Monday, August 02, 2010

Thailand - The proposal to convert concessions to licences presents legal and commercial challenges

[bangkok post] The hottest issue in recent weeks has been the proposal by the Finance Ministry to convert 2G mobile concessions granted by the TOT and CAT into a licence for 15 years to help the two agencies survive as the owners of the 2G network assets under the build-transfer-operate concession terms, a Thai Rath writer said.

However, the Thai Rath writer quoted the opinion of a telecom expert, who requested anonymity, that it was not easy to convert the existing concessions which run out in three, five and eight years to a new licence as both sides (AIS, DTAC, True, TOT and CAT) must all agree to amend the contracts.

Another hurdle to overcome is that under existing contracts there is no provision to extend the remaining contract terms to 15 years as it might require conforming to the Public Private Joint Venture Act 1992 and might contravene the Telecommunication Business Act 2001. The latter states that if the contractual parties agree to convert the original telecom concession and seek an operating licence from the National Telecommunication Commission, the NTC can only grant the licence to preserve the original rights and duration of the concession term.

"Don't forget that the telecom business value exceeds one billion baht [which is under the jurisdiction of the Public Private Joint Venture Act] and that extending the licence to 15 years may constitute a criminal act under Section 157 of the Criminal Code which forbids government officials from acting to benefit other parties, not the state," the expert said.

"Those who contemplate doing this must think long and hard as they might face a jail term if someone takes up this issue and files a lawsuit."

He cited the example of the Thaksin Shinawatra government which issued a regulation requiring part of the concession payment to be converted to an excise tax which was later found by the Supreme Court's Criminal Division for Holders of Political Position as not acting in the government's interests. This was the case even though the Finance Ministry imposed the tax and the regulation did not touch the concession's duration.

The expert cast doubt on whether the private operators would agree to terminate the existing 2G concession contract in return for a 15-year licence if they have to pay expensive 2G licence fees. The only exception is one mobile operator, whose concession expires in three years, who might not be able to secure financing to expand the existing 2G network as well as invest in the new 3G network as it is still in the red.

The existing mobile operators would prefer to concentrate on the new 3G network investment for which they will have to pay at least 12.8 billion baht for initial licence fees and at least 50 billion baht to expand the network in the first three years to cover at least 80% of the area as required by the NTC's terms of reference.

The expert said the proposal to convert the 2G concessions to a 15-year licence has come at the wrong time as such a complex issue should have been discussed and agreed previously. It is no good to agree to the proposal first and then thrash out the details later. The media must closely follow the issue to make sure the consumers get the most benefit from this change in concession terms.

Commenting on the coming 3G licence bid, the expert wanted the NTC to prescribe a maximum fee to be levied on consumers so they would not be overcharged. But he said the NTC should not demand that the initial licence fee bid be too high because it would place a burden on private operators and force them to pass on the costs to consumers.

"The government should not think about earning hefty fees from 3G licence bids as the state already earns 30% corporate tax as well as seven percent VAT. If the private operators earn more, the state also receives more in tax revenue," the expert said.

The NTC must prescribe that the 3G and 2G networks can interconnect (roaming) seamlessly as new 3G customers cannot use the 3G service effectively in the initial phase because of time constraints in constructing the national network.

This means 3G operators must be able to roam all 2G networks without being restricted to one particular 2G network so as to best benefit 3G consumers in terms of coverage and convenience.

As for the future of TOT and CAT, the expert did not think the organisations had many remaining options as their 2G networks will gradually deteriorate as it is well known TOT and CAT do not have expertise in maintaining network infrastructure because of their inefficient bureaucratic structures.

"Right now, both TOT and CAT have few options left to survive," he said.

"If they don't want to end up as a basket case like the State Railway, they should think about merging their organisations, dissolving or selling to the private operators.

"If they want to survive as a public corporation they must find a strong business ally to work with, otherwise the government will have to subsidise the two ailing bodies forever."

Pitfalls of 2G concession conversion
see also Thai Rath

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