Talks on converting concessions granted to private operators by state agencies made slow progress with the parties unable to agree on financial framework. The failure to settle on a formula is clouding efforts to privatise and list state telecommunications agencies.

However, much remains to be done. Significantly, almost no progress has been made in choosing the new National Telecommunications Commission (NTC), which was supposed to have been in place in October 2000.

The NTC is envisioned as having considerable power, and political tussling over the suitability of its proposed members has dogged the selection process; allegations of vested interests abound. The members will have six-year terms and will be very difficult to remove, hence the difficulty in finding the right people.

The major development in the second half of 2001 was the passage of the Telecom Service Bill, and the government's admission that it was flawed.

Local industry operators were highly critical of Article 8, a Senate-inspired provision that limits foreign shareholdings in local operators at 25%. Most major telecoms concerns' foreign shareholdings already exceed the limit, with the notable exception of cellular market leader Advanced Info Service, founded by Prime Minister Thaksin Shinawatra.

Elsewhere, progress was sluggish on a new framework for converting concessions granted to private operators by state agencies. This in turn has affected the authorities' desire for speedy privatisation of the Telephone Organisation of Thailand and the Communications Authority of Thailand. They are supposed to be listed on the stock exchange between April and June of 2002.

United Communication Industry Plc has led the opposition to the cap on foreign shareholding, as 47% of its shares are held by non-Thais. Ucom chairman Boonchai Bencharongkul has lobbied Mr Thaksin to amend Articles 8 and 58 to prevent confusion and unfair competition.

Article 58 prohibits operators from collecting advance payments from consumers. This is seen as hurting mobile-phone companies, which see pre-paid service as their fastest-growing market. As well, fixed-line operators must stop collecting 3,000-baht deposits.

The two private fixed-line firms, TelecomAsia and Thai Telephone and Telecommunication, stopped collecting the deposits on Dec 17. But they, along with the Telephone Organisation of Thailand, now face the problem of how to refund the deposits placed by millions of existing customers.

TOT president Sutham Malila said the TOT could go bankrupt if it had to return the deposits to four million subscribers all at once. It is considering refunding the 3,000 baht by reducing customers' bills by 100 baht a month for 30 months. It is also considering offering the refund in the form of shares once it is privatised.

The foreign-investment cap, meanwhile, was likely to be raised to 49% when Parliament resumes sitting in February, according to Finance Minister Somkid Jatusripitak.

In addition to Ucom, Total Access Communications (TAC), CP Orange and Thai Telephone and Telecommunication all argued that capping foreign shareholding could starve the capital-intensive industry of new funds for expansion.

However, industry sources remained sceptical whether the proposed amendment by the government could win approval from the Senate, because it was the upper house that had proposed the cap in the first place.

Meanwhile, conversion of telecom concessions is two years behind schedule, but moved a step closer to resolution when the Chulalongkorn University Intellectual Property Institute came out with two new guidelines.

The first guideline requires payment of revenue shares by private operators to the state and compensation only until the formation of the NTC or until 2006.

The second requires private operators either to buy back or lease the networks in which they had invested in under their build-transfer-operate concessions.

But major operators said the new framework was unjust. They disagree with paying revenue shares based on forecast revenues to 2006, arguing they are willing only to pay until the NTC is formed.

Once the regulator is in place, it is supposed to grant licences to replace any concessions that are converted.

The operators also question why they should have to buy or rent the networks when they still had unpaid debts from building them.

State agencies are sceptical for their own reasons _ they believe the operators will assign unreasonably low values to the assets, and will only take back equipment and networks with considerable service life left in them.

TA president Supachai Chearavanont said TA had invested several hundred billion baht in network construction and therefore had the rights to use it until the end of the concession term or until 2018. "We want to compete on a level playing field."

Other operators take the same line, insisting that if they have to pay a licence fee, revenue share and rent, they could not compete with new players, who would pay only licence fees.

The institute was tasked by the Transport and Communications Ministry to work out a new conversion framework to break an earlier deadlock over the Thailand Development Research Institute's guidelines.

The TDRI had recommended compensation by telecom operators based on forecast revenue for their entire remaining concession periods, in exchange for converting revenue-sharing concessions into joint co-operation or equity holdings.

More hopeful signs are emerging for the listing of the TOT and the CAT on the stock market, however, following the heavy public response to the initial public offerings of Internet Thailand and PTT Plc.

With annual profits of nine billion baht, a good governance award and 200 billion baht in assets, TOT shares would surely attract foreign investors, the agency's executives have said.

But a local analyst warned that the listing might not go smoothly unless there was a resolution of the concession conversion problem.

"If conversion could be achieved, it would certainly provide a clearer picture of the whole telecom industry," the analyst said.

Initially the TOT would offer a maximum 25% stake to foreign investors to avoid breaching the limit in the Telecom Service Law as it currently exists. There is also a possibility the TOT and the CAT will merge after they are listed, consolidating all of their communications operations except the CAT's money-losing post office, which would remain a separate entity.