT3000 ($96) and BT7000 ($223) – during the economic slowdown of 2009, as did counterfeit phones. Yet brands like Nokia recovered in this segment in 2010. “Within a few months, consumers reverted to international brands, disappointed with the service offerings and after-sale service of the Chinese products,” Shumit Kapoor, the general manager of Nokia Thailand, told OBG. Maintaining its strong lead in the BT5000 ($160) to BT9000 ($287) segment, the Finnish company is increasing its nationwide reach through third-party vendors and has been aggressively targeting regional centres like Chiang Mai and Phuket since 2010.
SMARTPHONES: As the mobile market has reached near-saturation levels, handset vendors have increasingly focused on higher value-added hardware, and despite the limited provision of 3G services in Thailand, smartphone sales have done quite well in recent years. For example, according to research firm IDC, the smartphone market grew by 100% year-on-year (y-o-y) in 2010 and 200% in 2011, with about 3m units sold in the latter year.
Growth is expected to continue, with IDC projecting that smartphone sales will reach 6m units in 2012. Similarly, the NBTC expects that smartphones will account for half of the market – 5.6m handsets – by the end of 2012. Early 2012 results show sales at a slightly slower pace. For example, according to market research firm GfK, during the first quarter of the year, 758,000 smartphones were sold, a rise of 80% over the same period in 2011.
While the subsidised hardware model as practiced in some markets such as the US has not caught on in Thailand, since 2010 operators have bundled handsets with service plans for 3G-capable smartphones such as Blackberries and iPhones, offering the hardware at a small discount to what a consumer might otherwise pay at a retailer. According to JFCCT’s Fox, use of this model is logical for smartphones. “Blackberries are already so linked to the operator through Blackberry-specific service plans that it makes sense to do this kind of bundling,” he said.
LEGAL FRAMEWORK: Smartphone sales have been picking up, but Thailand has generally lagged behind its peers in meeting demand for high-speed mobile data services. This has been in part due a system of concessions that discourages investment by operators, as well as a shifting regulatory landscape that may have created some confusion in the market.
Major legal changes over the past decade or so include the 2001 Telecommunications Business Act, which led to the creation of the MICT in 2002 to oversee TOT and CAT Telecom and the establishment of the NTC in 2004 as a regulator. One of the aims of this legislation was for the concession contracts to be converted into a system of licences held by a regulator, but the SOEs resisted transferring the 2G concessions to a regulatory body for fear of losing concession fees. This challenge has continued until today, with various models for corporatising the two SOEs still being debated. These range from merging the two (a move resisted by TOT) to spinning off assets into commercially viable entities, leaving them to act as infrastructure providers. This now seems the most likely evolution for the public companies, in part because the SOEs are allowed to deduct universal service obligation (USO) project costs from the concession fees they pay to the regulator under the 2010 Frequency Allocation Act, creating an incentive for the SOEs to invest in infrastructure.
Resistance to change by the SOEs was perhaps most apparent in the lead-up to the auction for 3G licences that was originally scheduled for September 2010. Just days before the auction, the Supreme Administrative Court issued an injunction suspending the event on behalf of CAT Telecom, which had previously filed a petition challenging the legitimacy of the NTC’s auction. The court agreed with the SOE, finding that then-regulator NTC lacked the authority to hold the auction, pending the formation of a new regulator – the NBTC.
NEW REGULATOR: The NBTC’s legislative history can be traced back to the 1997 constitution, which mandated the formation of an independent regulator for TV and radio, but this organisation was never created. The 2007 constitution similarly called for a single regulator covering both telecoms and broadcast media. Then, under the 2010 Frequency Allocation Act, the NBTC was identified as this regulatory body, but it was not formed until mid-2011.
Investors have long sought a strong regulator, particularly one independent of both state and market players. The 2010 Frequency Allocation Act requires the NBTC to follow government policy and report regularly to the Senate. The JFCCT has added a call for the NBTC to make decisions for the good of the industry as a whole, taking a longer-term view to support its development. Yet the 11 members of the commission (five from broadcast and five telecoms, plus a chairman) does not include any independent directors. This has cast some doubt over the regulator’s full independence.
Moreover, while the 2010 Frequency Allocation Act allows the newly formed regulator to reallocate available spectrum, the organisation has proceeded cautiously, studying options for selling concessions back to the concessionaires or developing 3G and 4G networks through TOT and CAT Telecom.
The NBTC nonetheless intends to move forward with 3G licensing by the third quarter of 2012. For the operators that win a licence, they will also be required to pay various fees, the details of which the NBTC has published. More specifically, they will pay a flat 2% licence fee and 4% in USO to the NBTC, alongside the BT1 ($0.03) per minute interconnection charge. Operators are also liable to pay a BT2 ($0.06) charge per number per month to the regulator.
MASTER PLAN: The regulator has realised that a key prerequisite for efficient licensing is to open up and rationalise the map of existing frequency allocation, categorised up until now as a military secret not subject to freedom of information requests. The NBTC justified its push to issue a frequency master plan in the first half of 2012 as a necessary step in preparing the planned 3G licence auction. A five-year spectrum-management master plan (including the 3G-capable 2.1 GHz and the 4G-capable 2.3 GHz and 2.5 GHz) was passed in March 2012.
One key challenge in this process has been the lack of visibility on ownership of frequencies and the reasons for holding them. A first step, mandated by the 2010 Frequency Allocation Act, is for the regulator to detail all frequencies held by over 300 state agencies, including the army and state-owned broadcaster MCOT. The NBTC is then expected to require the return of those spectra not covered by concession or rental contracts within five years for radio, 10 years for TV and 15 years for telecoms – in order to reallocate them in a transparent fashion.
FOREIGN OWNERSHIP: Under the framework agreement with the ASEAN community, December 2010 was meant to be the date when all services sectors would be liberalised and opened to at least 51% foreign ownership. While encouragement for further liberalisation of the ICT sector has come from think tanks such as the Thailand Development & Research Institute, which has stated the sector is ready to compete freely, pressure grew in 2011 to enact further rules on limiting foreign control in telecoms.
Indeed, the Foreign Dominance Act, passed in August 2011, expanded limits on foreign control beyond ownership to non-financial indicators such as nationality of executives, clients, financial backers and so forth. While its supporters maintain the act only enforces existing curbs on foreign control, the measures taken together have elicited concern among foreign investors. This has created an impression that the environment has become even stricter for foreign businesses in the Thai telecoms market, although this could still be reversed should a system of 3G licences be established in 2012.
SHIFTING SPEEDS: While legal wrangling may have delayed the 2.1Ghz 3G auction, mobile operators have not waited to upgrade their network speeds. In October 2010, following the cancellation of the auction, the MICT and Ministry of Finance re-empowered the two SOEs to develop their own 3G networks. “The rationale from the Ministry of Finance was that the market was demanding 3G now and this was the only means to deliver it,” said JCFFT’s Fox.
Indeed, pockets of 3G-coverage on other frequencies have been developed over the past few years, first by True on a non-commercial trial basis mainly in central Bangkok, Chiang Mai, Pattaya, Hua Hin, Phuket and Samui. In 2011 the three major operators started rolling out commercial services on the high-speed packet access (HSPA) 850 MHz frequency in Bangkok as well as seven provinces. “Investments in the telecoms infrastructure are increasing due to the move towards 3G and HSPA,” Thares told OBG.
Investments include AIS’s decision to upgrade its 900-MHz universal mobile telecommunications system base stations in July 2011. The operator runs close to 16,000 2G cell sites nationwide offering EDGE data connections, 1800 HSPA cell sites in major cities that handle its 3G network, and over 50,000 Wi-Fi hotspots in urban areas. AIS also invested BT10bn ($319m) in 2011 to upgrade its nationwide EDGE network and expand data capacity, BT2.5bn ($79.75m) of which was invested in developing the operator’s 3G 900-MHz network.
The True-Hutchison deal also included the latter’s network leasing subsidiary BFKT, which supplies network infrastructure to CAT. In January 2011 six contracts were signed with True subsidiaries RealFuture and RealMove to launch commercial 3G services on the newly acquired and upgraded HSPA network. True subsidiary BFKT supplies the network to CAT, which then on-leases capacity to True through its subsidiary RealMove, an MVNO. True then rolled out its new 3G service TrueMove H to around 800,000 customers later in 2011, intending eventually to migrate 4m of its 2G customers to the new service. In 2012 True invested some BT15bn ($478.5m) to expand its 3G capacity on the 850 MHz frequency.
DTAC first requested CAT’s approval to upgrade its 1G AMPS network to a 3G-capable HSPA network on the 850 MHz frequency in 2007, but was only allowed to proceed in 2011. It announced plans in January 2012 to spend BT15bn ($478.5m) on the planned 3G licence auction and BT25bn ($797.5m) on upgrading its 3G network on 850 MHz and 2.1 GHz frequencies, the latter once licences are awarded. The operator expects to expand its data services to 940 districts, with upgrades of 1100 towers on 850 MHz by 2013. It will also be testing its 4G network on the 25 MHz of unused bandwidth, part of its concession for 50 MHz on CAT’s 1800 MHz frequency to 2018, following approval from the NBTC in the first quarter of 2012. CAT launched its own mobile network on its 850 MHz spectrum in January 2011, under the name My 3G and plans to invest BT20bn ($636m) over five years to cover 60,000 users by the close of 2012. TOT aims to develop network infrastructure under 3G and 4G, which it would then lease to MVNOs. This should provide space for entrants, either foreign or local, into the domestic telecoms market by reducing market entry barriers such as high upfront infrastructure investment costs.
Regional MVNO operators such as Air Asia’s Tune Talk have been eyeing the market, awaiting the full roll-out of TOT’s 3G network. However, a setback in TOT’s 2.1 GHz product arose in January 2011, when the SOE launched a procurement auction for 3G equipment, a process contested by ZTE and Ericsson for irregularities. TOT announced in late 2011 its intention to lease the AIS 3G network for BT1bn ($31.9m) to 2015 to expand its own network.
EQUIPMENT: Such investments in the telecoms backbone are welcome news for network equipment vendors on the Thai market. While Huawei stands as the biggest beneficiary of procurement rounds in recent years with the most aggressive pricing strategy, Ericsson is a close second. ZTE has lagged Huawei in landing large-scale deals in Thailand, while Alcatel-Lucent has faded from the scene over the past five years. On the services side, IBM has consolidated a particularly strong stance, holding the network management contract for part of True’s network, for instance.
The market is meanwhile testing 4G networks in the capital, potentially leapfrogging the stalled 3G process in coming years. In December 2011 the NBTC approved a joint application by TOT and AIS to trial a 4G LTE network on 20 MHz of TOT’s 2.3 GHz frequency. The two companies upgraded 84 cell sites in Bangkok for the three-month trial from February 2012. The NBTC has indicated its willingness to extend similar trial approvals on 4G to CAT.
CONNECTED TO THE WORLD: Thailand’s international gateway capacity has been partly liberalised. CAT Telecom, which historically held a monopoly on the country’s international gateway, has been joined by TOT, which is allowed to provide capacity in contiguous states (meaning mainly Malaysia).
Although international carriers have expressed interest in obtaining landing rights for Thailand, no new entrant has yet disrupted CAT’s historic dominance on the gateway. Bandwidth pricing for international traffic remains relatively expensive by global standards aside from that passing through Malaysia, meaning that an increasing amount of traffic has passed through TOT connections. Thailand currently has 207 GB per second transit bandwidth capacity, similar to that found in the Philippines (222) and Vietnam (186) but far below Malaysia (396) and Singapore (1385), according to True.
Meanwhile a single company, Thaicom – part of InTouch – manages Thailand’s satellite system under a 30-year concession granted in 1991 and covers 14 countries in Asia-Pacific. The firm currently operates two orbital satellites: conventional satellite Thaicom 5 (T5), which runs on the 25 C-band and 14 KU transponders, and Thaicom 4 (known as IPSTAR), the first satellite to fully support internet protocol telecommunications. The operator is planning on launching two new conventional satellites, Thaicom 6 and 7 in mid-2013 and early 2014 respectively, to add to the saturated capacity of T5.
T5 carries a total of 440 TV channels to around 1.14m domestic subscribers (and more internationally) as of 2012, according to company reports. IPSTAR has especially driven growth in the company. The satellite’s capacity utilisation is expected to increase from about 25% to over 32% by the end of 2012 (above the breakeven point of 28%), driven by growing broadband use in India, Malaysia, Myanmar and Japan. While initially focused on retailing bandwidth, Thaicom has shifted its strategy in the past few years to focus more on wholesaling bulk bandwidth and providing higher value-added services to telecoms and media companies.
OUTLOOK: Despite the slow evolution of the two SOEs and eager anticipation of the planned 3G licence auction, upgrades on existing concessions will improve network quality in 2012. The demand for data services is likely to be met by pricing competition for data packages, as an increasing number of Thais stay connected. The newly established regulator is under some pressure from operators to hold the planned 3G licence auction on schedule to facilitate the needed investments in the nation’s high-speed data infrastructure.
While a number of unknowns remain, such as the future of the True-Hutchison acquisition, it seems likely that the frequency allocation system will be rationalised and a uniform system of 3G licences rolled out. Although some obstacles have slowed this process in recent years, pressure to be competitive as Thailand moves to integrate further with its neighbours will force a shift towards freer competition and a level playing field, hopefully in 2012.