Cablegate: Thai Telecoms: Finance Minister Korn's Plan to Break the 3g

VZCZCXRO0941
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHBK #0248/01 0290456
ZNR UUUUU ZZH
O 290456Z JAN 10
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9749
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHCHI/AMCONSUL CHIANG MAI IMMEDIATE 7592

UNCLAS SECTION 01 OF 03 BANGKOK 000248

STATE FOR EAP/MLS, EEB/CIP
STATE PASS TO USTR FOR BWEISEL, BKLEIN, JMCHALE
COMMERCE FOR EAP/MAC/OKSA FOR JKELLY
SINGAPORE FOR FINATT BLEIWEIS
TREASURY FOR OASIA

SENSITIVE
SIPDIS

E.O. 12958:N/A
TAGS: ECON ETRD EINV KIPR PREL TH
SUBJECT: THAI TELECOMS: FINANCE MINISTER KORN'S PLAN TO BREAK THE 3G
STALEMATE

BANGKOK 00000248 001.2 OF 003

1. (SBU) SUMMARY: The Thai government has repeatedly delayed the
auction and licensing of third generation (3G) telecommunications
services -- largely because of disagreements over how to deal with
the two state-owned telecommunications operators, TOT and CAT, and
the private providers that have concession contracts with them. TOT
and CAT collect an estimated $1.8 billion a year in concession fees
from the private mobile phone companies; how to ensure that the Thai
government will continue to see this revenue stream after the
introduction of 3G has been a primary concern and one of the reasons
for the repeated delay of the 3G auction. However, according to
several contacts in the telecom industry, Finance Minister Korn
Chatikavanij may have finally brokered a concession conversion deal
that would satisfy the various stakeholders and allow the 3G auction
to move forward. Some issues still remain however, such as whether
the National Telecommunications Commission even has the authority to
issue 3G licenses.

2. (SBU) SUMMARY CONT'D: The eventual rollout of 3G will provide
numerous business opportunities for American companies, such as
Qualcomm and Motorola, to provide equipment and services on the new
platform. Perhaps more important are the opportunities in other
sectors of the Thai economy that will also benefit from 3G,
including retail businesses, financial services, and media and
entertainment -- all areas where American companies have strong
competitive advantages. END SUMMARY.

3. (SBU) COMMENT: Concession conversion has been on the Thai
government's plate of options for many years, but no one has found
the right recipe to make a deal palatable to the various
stakeholders. Most telecom insiders have doubted that TOT and CAT
would ever agree to concession conversion terms since both would
lose their stream of revenue sharing payments and be forced to
compete with the private companies. However, several of our telecom
contacts believe that Finance Minister Korn's new plan just may work
this time. Korn first and foremost wants a level playing field that
would encourage investment in the sector. The current stakeholders,
including TOT and CAT, will likely negotiate for better terms under
Korn's scheme, but the plan should still move forward. If this
proves successful, the concession conversion, and more importantly
the eventual introduction of 3G telecom services (a feat that every
previous government has tried but failed to accomplish), will be a
major political victory for the Abhisit team. END COMMENT.

A Tale of Two Telcos
--------------------

4. (SBU) As Thailand's economy boomed in the 1980s, the two
state-owned telecommunications enterprises proved unable to meet the
country's growing demand for mobile phone services. The
Telecommunications Organization of Thailand (TOT) had provided
domestic fixed line services since the 1950s, while the
Communications Authority of Thailand (CAT) was established in the
1970s to provide international long-distance services. Beginning in
the late 1980s when the demand for cellular phones took off, TOT and
CAT struck numerous deals with private telecom companies to provide
mobile phone services on the state-owned frequencies. Today,
Thailand's three main mobile operators (AIS -- which was once one of
former Prime Minister Thaksin's companies, DTAC and True) still
depend on these arrangements (called concessions) for their business
operations.

5. (SBU) While the terms of each concession differ, the private
companies agreed to pay between 20 and 30 percent of their total
revenues to TOT or CAT in exchange for the use of the frequencies.
The private companies also agreed to install the required
infrastructure at their own expense but transfer the ownership of
these assets to TOT and CAT at the end of the concession period (as
part of a Build-Transfer-Operate (BTO) contract). The private
companies retained the rights to use the equipment for the agreed
period of time.

6. (SBU) These concession arrangements, all of which are scheduled
to expire within the next eight years, generate an estimated $1.8
billion for the state-owned TOT and CAT each year. Industry contacts
tell us that only about 10 percent of these revenues actually ends
up in the Ministry of Finance coffers however. (COMMENT: While some
of the money is used to finance the overly large, inefficient
operations of TOT and CAT, several of our contacts believe that a
significant portion of the cash lines the pockets of not only TOT
and CAT executives but probably many politicians as well. END
COMMENT.)

BANGKOK 00000248 002.2 OF 003

7. (SBU) Regardless of where the concession payments end up, this
revenue stream remains one of the major obstacles to Thailand's 3G
deployment. Government officials, as well as executives at TOT and
CAT, worry that after the private operators obtain new 3G licenses,
they will move their subscribers over to the concession-free
networks, significantly reducing the payments they make to TOT and
CAT. This loss of revenue would force the state-owned enterprises to
drastically change their business model.

Korn's Plan to Break the Stalemate
----------------------------------

8. (SBU) As Finance Minister, Korn Chatikavanij oversees the revenue
collection of the state-owned enterprises. After the government's
failed attempt to jumpstart 3G deployment in 2009, Korn began to
look for a solution to the impasse, particularly since TOT and CAT,
which are under his purview as the Ministry of Finance technically
owns the corporations, were seen as the major obstacles. In late
November, Korn told the Financial Times, "We have a legacy of
different concessions being given by different state agencies to
different people on different terms." He continued, "We want to
provide a standardization so that free and fair competition could
exist and the private sector could have a greater level of
confidence to make the kind of investments we want to see."

9. (SBU) After carefully reviewing the options, Korn has proposed a
solution known as "concession conversion" -- the basics of which
have been floated around by telecom insiders and government
bureaucrats for many years. The government, as the sole owner of TOT
and CAT, would convert the existing 2G concession contracts of the
private operators (AIS, True, and DTAC) into new 15-year licenses
with the government. TOT and CAT would also receive new licenses
themselves for mobile operations and would be allowed to compete
with the private operators (but this time on a more level playing
field). In order to maintain the previous revenue flows into the
government coffers, Korn will require all of the new licensees,
including TOT and CAT, to pay 15 percent of their total revenues to
the government as a fee or tax for the use of the frequencies. When
3G is introduced, this 15 percent fee would apply as well.

10. (SBU) TOT and CAT, which would still own the existing
infrastructure and networks because of the original BTO contracts,
would be required to permit third parties to access their assets at
equal and reasonable prices -- another decision that further levels
the playing field. With the concessions gone, the National
Telecommunications Commission would become the sole regulator of the
private and state-owned telcos.

11. (SBU) Korn tasked the State Enterprise Policy Office to draft
the specifics for the concession conversion, a process which he
hopes will take less than three months. Once the 2G spectrum issues
are resolved, the government's telecom regulator could then auction
and issue the 3G licenses to the highest bidders.

A Few Hurdles Still Remain
--------------------------

12. (SBU) In addition to the concession issues, the 3G auction has
also been delayed due to a lack of a strong, independent regulatory
authority to administer and issue the licenses. The Frequency
Allocation Act of 2000 required the establishment of the National
Telecommunications Commission (NTC) and the National Broadcast
Commission (NBC), which would separately manage the broadcast and
telecom spectrum, as well as develop regulations regarding their
use. The NTC was established in 2004, but political infighting
prevented the standing up of the NBC.

13. (U) The 2007 constitution added a new layer of confusion,
however, when it called for the establishment of the National
Broadcasting and Telecommunications Commission (NBTC), a combined
FCC-style agency that would regulate all broadcast and telecom
spectra, including the 2.1 GHz frequency for 3G. Questions then
arose as to whether the existing NTC held the authority to issue
regulations or licenses, or if the new NBTC must first be formed.
The NTC sought the opinion of the Council of State, Thailand's legal
advisory body, on its authority to issue licenses, but the Council
has not yet issued a decision. In December, the Attorney General's
Office weighed in on the matter and publicly stated that only the
NBTC should have the authority to issue 3G licenses, based on their
reading of the 2007 constitution.

BANGKOK 00000248 003.2 OF 003

14. (SBU) Even if the question of the NTC's authority is resolved
prior to the establishment of the new constitutionally-mandated
NBTC, another stumbling block is the NTC's lack of quorum. Four of
the seven commissioner seats are vacant. The government recently
nominated and approved replacements, but the required royal
endorsement was held up after corruption allegations surfaced about
two of the four candidates.

15. (SBU) On a positive note, the draft legislation to create the
11-member NBTC is currently under review in Parliament. Industry
contacts believe that the bill could be endorsed by both legislative
houses as early as June 2010. If Korn's plan for concession
conversion also succeeds, the government likely will expedite the
setup of the NBTC, allowing the 3G auction and licensing to proceed
without controversy.

Why This Matters to Us
----------------------

16. (U) U.S. businesses have been eagerly awaiting the commercial
opportunities that would come with the introduction of 3G. While no
American companies currently provide mobile phone services in
Thailand (nor have any shown an active interest in doing so),
several U.S.-based telecom equipment providers are well-established
in Thailand and will greatly benefit from 3G opportunities. Cisco
and Motorola, for example, would likely compete for contracts to
supply switches, routers, and other equipment to build out the new
3G networks. Qualcomm hopes many of Thailand's 60 plus million
mobile phone owners will upgrade to new 3G-capable phones that use
Qualcomm chips.

17. (U) Many American firms are also excited about the multiplier
effects that 3G will likely have in the Thai economy. The broadband
penetration rate is currently estimated at only 2 percent, but the
introduction of 3G services, particularly since the mobile phone
penetration rate is nearly 100 percent, will greatly improve the
population's access to broadband services. A recent study by the
London-based LECG consulting group posited that the introduction of
3G could generate economic gains of more than $9 billion over the
next five years across multiple sectors, including retail, financial
services, and media (sectors where American companies have
traditionally held strong competitive advantages). In particular, US
companies that develop software and content for mobile applications,
such as videoconferencing, internet connectivity, gaming, banking,
and advertising, will clearly benefit from the 3G upgrade. Computer
manufacturers, and firms that provide computer components such as
Intel, also anticipate a sales surge in computers, such as netbooks,
that can connect wirelessly to the internet over 3G networks.

JOHN

© Scoop Media