A labourer works next to a giant advertisment for a mobile phone in Bangkok. Thai Farmers Research Centre said the number of mobile-phone users was expected to reach 18.5 million at the end of 2002, or nearly 30% of Thai population.

The absence of a powerful, independent industry regulator _ mandated under the 1997 constitution _ has resulted in a policy vacuum at a time when the fast-changing industry needs a clear sense of direction.

The most significant change in the public telecom sector has been the movement to corporatise and privatise the two state telecom agencies. The Telephone Organisation of Thailand is well on its way, but the process of transforming the Communications Authority of Thailand has proved more difficult.

At end of July 2002, the TOT officially became TOT Corporation with initial registered capital of six billion baht. In September it won approval from its board to raise its registered capital to 45 billion baht by floating 4.5 billion shares to the public, representing a 30% stake, to the general public.

But as the year drew to a close, the exact timing of the initial public offering remained uncertain, with executives citing weak market conditions and the muted response to an earlier large IPO, by state-owned BankThai.

The offering by TOT is now expected sometime in the first quarter of 2003.

The slowdown in the TOT listing process has resulted in a delay in the corporatisation of the CAT, whish was supposed to take place in November 2002. The plan called for two companies to be created: CAT Telecom with two billion baht in registered capital, and Thailand Post with 750 million baht in capital. CAT Telecom, with international long-distance as its core business, would eventually be listed, while Thailand Post would likely need a few more years to begin turning its money-losing postal service around.

While TOT officials maintain that market conditions are the main reason for the delay in listing the company, other industry executives see a more fundamental problem. They say that it will be nearly impossible to establish a price for TOT shares until the thorny issue of converting concessions granted to private operators is resolved. For one thing, the assets transferred to TOT by the operators under build-transfer-operate contracts are worth 100 billion baht or one-third of TOT's total assets.

In addition, revenue shares paid by private operators under concession agreements accounted for about one-quarter of TOT's revenue of 51.95 billion baht last year.

Consequently, market analysts maintain that TOT and its shares cannot be valued properly without some idea of how future revenue streams will be affected if the concession terms are changed.

``If we can settle the conversion issue, then the TOT share price will become stable,'' said Olarn Pientham, a TOT senior executive vice-president.

The company's local financial adviser, SCB Securities, has recommended an IPO prices in a range between 13.14 and 25.71 baht a share.

The wide range reflects the fact that conversion of concessions remains a major obstacle to the smooth privatisation of TOT.

A total of 33 concessions owned by TOT Corp and the CAT are supposed to be converted from the existing revenue-sharing agreements to licensing agreements. Several obstacles remain, chief among them the fact that only the NTC, which does not exist, can issue licences.

Under a contingency plan being discussed late in 2002, an ``interim NTC'' could be formed by October 2003. Its membership would be drawn mostly from senior officials of the Post and Telegraph Department (PTD) and would be tasked with preparing essential market liberalisation regulations and administrative work for the NTC.

Without this interim body, the NTC would need a year to prepare regulations and paperwork before it could start functioning, thus delaying market deregulation further.

The delay in forming the regulatory body has seriously affected the PTD, which is supposed to become the NTC's administrative workforce. The PTD needs to recruit experts from several areas, including law and economics, to draw up the NTC regulations because its current staff are not qualified enough.

In the private sector, the second half of 2002 was a busy time in the executive suites of many telecoms companies, which have been moving younger people into key positions as competition intensifies. Cellular operator TA Orange, which signed up nearly 1.5 million subscribers in its first nine months of operation, staged a coup of sorts by luring Apirak Kosayodhin from the entertainment giant GMM Grammy Plc. he now serves as co-chief executive at TA Orange alongside Supachai Chearavanont. At DTAC, the second largest player with 5.5 million users, Vichai Benjarongkul from the parent United Communication Industry and Sigve Brekke from Telenor are now co-chief executives.

They succeed Boonchai Benjarongkul, who will remain chairman of Total Access Communication, the operator of the DTAC brand.

Mr Vichai, 41, is the younger brother of Mr Boonchai. He served previously as CEO of Ucom, while Mr Brekke was managing director of Telenor Asia, the regional affiliate of Telenor of Norway. A management reshuffle at Advanced

Info Service Plc also elevated Yingluck Shinawatra, the prime minister's younger sister, to president of the company, effective Dec 1, 2002. Ms Yingluck was the senior executive vice-president in charge of wireless corporate planning at the country's biggest mobile-phone operator now with 10 million users.

The management changes reflected a general shift away from competing to build a customer base to competing on services and customer retention.

Reducing churn has always been a challenge in the mobile phone industry, and one that will intensify in 2003 with the entry of Thai Mobile and Hutchison CAT Wireless Multimedia as new competitors.Thai Mobile was aiming for 100,000 subscribers by the end of 2002 after a commercial launch in November. It is a joint venture of TOT Corp and the Communications Authority of Thailand.

Supachai Pisitvanich, who was replaced as TOT chairman in late December, said the official commercial launch was made possible after Thai Mobile agreed with Advanced Info Service on a network roaming rate of two baht per minute, compared with 2.10 baht that AIS charges Digital Phone, its sister company. This put Thai Mobile in a very competitive position as it offered 4,000 baht a month of free calls for a 300-baht monthly fee.

With such incentives, Thai Mobile is also expected to clash head-on with the PCT service operated by TelecomAsia, as the two-year free PCT handset rental promotion was due to expire at the end of 2002.

The churn rate after the PCT promotion expired was expected to be high, industry sources said, as Thai Mobile was offering rates of just 1.50 baht a minute in Bangkok and two baht a minute on the AIS nationwide network after the 4,000-baht monthly limit is used up.

The popularity and cheapness of cellular services has also sounded the death knell for paging services. The country's largest paging operator, Shin Corp affiliate Advanced Paging, called it quits in the second half of 2002 and allowed TOT to take over its concession.

The Phonelink paging service, meanwhile, has only 40,000 subscribers, down from its peak of 500,000 in 1996. Its concession expires in three years. TOT also took over the WorldPage service from Ucom, which said it was running up major losses.

As well, TOT asked whether Hutchison would return its paging concession. Hutchison has not responded, saying that its customers, particularly business, needed data services.

Untying the conversion knot

CONCESSIONS: New minister promotes `third way' to resolve intractable debate

KOMSAN TORTERMVASANA

The Thaksin Shinawatra government has been in office for almost two years but nothing has been done to bring about a settlement to the debate over converting 33 telecom concessions worth several hundred billion baht. In addition to being important to operators who want to make sure they can compete once the industry is fully liberalised in 2006, conversion is vital to TOT Corp if it wants its initial public offering of shares to be credible. As it stands, TOT's assets and future revenue streams are difficult to value since assets and revenue from concessions make up a large part of its business.

It was hoped that the creation of a new Information and Communications Technology in late 2002 would provide some impetus. The minister, Dr Surapong Suebwonglee, wasted no time proposing a third framework as an alternative to proposals made by the Thailand Development and Research Institute (TDRI) and the Chulalongkorn University Intellectual Property Institute (CUIPI).

The TDRI advocated that if a concession was to be scrapped, revenues paid to the state must be calculated up to the year the original concession was due to expire. A discount formula based on the current revenue paid could be applied.

Private operators countered that such an arrangement threatened to bankrupt them, since some concessions had 10, 15 or more years to run.

The CUIPI suggested that payment of revenues should continue until either 2006 or the year the National Telecommunications Commission (NTC) is formed, whichever comes first.

The CUIPI also suggested private operators could buy back the assets they had transferred to state agencies
under build-transfer-operate agreements.``By the end of 2002, we likely will know when to start converting concessions with four options,'' Dr Surapong predicted bravely in November.

The four options, he said, were immediate conversion, conversion before TOT Corporation's listing on the stock market, conversion after the NTC is formed, or conversion after telecom liberalisation.

However, he maintained that industry liberalisation in 2006 was not a compulsory condition that Thailand had to meet, though that was the commitment made under the World Trade Organisation.

In 2006, the market is to be completely open to all operators, local or foreign. But the minister argued that in reality, foreign holdings in many Thai telecom firms already exceeded the 25% ceiling set out in the Telecom
Business Law that was passed in November 2001. The law was later amended to allow foreign holdings of up to49% in an acknowledgment of reality.

At any rate, said Dr Surapong, the need for concession conversions was now driven by the goal of providing ``fair play'' for all participants.

However, private operators complain that while TOT Corp and the CAT are heading toward privatisation and are supposed to act like normal businesses, they will still receive concession payments for some time to come.

Dr Surapong has attempted to address some of these concerns by moving to change the contracts the two agencies have with private operators.

He proposed that Finance Ministry could serve as the new contracted party to the private operators, who would pay their revenue shares to the ministry and not TOT and the CAT.

The ministry would hold the money in escrow until a final decision is made on how it should be disbursed after concessions are converted.

The private sector applauded the idea, saying it made no sense for TOT and the CAT to be business competitors while collecting money from other companies at the same time.

Currently private operators pay different revenue shares to the state. For example, TelecomAsia pays only 16% to TOT, while the provincial fixed-line operator TT&T Plc pays 43%. Therefore the issue of ``fair play'' remains the catalyst for converting concessions.

The government has yet to provide clear indications to resolve the two most important issues _ who will become the central collection body and how much each operator still has to pay.

The legal question about whether the Finance Ministry can be the contracted party to the telecom companies are yet to be resolved.

In early 2002 the Transport and Finance ministries suggested forming a paper company, named Thai Asset, to receive all concession assets for management.

The paper company would also receive the revenue share payments.But after a detailed study it was considered that this model could attract legal challenges as private operators would be asked to pay revenue shares to a paper company with which no contracts existed.