Identifier
Created
Classification
Origin
06BANGKOK115
2006-01-06 12:56:00
UNCLASSIFIED
Embassy Bangkok
Cable title:  

THAI TELECOM SECTOR REFORM: NTC ISSUES LICENSES

Tags:  ETRD ECPS EINV ECON TH 
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VZCZCXRO4397
PP RUEHCHI
DE RUEHBK #0115/01 0061256
ZNR UUUUU ZZH
P 061256Z JAN 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 5482
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 1675
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 1010
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
UNCLAS SECTION 01 OF 08 BANGKOK 000115 

SIPDIS

SIPDIS

STATE FOR EB/CIP, EAP/MLS
USTR FOR BARBARA WIESEL, JONATHAN MCHALE
JUSTICE FOR STUART CHEMTOB
COMMERCE FOR JEAN KELLY, JULIET BENDER, AND ERIC HOLLOWAY
TREASURY FOR OSIA
STATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ETRD ECPS EINV ECON TH
SUBJECT: THAI TELECOM SECTOR REFORM: NTC ISSUES LICENSES
WITHOUT CONCESSION CONVERSION

REF: A. 04 BANGKOK 2189

B. 05 BANGKOK 6901

C. 05 BANGKOK 7043

D. 05 BANGKOK 7124

BANGKOK 00000115 001.2 OF 008


UNCLAS SECTION 01 OF 08 BANGKOK 000115

SIPDIS

SIPDIS

STATE FOR EB/CIP, EAP/MLS
USTR FOR BARBARA WIESEL, JONATHAN MCHALE
JUSTICE FOR STUART CHEMTOB
COMMERCE FOR JEAN KELLY, JULIET BENDER, AND ERIC HOLLOWAY
TREASURY FOR OSIA
STATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ETRD ECPS EINV ECON TH
SUBJECT: THAI TELECOM SECTOR REFORM: NTC ISSUES LICENSES
WITHOUT CONCESSION CONVERSION

REF: A. 04 BANGKOK 2189

B. 05 BANGKOK 6901

C. 05 BANGKOK 7043

D. 05 BANGKOK 7124

BANGKOK 00000115 001.2 OF 008



1. (U) SUMMARY: Thailand,s telecom sector has long been
defined by the co-existence of its state owned enterprises
TOT and CAT, and several private companies doing business
under concessions granted by the state owned enterprises
(SOEs). While the concessions brought competition into the
Thai telecom market, they also constitute a barrier to free
and open competition in the market. Rather than tackle the
problem of concession conversion head-on, the one year-old
National Telecommunications Commission (NTC) has opted
instead to issue new licenses, particularly for
third-generation (3G) mobile services, which promises to
facilitate the gradual unwinding of the telecom concessions
while enabling existing players first crack at the
next-generation market. This approach avoids a bruising
conflict over concession conversion, but it is economically
inefficient and wasteful of resources because Thailand,s
existing telecom infrastructure has not yet outlived its
useful life. The principal regulatory variable affecting the
extent of such inefficiency*or the length of the wait for
rollout of 3G*is an ongoing dispute over formation the
National Broadcasting Commission, whose approval is required
by law for allocation of frequencies. On telecommunications
issues where it has sole authority, the NTC has established
itself as the regulator for the telecom industry during its
first year, and we expect that Royal Thai Government (RTG)
positions on telecom issues in the pending Free Trade
Agreement negotiations will accord closely with the
regulatory guidance the NTC has issued to date. END SUMMARY

THE DUAL STRUCTURE OF THAILAND'S TELECOM SECTOR


2. (U) Thailand's telecommunications operators have
historically existed as state-owned enterprises (SOEs). The

Telecommunications Organization of Thailand was established
by statute in 1954 to provide domestic telephony services,
and the Communications Authority of Thailand was established
in 1976 by a separate law to provide international telephone
services as well as postal services and other non-voice
telecommunications services. This division of authority has
blurred as new technologies not envisioned by existing laws,
such as mobile phone and satellite services, have emerged. As
Thailand's economy boomed during the 1980s, however, the two
SOEs proved unable to meet the nation,s growing demand for
telecommunications services.


3. (U) From 1986 through the mid-1990s, the RTG introduced
competition into the telecom sector to increase supply. The
state-owned telcos granted several concessions to private
companies on a build-transfer-operate (BTO) contract basis
(REF A). Under the BTO contracts, the private contracting
party established telecommunications networks at their own
expense, including installation, handing of network assets,
and their operation. Upon completion of the concession
period, all assets are to be transferred to the concession
grantor. Revenue sharing arrangements for each concession
have differed, based on the proposals and negotiations at the
time of tender.


4. (U) Set out below is a list of concessions currently in
force is set out below. (Note: The RTG corporatized TOT
Public Company Limited (TOT) and CAT Telecom Public Company
Limited (CAT) by issuing shares still owned by the government
in 2002 and 2003 respectively. End note.)

Telecommunications Concessions for Basic (Fixed-Line
Telephone) Services:

Operator: True Corporation (formerly Telecom Asia)
Grantor: TOT
Service: Installation of 2.6 million numbers in Bangkok and
its vicinity
Concession Period: 25 years (from October 1992 to 2017)
Revenue Sharing: 16 percent (2 million numbers); 21 percent
(600,000 numbers)

BANGKOK 00000115 002.2 OF 008



Operator: TT&T
Grantor: TOT
Service: Installation of 1.5 million numbers in provincial
areas
Concession Period: 25 years (October 1993 to 2018)
Revenue sharing: 43.1 percent (1 million numbers); 44.5
percent (500,000 numbers)

Telecommunications Concession for Mobile Telephone Services:

Operator: AIS
Grantor: TOT
Network: 900 GSM
Concession Period 25 years (starting in 1990)
Revenue Sharing: Years 1-5: 15 percent; years 6-10: 20
percent; years 11-15: 25 percent; years 16-25: 30 percent

Operator: TAC (DTAC brand)
Grantor: CAT
Network: 1800 GSM
Concession Period: 27 years (starting in 1990)
Revenue Sharing: Years 1-4: 12 percent; year 5: 25 percent;
years 6-15: 20 percent; years 16-20: 25 percent; years 21-17:
30 percent; plus network (TOT) connecting fee of Bt.
200/number/month

Operator: TA ORANGE
Grantor: CAT
Network: 1800 GSM
Concession Period: 16 years (starting 1999)
Revenue Sharing: Year 1: 25 percent; years 2-9: 20 percent;
years 10-14: 25 percent; years 15-16: 30 percent; plus
network (TOT) connecting fee of Bt. 200/number/month

Operator: Digital Phone Co. (DPC)
Grantor: CAT
Network: 1800 GSM
Concession Period: 16 years (starting 1999)
Revenue Sharing: Year 1: 25 percent; years 2-9: 20 percent;
years 10-14: 25 percent; years 15-16: 30 percent


5. (U) The dual structure that has resulted from these
concessions has added to the challenge of reforming
Thailand's telecom sector, because the concessionaires must
both compete with TOT and CAT while at the same time
submitting to their regulation and making revenue sharing
payments to them. Fundamental to establishing a regulatory
environment that is open to free and fair competition is the
conversion of the concessions to licenses. Owing to the
difficulty of effecting concession conversion, the
concessions are known as the Gordian knot of telecom sector
reform.


THE MASTER PLAN FOR TELECOM REFORM


6. (U) Although the Telecom Master Plan has undergone
several revisions since its initial adoption in 1997, the
basic goals envisioned at the outset have guided public
discussions and expectations for reform. These aims include:
establishment of an independent national regulatory body,
the conversion of build-transfer-operate (BTO) concessions
granted by TOT and CAT to private operators into NTC-issued
licenses; the privatization of TOT and CAT; the
liberalization of the telecom market to allow competition
according to a process regulated by the NTC. In the
international context, the point to emphasize is that the RTG
has pledged to liberalize its telecom market consistent with
World Trade Organization criteria by 2006.


THE NTC'S FIRST YEAR


7. (U) On November 1, 2005, the National Telecommunications
Commission marked its first anniversary. In the face of low
expectations, the NTC can count several achievements to its
credit. It has formulated the Telecom Master Plan for
2005-2007, published in the Royal Gazette on August 3, 2005.

BANGKOK 00000115 003.2 OF 008


It has established licensing criteria for the three types of
telecommunications licenses it may issue: Type I (without
network),Type II (with or without network for specific
groups or users),and Type III (with network for public
telecommunications services). It has set criteria for
allocation of telephone numbers. It has established license
criteria, license fees, and interconnection charges for
internet service providers (ISPs). It has set temporary
measures for radio frequency allocation. It has also issued
licenses as noted in paragraph no. 9 below. While much
remains to be done, the NTC has without question established
itself as the source of regulatory guidance in the telecom
sector.


8. (U) The NTC's pro-business (rather than pro-consumer)
outlook merits emphasis. The NTC desires profitable industry
players, and it frowns on the cutthroat competition that it
has seen in the mobile services market the past year.
Securities analysts also suggest that the NTC's reluctance to
force concession conversion flows in part from its desire to
avoid crippling TOT. To the Commissioners, an independent
and healthy TOT is necessary for a healthy Thai telecom
industry. By the same thinking, forcing private operators to
accelerate payments currently scheduled to be paid out of
future revenues as proposed before the Commission was formed,
would likewise risk imposing an impossible burden on the
private firms. Thus, in dealing with the question of
concession conversion, the NTC has clearly attempted to find
an answer that accommodates the interests of both the SOEs
and the private operators, at least in the short-term.

CHOOSING LICENSES OVER CONFLICT


9. (U) The path of least resistance that the NTC has chosen
is to leave the existing concessions in place while issuing
new licenses that provide both an incentive and the mechanism
for the gradual unwinding of the concessions. The NTC
announced accordingly that it would not interfere with
existing concessions. The NTC has issued Type I telecom
licenses (for operators without their own networks) to 18
operators, beginning with its first license to KSC Commercial
Internet Public Company Limited in June 2005. It has issued
6 Type I and Type III telecom licenses under the
Telecommunications Business Act to TOT and CAT on August 4,
2005, which was also the 122nd anniversary of National
Telecommunications Day. The licenses granted cover the
existing telecommunications services operated by the two
incumbent operators. The licenses to TOT were fixed-line,
ISDN, 470 MHz, 900 MHz mobile phone, Internet, trunk mobile,
paging, international phone, leased line, audiotext, and card
phone services. The licenses granted to CAT covered CDMA,
800, 1800, maritime and aviation radio, trunk mobile,
satellite communications, international phone, data
communications, and Internet services.


10. (U) The legal reasoning underlying the NTC,s decision
to leave the concessions in place is that, contrary to
assertions of reformers, any attempt to force conversion
would be open to strong legal challenge. According to one of
the Commissioners, who is a lawyer by training, a careful
reading of Thai law as written does not substantiate the view
that the Telecommunications Business Act (TBA) of 2001 is
necessarily incompatible with the existing access fee regime.
The TBA (specifically Section 80) provides that
concessionaires may continue their operations until the end
of their concessions under the same conditions and that the
concessionaires are subject to the rules of the NTC, which
are prescribed to promote free and fair competition.


11. (U) As a practical matter, the NTC sought to stay out of
court. While the NTC can issue regulations, operators and
other interest groups have recourse to the courts to
challenge those regulations. These courts include the
Administrative Court, which rules on the appropriateness of
government agencies, and the Constitutional Court, which
would have jurisdiction because the Thai Constitution
specifically stipulates that the telecom concessionaires can
continue to operate until the expiration of their
concessions, and that changes to the concession agreements

BANGKOK 00000115 004.2 OF 008


cannot have a materially negative impact on their business.
In short, any action drawing a legal challenge could wind up
stuck in court for years, a very real prospect in view of a
long-running court battle between TOT and TT&T over the
concession between them. Additionally, the courts would only
decide issues of legality after the NTC has issued
regulations, because the NTC does not have the right to seek
declaratory judgments from the Thai courts to pre-empt
disputes.

SATELLITE


12. (U) The NTC has also moved forward with licenses for
satellite services. The Commissioners held public hearings
on November 2, 2005, and expect to issue licensing criteria
by the end of the year. There will be three types of
licenses:

Type I: Satellite Operators, i.e., satellite owners for which
the licensing principles will be the same as for the Type III
telecom license.

Type II: Earth-station Operators, i.e., operators running
uplink and downlink facilities relaying signals to and from
satellites, for which the licensing principles will be the
same as for the Type II telecom license.

Type III: Satellite Service Re-Sellers for which the
licensing principle will be the same as for the Type I
telecom license.

Interested companies will be able to apply before March next
year. The first satellite license is expected to be awarded
by June 2006. The draft criteria for Type I Satellite
Operators include the qualifications set out below:
1) financial stability,
2) technical ability and experience in satellite project
management,
3) technical ability and experience in coordination of
international satellite frequencies, and
4) documentation to prove reservation of orbit slot(s) and
plan(s) to coordinate the frequencies of the orbit slot.

Dr. Damrong Kasemset, CEO of Shin Satellite Plc, Thailand's
sole commercial satellite operator, said that Shin Sat plans
to apply for a license for its upcoming ThaiCom 5 satellite
because the licensing fee will be lower than the concession
fee it currently pays to the MICT. Shin Sat has four (4)
satellites under MICT concessions: ThaiCom 1, 2, 3 and
iPSTAR. ThaiCom 5 will replace ThaiCom 1, 2, and 3.

THIRD-GENERATION MOBILE SERVICES AND FREQUENCY ALLOCATION


13. (U) For retail services, the most important licenses to
be issued are those for 3G services, which provide for high
speed data transmission and Internet Protocol-based services.
The NTC began hearings on November 7, and anticipates
setting criteria by early 2006 (although that target may be
slipping) and issuing the licenses by mid-2006. Fees are
expected to be in the range of 600 million baht, a
substantial sum but in the aggregate far less burdensome than
the revenue sharing payments that private operators currently
pay to TOT and CAT. The 3G license fee will not likely be
lower than 3 percent of revenue as that figure is the
benchmark for telecom operators as previously defined by the
NTC. Neither the cost nor the method by which 3G licenses
will be allocated has been decided, however. Possibilities
include an e-auction with the opening price starting at the
above price and the &beauty contest8 model. Private
telecom operators oppose the auction approach ostensibly on
grounds that it is not to the utmost benefit to the consumer.
NTC Commissioner Prasit Prapinmongkolkarn has said that he
envisions no more than four operators, indicating a
preference for domestic operators to lock up the market
before it is liberalized. This view does not represent
either the consensus NTC view or official NTC policy, however.


14. (U) One macro-level problem only now being discussed
among the wider public is whether Thailand either needs or

BANGKOK 00000115 005.2 OF 008


can really afford such a dramatic upgrade in its telecom
network. Thailand,s 2G network is relatively new (rapid
growth in mobile phone usage occurred during the past 5
years). Capital investment in telecom networks will likely
involve considerable imports of expensive equipment, in
addition to the high expense generally. Nokia Thailand has,
for example, announced that it expects investment in 3G
cellular networks by local telecom operators to exceed Baht
17 billion in the next three years. The market demand for 3G
is not self-evident, however. The hearings on November 7th
attended by econoff consisted mostly of NTC officials and
NTC-sponsored panelists pitching the uses of 3G.


15. (U) As the reality of 3G,s high cost sets in, telecom
operators have attempted to position themselves as moving to
roll out 3G services but with varying degrees of commitment
to specific timelines. Prior to the NTC,s formation, TOT
obtained permission to offer 3G cellular services through its
Thai Mobile joint venture (with CAT),but only after the NTC
has issued the 3G licensing framework. Market leader
Advanced Info Service Plc (AIS),considered the only operator
capable of financing 3G rollout on its own, has announced
plans to launch the services in the third quarter of 2006.
Number-two operator Total Access Communications (TAC,
operator of DTAC),backed by Norway,s Telenor (REF B),has
announced continued expansion of its 2G network next year
with investment in 3G over the course of the next three to
four years. CAT is depending upon Huawei Technologies to
complete the installatin of the first 800 CDMA base stations
this year to position its CAT-Hutchison joint venture in the
forefront of the 3G market next year after licenses are
issued. The project has been marked by delays and Embassy
contacts have reported difficulties in obtaining the
necessary approvals to import equipment in a timely manner,
but the company says that it is catching up.


16. (U) True Corporation (whose TA ORANGE unit has applied
for a 3G license to offer trial services) lacks a declared
foreign backer to finance investment in 3G. The company has
announced that it desires to launch 3G services by the end of
2006, but it is not clear that the company will be able to go
it alone, notwithstanding its recent 12 billion baht takeover
of United Broadcasting Corporation, Thailand,s largest
pay-television operator, and KSC Internet. Unlike the other
telecom operators, True has long considered itself a media
company and seeks to offer the triple play of voice,
broadband internet, and multimedia TV programming.


17. (U) The unpredictable variable in the 3G and satellite
licensing process continues to be the regulatory environment
for the frequency allocation process. Under current law,
frequencies (such as those for 3G and satellite) are to be
allocated by a joint committee consisting of representatives
from the NTC and the as yet unformed National Broadcasting
Commission (NBC). Until the Central Administrative Court,s
November 2005 decision that the NBC selection process in
train was unconstitutional, it appeared that the NBC would
come into existence in time for 2006 issuances. The
government of Prime Minister Thaksin Shinawatra initially
considered pushing for an amendment to the Frequency
Allocation Act that would empower the NTC to temporarily
takeover the NBC,s duties, a move backed by some private
operators, most notably True Corporation. Strong opposition
(outside of the telecom sector) stemming from political
concerns about press freedom and the erosion of checks and
balances generally under the current government surfaced
immediately. At the end of November 2005, the Cabinet decided
to appeal the Central Administrative Court,s ruling that the
NBC selection process was illegal rather than to press for
amendment to the law. While it is possible that the NTC may
act on its own in the event of significant delay or
emergency, the most likely consequence of the NBC fight will
be continued muddle and delay. One likely possibility is
some sort of permission for operation on a trial basis (3G
applications by AIS, DTAC, True, and TT&T are pending). The
NTC has supported the principle of issuing a license to
existing operators on the grounds that no new frequency
allocation is involved. Thus, the NTC may go ahead and issue
a satellite license to Shin Satellite because the firm

BANGKOK 00000115 006.2 OF 008


already has four satellites and thus no change in frequency
allocation will be required. New entrants would have to wait.


18. (U) Long-term, the most important consequence of not
amending the law or the constitution and moving forward with
two regulators*one for telecom and one for broadcast*is to
open the possibility for conflict over jurisdiction in the
era of media convergence. Such is the view of a
knowledgeable attorney handling a large number of
telecom-related work with whom we spoke. Leaving aside broad
political concerns about checks and balances (especially the
notion that avoiding concentrated regulatory power renders
the system less vulnerable to corruption),he emphasized that
as far as industry participants are concerned, the result can
be regulatory gridlock. He specifically criticized the
NTC,s likely preference for establishing a joint committee
with the NBC to deal with convergence and overlap issues. It
may be administratively convenient from the regulator,s
point of view but it would be slow-moving from the industry
perspective. Hence, True Corporation,s preference for a
one-stop shop, for example. A dual regulator is not a common
design, and he warned that US and other foreign companies
operating in Thailand may encounter gridlock, delay, and
confusion in dealing with regulatory issues going forward.

COMPETITIVE ENVIRONMENT AND UNANSWERED QUESTIONS


19. (U) In the market for mobile services, as operators seek
to meet their targets for the year, another round of
price-cutting in which DTAC is performing well appears to be
in play. One estimate by KResearch points to an 8.6 percent
growth in mobile phone users for 2005 and predicts growth of
6.7 percent next year. The same study estimates that mobile
phone subscribers at 45 percent of the population, but it
notes that the average income per number has shown a drop of
about 11 percent year over year.


20. (U) The NTC is pressing for more international Internet
gateway (IIG) licenses so as to further liberalize the
market. TT&T has announced plans to enter the market, and
indications are that public utilities may further shake up
the market. The Metropolitan Electricity Authority is
testing ultra-broadband services in connection with Free
Internet and Company. EGAT Plc, the state-owned electric
power producer, which possesses fiber-optic cables integrated
with its power cables, has set up a subsidiary EGAT Telecom,
although the November 2005 suspension of EGAT,s partial
privatization may delay plans to enter the telecom market.


21. (U) On December 19, 2005, the NTC approved a draft code
of competition. The NTC must still consult with telecom
operators and licensees, but the code is expected to be
effective in mid-2006. The most notable feature is a
35-percent threshold set for NTC licensees across all markets
for market dominance. The idea is to prevent major cash-rich
players from abusing their power and forcing small players to
drop out of the market and to ensure quality service. What
the impact will likely be on prices is unclear.


22. (U) The NTC also moved in other areas in December 2005.
With respect to Voice over Internet Protocol (VoIP),the NTC
agreed to free up the PC to PC and PC to phone markets for
ISPs operating under its licenses (without needing to apply
for a separate license),but not the phone to phone market.
The NTC also agreed to free up the domestic Internet
exchanges and the international Internet gateway, but only on
existing networks. The basic principle for license fees for
either domestic or Internet gateway license is 3 percent of
annual revenue. The NTC has not decided to open up the
international call service market. The NTC also agreed to
grant a type-two license to BMCL Network, a subsidiary of the
subway operator Bangkok Metro Plc, to operate a telecom
network-leasing service in the subway. The NTC has not yet
granted the request of EGAT Telecom for a license which it
needs to offer a nationwide fiber-optic network leasing
service.


23. (U) Regarding the prospects for privatization of TOT and
CAT, a fundamental aim of reformers for years (covered in REF

BANGKOK 00000115 007.2 OF 008


C),the mid-November 2005 decision of the Supreme
Administrative Court to suspend the partial privatization of
EGAT (REF D) will likely have the effect of further delaying
SOE privatization in the telecom sector. At issue are
complex legal questions regarding the corporatization process
whereby state assets are transferred to a SOE to be
privatized. In practice, 2007 now appears to be a distinct
possibility, assuming that sufficient investor interest
exists for a successful public offering of shares. One
recent change is the RTG,s revival of the idea of merging
TOT and CAT. Sora-at Klingpratoom, ICT Minister, recently
announced that the interagency consensus within the RTG
supports a merger after TOT and CAT are listed on the stock
market.


24. (U) While the NTC has cleared away a great deal of
uncertainty surrounding the regulatory environment, important
questions remain. After addressing 3G and satellite
licensing, it is expected to take up outstanding questions on
liberalization of the international gateway, liberalization
of VoIP, and determination of the interconnection charge
regime. Additionally, as one telecom analyst recently
indicated, it is likely that 3G rollout will continue to
generate new questions as operators grapple with just how use
of 2G equipment (covered by concession agreements) will
square with provision of 3G services (covered by NTC
licenses). The stunning 4 percent USO fee also raises
important questions, not least just what the NTC will do with
the money raised. Some observers such as Dr. Somkiat of TDRI
have criticized the NTC for a lack of due process in
comparison with the practice of regulatory bodies in other
countries. Without question, regulation in the ordinary
sense of the term is relatively new to both the telecom
sector and Thai governance generally, and it will take time
to establish transparency in regulation, particularly in view
of the widespread suspicion that the regulatory deck is
stacked in favor of telecom companies associated with the
Shin Corporation, owned by the family of Prime Minister
Thaksin.


25. Both the Thai media and Embassy contacts have recently
speculated that the Shinawatra family will sell its holdings
in AIS or its Shin Corporation parent company, to Singapore
Telecom, for example. The Embassy understands from a source
close to Prime Minister Thaksin that he has voiced the
possibility in private, but we are not aware of any specific
plan for such sale. Shin Corporation itself has publicly
denied all reports of plans. The Embassy does not expect the
Democrat Party opposition to object to any such sale, should
the possibility materialize. Embassy contacts generally
unhappy with the Thaksin government have suggested that the
main reason why the Shinawatra family would sell its telecom
holdings is that it had found more profitable opportunities,
for example in the energy sector. Telecom industry insiders
have expressed their doubts about such speculation, however,
because they consider that AIS and other Shin Corp holdings
have the potential to remain highly profitable.

COMMENT


26. (U) EVALUATION: Over the course of its first year the
NTC has made more progress toward establishing a clear
regulatory framework for Thailand's telecom sector than at
any other time. In embracing this challenge as they have,
the NTC Commissioners have chosen their political battles
carefully with an eye to reaffirming the NTC's position as
the regulator of the industry. This pattern of avoiding
conflict is most apparent in the decision to issue new
telecom licenses without forcing concession conversion, which
amounts to paying off TOT and CAT. In economic terms,
however, encouraging the unwinding of concessions by way of
migrating subscribers from 2G to 3G services wastes resources
needlessly. If investment in the Thai telecom sector goes
forward as currently envisioned, Thailand's telecom operators
will abandon their 2G infrastructure before the end of its
useful life, and in advance of a clear economic need for the
rollout of 3G, all for the purpose of reducing their
regulatory fee burden. In view of the high percentage of
imported content in telecom network infrastructure, the

BANGKOK 00000115 008.2 OF 008


premature migration to 3G is also wasteful of foreign
exchange. Continued deadlock over the formation of the NBC
and the high costs of launching 3G may, however, delay both
NTC issuance of licenses and the pace of 3G rollout.


27. (U) FTA: We agree that the RTG will likely bring its
regulation of the telecom sector into line with the WTO
standards for liberalization effective at the beginning of
2006 as promised. We see no practical effect, however, as
the markets affected are already mature and they do not
include services in play such as mobile telephony. The
pattern evident in the timing of liberalization of the Thai
telecom sector is that the RTG tends to open up a market
after strong domestic players have established themselves
firmly in the market. Despite the possibility of some delay
in issuance of licenses, we expect the same pattern to hold
for 3G services. We expect that the RTG delegation to the
FTA talks will follow the lead of the NTC and that Thai
negotiators will be hesitant to reach final agreement on
services for which the regulatory regime is not settled,
although the signs have become more encouraging for VoIP and
satellite. We think that the successful launch of iPSTAR in
August 2005, which will provide a boost for the Shin Corp
going forward, may ease some of the anxiety about foreign
competition that informs RTG policy. Longer term, we think
that concerns about the potential for regulatory gridlock
resulting from the emergence of two regulators, one for
telecommunications and one for broadcast, are well-founded.
ARVIZU