Improved regulatory framework supports ICT development in Thailand

Thailand has seen tremendous growth in its technology sector in recent years and is now increasingly regarded as one of the industry leaders in South-east Asia. The government recognises the benefits that a vibrant ICT sector can have for the wider economy and plans to push ahead with a series of ambitious legacy projects. The state’s objectives for the sector are based around its Thailand 4.0 model, which incorporates interlinked initiatives such as the Eastern Economic Corridor (EEC), the establishment of 100 Smart Cities nationwide and the transition from 4G to 5G technology.

While these initiatives present tremendous opportunities for both local and foreign companies, there remain challenges to overcome. The plans will require major investment, as well as the negotiation of certain stumbling blocks. Additionally, plans to transition from 4G to 5G – which is crucial if the country is to sustain its development towards becoming a leading centre of technology in ASEAN – is in danger of losing momentum. Yet, despite these hurdles, the overall outlook for the country’s technology industry remains bright.

Regional Competitiveness

Compared to other states in South-east Asia, Thailand performs well in most indicators on technological development and usage. According to the “Digital in 2018” report from the social media marketing and communications agency We Are Social, internet penetration stood at 82% of the population in 2018, placing Thailand well ahead of the regional average of 58% for South-east Asia.

Furthermore, the proportion of the population with access to the internet at home is rising steadily, growing 24% year-on-year in January 2018, with these users logging the highest average number of hours spent using the internet of all the countries surveyed, at nine hours and 38 minutes per day. These figures represent an advanced level of technology utilisation but they also highlight opportunities for business development.

Oversight

Faced with a series of issues emerging from new technologies and legislative changes carried out by trading partners, the country has made efforts to update and improve its regulatory oversight of the sector. The Information and Communication Technology Ministry was renamed the Ministry of Digital Economy and Society (MDES) in 2016, as part of government efforts to drive the development of the digital economy. The ministry oversees a number of public bodies and state-owned enterprises, including the National Statistics Office, Thai Meteorological Department, Thailand Post, TOT, CAT Telecom and the Electronic Transactions Development Agency (ETDA).

Additionally, two new agencies were formed in recent years, namely the Electronic Government Agency – which was later renamed the Digital Government Development Agency (DGA) and is under the auspice of the Office of the Prime Minister – and the Digital Economy Promotion Agency (depa), which evolved from the Software Industry Promotion Agency. The assignment of frequencies is governed by the National Broadcasting and Telecommunications Commission (NBTC). Established in 2010, the NBTC is ostensibly independent but is guided by government policy.

In early 2016 a 20-year Digital Development Plan for Economy and Society was published by the government. It called for the development of relevant hard infrastructure and for steps to be taken to transform Thailand into a more digital society. Furthermore, in May 2018 MDES said it was aiming to fast-track approval of the country’s first ever data protection law. This move was hastened by the adoption of the General Data Protection Regulation by the EU on May 25, 2018. As a result of this legislation Thai companies risked heavy fines if they failed to protect the personal data of EU-based clients. In preparation for the new Thai law, MDES established the Data Protection Knowledge Centre (DPKC), which is operated by the ETDA in tandem with the Personal Data Protection Committee.

“Our data protection and cybersecurity knowledge must be strengthened and public awareness must be increased,” Surangkana Wayuparb, the executive director of the ETDA, told OBG. “Thai people share everything online and abuses of personal data for commercial purposes are common. We are very concerned about this issue and must act swiftly.”

Regulations

In addition to reorganising institutional oversight of the ICT sector the government has also implemented a range of regulatory changes. In an important move to regulate cryptocurrencies the Thai Cabinet approved a royal decree on the regulation of transactions involving digital currencies on March 27, 2018 with this legislation coming into force on May 14, 2018 (see Capital Markets chapter). The decree regulates the offering of digital tokens and the undertaking of any digital asset business. It is intended to prevent the use of cryptocurrencies for criminal activities, while also ensuring regulatory clarity for legitimate businesses operating in the digital assets sphere. An additional decree came into effect on the same day introducing a 15% capital gains tax on each digital transaction. While the tax has faced criticism from industry associations such as the Thai Blockchain Association similar taxes are in place in major economies such as the US and UK.

Furthermore, the country revised its Computer Related Crime Act in 2017, granting the government additional powers to regulate internet activities. While these moves have faced criticism for expanding government censorship powers, strong cybersecurity is seen as vitally important for the country’s overall technological development. In January 2018, Pichet Durongkaveroj, minister of digital economy and society, announced plans to establish a cybersecurity agency and training centre to help combat the threat posed by hackers. According to the “Internet Security Threat Report 2018” by US-based cybersecurity firm Symantec, the country was the seventh most at risk country from cybersecurity threats in the Asia-Pacific region, an increase from ninth place in 2016. The growing risk was attributed to the proliferation of connected devices and rising use of cryptocurrencies and digital exchanges.

Government Priorities

These regulatory changes form part of a broader strategy to achieve the government’s aim of becoming the centre of digital infrastructure in ASEAN by 2020, including major construction projects and efforts to support the private sector. In December 2015 the state set aside $571m for the construction of broadband infrastructure that would provide affordable internet to 70,000 villages, representing about 93% of the total nationwide. The government hopes that this initiative will boost the capabilities of small and medium enterprises (SMEs) throughout the country and improve productivity.

In September 2017, the MDES approved the National Digital Economy Master Plan (DEMP), the National e-Commerce Master Plan and a plan to develop seven smart cities across the country. The DEMP lays out a strategy to transition to 5G technology and the roll out of broadband connections across the country. It also takes into account the need to upgrade the digital capabilities of SMEs, protect companies from cyber attack and foster an increase in digital literacy across the population. Under the e-commerce plan the MDES will direct Thailand Post to offer e-payment and e-logistics services to country’s private sector.

These plans forms part of the government’s broader Thailand 4.0 initiative. This overarching policy aims to facilitate the transition to a high-income, knowledge-based economy, with a focus on attracting investment in technological development. Thailand 4.0 targets the development of industries including smart electronics, high-income tourism, agriculture, biotechnology, food and beverages, and next-generation automotive industries. It also aims to cultivate nascent industries including robotics, aerospace and digital services. “We currently rely on many industries where we no longer have a competitive advantage in terms of access to cheap labour or materials,” Pichet told OBG. “We see many industries moving to other countries, especially in ASEAN. As a result we need to build new strengths within the domestic economy.” In an effort to stimulate innovation, the government is aiming to raise the level of public and private expenditure on research and development from 0.78% of GDP in 2017 to 1% in 2018 and expand internet access across the country, installing at least one free Wi-Fi zone in each village. “By the end of 2018, all of Thailand will be wired via broadband for the first time, giving everyone access to the internet, ending the digital divide and providing broad-based economic and social opportunities,” Pichet told OBG. To complement this strategy, domestic satellite communications start-up mu Space announced plans in March 2018 to provide satellite services that would offer widespread coverage in remote areas.

Start-Up

To support the transition to an innovation-based economy, efforts are underway to boost Thailand’s start-up ecosystem. The government directed the Board of Investment to allocate BT10bn ($289.5m) to a fund for tech and services start-ups in 2018. Speaking at Start-up Thailand in May 2018, Deputy Prime Minister Somkid Jatusripitak said: “Accelerating and creating more start-ups is a core government policy to energise entrepreneurs for the future innovation-based economy and to drive Thailand’s economic growth over the long run.” At the conference, the government affirmed its commitment to collaborating with the relevant agencies on speeding up the enforcement of laws that ease the operating environment for new companies. Meanwhile, the National Innovation Agency (NIA) launched startupthailand.org in May 2018 – a web portal for the Thai startup ecosystem that provides a database for local and international start-ups with accreditation from the Ministry of Science and Technology’s Start-up Thailand scheme, smart visas, and access to tax exemptions and funding. These moves follow the establishment in 2016 of a BT6bn ($180m) venture fund for Thai start-ups, with the funds split between the three banks under the Ministry of Finance.

“Prior to 2013, all consumer tech products and services came from Silicon Valley, but now you see the rise of Asian tech companies, which sends a strong signal that Asia is ready,” Ariya Banomyong, managing director of messenger platform LINE, told OBG.“Thailand is lagging behind the Asian technology leaders, so we all look forward to Thai companies growing in the region and potentially on a global level. Other Asian tech companies have proven that it is possible, which is inspiring for Thai and ASEAN entrepreneurs,” Ariya added.

While these move have been welcomed by emerging firms, there is a perception that public sector efforts are lagging. “The private sector is very advanced in terms of technology, but sometimes they have to wait for the government to catch up,” Thanachart Numnonda, founder of the IMC Institute, told OBG. “The pace of regulatory change can be quite slow – the industry is dynamic and the government needs to keep up.”

Furthermore, issues remain regarding the precise scope of these funding and tax exemption provisions for the industry. “The government has been promoting Thailand as an attractive destination for start-ups in Asia and incubators have proliferated since 2015,” Pun-Arj Chairatana, executive director of the NIA, told OBG. “With dedicated financial schemes for start-ups, many individuals, SMEs and enterprises are increasingly accounting for start-ups in their business models.”

Mobile Market

According to the “Digital in 2018” report, the mobile penetration rate for 2018 was 80%, the third highest in South-east Asia, behind only Hong Kong (83%) and Singapore (82%). Thailand also has the third highest number of 3G and 4G connections as a share of total mobile connections in the region, standing at 99% in the final quarter of 2017, only slightly behind Singapore and Taiwan, which both had 100%. Furthermore, the country has a relatively high mobile social media penetration rate, with 67% of the top social media sites being accessed by mobile phone in 2018, compared to a regional average of 51%.

The mobile phone operator market in Thailand is dominated by a handful of key players. Leading the way is AIS, which had 40.6m subscribers and a 43.9% market share as of the first quarter of 2017, according to the domestic ICT consultancy firm Yozzo. This was followed by TrueMove H with 25.8m subscribers and a 27.8% share of the market and DTAC with 24.3m subscribers and a 26.2% share. Other smaller operators include CAT Telecom with 1.7m users and TOT with 150,000, both of which are state-owned enterprises.

Technological Change

As Thailand embraces new technology, more traditional forms of communication are being displaced. Nowhere is this process clearer than in the fixed-line telecoms market, where the penetration rate stood at 4.3% in 2017, down from 9.6% in 2012, according to data from the National Broadcasting and Telecommunications Commission, indicating a swift transition to wireless technologies. The largest companies operating in the fixed-line market are TOT, True Corporation and TT&T. As consumer preferences change and the digital market continues to expand, the share of the population with fixed-line telephones can be expected to continue to decline. At present, the Thai telecoms industry operates through a concession arrangement whereby CAT Telecom and TOT, which are both state owned, possess the spectrum and allow private firms to use it. The government announced in late-2016 that TOT and CAT Telecom would merge some of their operations into two new units, namely the National Broadband Network (NBN) and Neutral Gateway and Data Centre (NGDC). TOT is in charge of the creation of the NBN, while CAT Telecom is set to lead the NGDC. The NBN will use both wireless and broadband connections to improve internet access nationwide, while the NGDC is set to be in charge of the international gateway. However, the creation of the new companies has experienced delays as a result of some resistance from the industry’s labour unions.

MVNO

The concessions arrangement has a strong impact on the mobile virtual network operators (MVNOs) market. In 2009 MVNOs were allowed to offer mobile services, similar to mobile network operators (MNOs), for the first time. As of December 2017 the NBTC had provided operational licences to 54 companies, a third of which involved foreign investment or shareholders. These include industry players such as Softbank, BT, Axiata, NTT and DoCoMo. As in other countries, MVNOs in Thailand tend to be smaller businesses and do not own any spectrum. Instead they enter into an agreement with an MNO to pay for bulk access to network services at wholesale rates, and then set retail and service prices independently.

The current rules requiring 10% of licensed spectrum to be made available for MVNOs have not supported a thriving MVNO market. “MVNOs do not own the frequency, and so they have to rent everything. The regulatory support for MVNOs needs to be strengthened,” Subin Bhatia, executive director of Xpand Thailand and Suvitech, told OBG. “The big three have the lion’s share of mobile subscribers – we could collaborate more in order to allow the MVNO market to better serve the needs of niche and retail subscribers.”

Corridor to Success

Under the banner of Thailand 4.0, there are three main projects being developed that, if successful, could support major economic expansion of the telecoms and ICT sectors. These include plans to introduce 5G technology and build 100 Smart Cities within the next two decades (see analysis). Another significant development is the Eastern Economic Corridor (EEC), which covers around 13,300 sq km, spanning three eastern Thai provinces, namely Chonburi, Rayong and Chachoengsao. Scheduled for completion by 2021, the aim of the EEC is to transform these provinces into centres of technologically advanced manufacturing, with strong connectivity to ASEAN neighbours by land, air and sea. Supakorn Siddhichai, vice president of the Smart City Promotion Department of depa, told OBG that he expects the first projects to go live in September 2018, with an initial focus on developing the Port of Chonburi to enhance international trade.

The EEC aims to attract international investment in established sectors, while allowing the country to diversify into new high-value industries. In order to achieve this the government has set up incentives for foreign companies investing in the EEC, including tax holidays and reductions, the removal of foreign land restrictions, and a five-year business visa. “New areas are opening up including robotics and digital, so there is certainly significant potential for growth,” Thanachart told OBG.

The EEC necessitates large-scale infrastructure development and, as of January 2018, the government had approved $17bn worth of infrastructure projects, including an upgrade of the U-Tapao International Airport. Overall transport connectivity is set to be enhanced through new and upgraded road and rail links with Bangkok and the wider region. These include a high-speed line to China that falls under the umbrella of the Belt and Road Initiative (see Country Profile chapter). Furthermore, a flagship Digital Park is also being planned within the EEC. This cluster aims to attract digital global players and foster the development and adoption of advanced technologies. It is also being positioned as a data centre to serve ASEAN, with ultra-high speed broadband, including an international submarine cable station and satellite earth station.

E-Commerce

With plans to boost high-speed broadband connectivity on the agenda, the e-commerce sector is likely to benefit. Driven by improved internet access, the growth of social media platforms and the launch of newer, faster internet services, Thailand’s e-commerce market – excluding online travel services – is projected to grow at an average rate of 29% annually to reach $11bn by 2025, according to a study by Google and Temasek in December 2017.

In January 2017 the government introduced PromptPay, for peer-to-peer transfers as part of its National E-Payment initiative, which began in December 2015. In a further sign of the growing prominence of the sector, Chinese e-commerce giant Alibaba entered the country in 2016, and has recently announced it will establish a “smart digital hub” in Thailand, that is intended to improve trade with the rest of South-east Asia. In addition, in February 2017 the government laid the foundations for the National Digital Identity project, which aims to provide a standardised way of identifying and authenticating citizens to promote digital transactions. Pilot services are expected to begin in the third quarter of 2018. This service will allow customers to access a range of financial services including revenue department payments, internet banking and e-wallets.

Local Players

The country’s business ecosystem is predominately built on small-scale enterprises. According to the World Bank, there were 2.7m SMEs in 2017, accounting for 96% of all domestic firms and 80% of all employment. As the country continues to embrace new technologies and diversify the economy, the number of tech-focused SMEs is expected to grow in tandem. Between 150 and 200 local software companies are currently registered with depa, and that figure is expected to reach 1000 by the end of 2018. In order to support this process of technological upgrade and expansion the depa announced in December 2017 that SMEs are to receive a 200% tax exemption on software purchases until 2019. The tax break includes discounts on software programmes related to accounting, finance, editing and enterprise resource planning.

Challenges

Despite these efforts to provide support to facilitate technological upgrade, the country’s technology firms – particularly SMEs – face problems when it comes to attracting and retaining employees with the necessary expertise and experience in the sector. The country faces a relative shortage of graduates with backgrounds in technology-related subjects and, given the limited pool of talent, those with the necessary skills are more likely to be drawn to larger organisations, where salaries, incentives and job security are typically higher. “It remains a challenge to find skilled staff who understand the relevant issues,” Thanachart told OBG. “I think this is something that will remain a problem for the next two or three years.”

This issue of limited human capital accumulation presents a bottleneck not only for ICT firms, it is also a problem for government agencies in their implementation of the Thailand 4.0 programme. “All levels of the government must start understanding how to make decisions based on data,” Sak Segkhoonthod, CEO of DGA told OBG. “If they cannot, Thailand 4.0 will never succeed.” Furthermore, while outlining a bold vision for the technological transformation of the country, the authorities are also playing catch-up in how they use data for effective governance.

“Big data is a key topic for the government, currently each ministry operates with a silo mentality and collects data without any consolidation,” Nuttapon Nimmanphatcharin, president and CEO of depa, told OBG. “Thailand has a plan to develop a portal that pools all the data, but this will take time. Moving forward, the government really needs to think outside of the box about how to effectively use the data.”

Outlook

The initiatives under way, coupled with a relatively mature and developing technology market, mean that the country is well on its way to achieving its goal of becoming the ICT and technology centre of the ASEAN region. The government is pursuing a number of major initiatives, notably the construction of Smart Cities and the EEC, and has put in place tax incentives and other measures with the aim of attracting international investment. These efforts highlight that the government is serious about boosting the development of this increasingly important industry.

Nevertheless, while the fundamentals are in place for the continued growth of the sector, bottlenecks remain that risk its long-term sustainability. Notably, shortages in necessary technical training, data management issues and cybersecurity threats, each pose a problem. The ongoing efforts to expand broadband coverage across the country, coupled with government support for the country’s burgeoning technology SME and start-up ecosystem can be expected to partially address these issues. However, further action, including improved in-work training and more efficient use of clusters and technology transfer schemes will be needed if the industry is going to retain momentum.