Thailand: Cut-price 3G auction

The sale of nine 3G licences in an auction in mid-October raised Bt41.6bn ($1.35bn) for Thailand’s National Broadcasting and Telecommunications Commission (NBTC), heralding the long-awaited introduction of more advanced data services in the telecoms industry. There are concerns, however, that the bandwidth prices were set too late and will not encourage competition among providers.

The licences were sold to the three largest telecoms firms – Advanced Info Services (AIS), Total Access Communication Public Company (DTAC) and True Move. AIS won 15 MHz of bandwidth with a Bt14.63bn ($475.45m) bid, while the other two firms won the same amount of bandwidth with bids of Bt13.5bn ($438.73m). The bandwidth was offered in nine blocks of 5 MHz, each set at a minimum price of Bt4.5bn ($146.24m). AIS, therefore, paid a small premium for its 15 MHz, while the other two companies bought their shares at the minimum price.

AIS likely paid more to get first choice of channels, having secured the 2140-2155 MHz (downlink)/1950-1965 MHz (uplink) pair. While there is little difference between the frequency bands with regard to 3G service, the 2100-MHz spectrum is widely used for 4G networks, so AIS could well be planning for expansion beyond 3G. AIS's spectrum is also notably directly next to long-time partner TOT's 2155-2170 MHz (downlink)/1965-1980MHz (uplink) band pair, causing some analysts to suspect that the companies are once again planning to work together to offer 4G services over their combined 30 MHz of spectrum

The winning bidders are expected to bring 3G services to 50% of the population within two years and to 80% within four years, according to the NBTC guidelines. AIS is expected to spend approximately Bt50bn ($1.62bn) in the next three years to finance the rollout of 3G networks, while DTAC is expected to spend Bt24.5bn ($796.21m) and True will spend Bt20.2bn ($656.47m), according to Kiatnakin Securities, a Bangkok-based securities trading and analysis firm.

3G services are expected to be rapidly adopted by Thai smartphone users, particularly due to high number of social networking subscriptions. For example, nearly 17.5m Thais are Facebook users – a penetration rate of more than 26% countrywide and 99% of internet users.

Despite the expected high demand, the introduction of 3G may not bring strong growth to the industry for the first few years due to high start-up costs. “In the near term, earnings will be impacted negatively, given the mismatch between network investment and subscriber migration to 3G,” said Arthur Pineda, an analyst at Citigroup. However, it is anticipated that lower regulator fees and high subscription rates will offset the initial costs in the longer term.

The government has been widely criticised for being well behind many of its neighbours in the rollout of 3G, particularly as other countries prepare to introduce 4G services. The auction of 3G services was first announced in 2010 but has been long delayed due to political instability and uncertainty within the telecoms industry. Indeed, CAT, the state-owned telecoms company, protested the auction announced in 2010, claiming that the then-regulator, the National Telecommunications Commission, did not have the authority to conduct the bidding.

While the auction is the first step toward bringing 3G services to the country, it has also been a target of criticism, largely on account of the fact that the NBTC did not seem to promote competition among the companies. Bidders were limited to buying three blocks, or 15 MHz of bandwidth, meaning that all three providers were essentially offered the same amount. Somkiat Tangkitvanich, the president of the Thailand Development Research Institute, said that this does little to promote competition among local firms.

At a seminar hosted by the IT Press Club on the subject of 3G on October 29, Somkiat said the set minimum price of Bt4.5bn ($146.24m) per 5 MHz was 27% below the average price, meaning that the country could have made Bt16bn ($519.97m) more from the sale of the licences. “We need accountability from whoever made the country lose Bt16bn ($519.97m) from the auction, and that is the regulator, the NBTC,” he said.

While speaking at the IT Press Club seminar, Settapong Malisuwan, the chairman of the NBTC’s telecoms committee, said many factors went into the decision to set the price below the average level. “We did not set the price at Bt4.5bn ($146.24m) without supporting reasons,” he said. “We have around 60 people involved in this process, and we had a meeting to discuss these issues. It is a suitable price and not too low.”

“Each operator ends up paying less than Bt1bn ($32.49m) per year for the licences, which is very cheap. It will not benefit consumers. It will only help the operators’ bottom line,” Somkiat told the Bangkok Post. “Allowing each bidder to bid for an equal amount of maximum bandwidth did not encourage competition. Second, setting the reserve price lower than the real value of the licences was highly damaging, once competition was less than it should have been.”

While the NBTC is likely to be under fire in the coming months for perceived problems with the auction, critics and supporters alike agree that a 3G network must be rolled as soon as possible to bring Thailand up to speed with its neighbours. Though the debate about competition in the industry is far from over, there is no denying that, after years of anticipation, Thai smartphone users will welcome the chance to finally use 3G services on their mobile devices.