NBTC and the delayed 4G auction
Deunden Nikomborirak, PhD
Thailand Development Research Institute
Recently I watched the popular stand-up comedy show by ‘Nose’ Udom Taepanich. Khun Nose said that “we, the Thai people, often think that we are better off than our neighbours. However, people in Lao PDR are already using 4G services for a long time. On the other hand, in Thailand, we may have to wait until our next lifetime before such services arrive”.
The delay in the process in Thailand’s telecommunication development is not merely just a joke. The Institute of Management Development (IMD) in 2012 found that, overall, Thailand came third in ASEAN (after Singapore and Malaysia) in all of the quality indicators for services – namely, public transport, air transport, financial services, energy and telecommunications. Only in telecommunications services that Thailand came fourth, after the Philippines which has lower level of economic development compared to Thailand.
In my view, the slow progress of Thailand’s telecommunications services can be attributed to several factors including the amendment of law governing spectrum allocation, the dispute over the legal power of the telecom commission to auction spectrum in the absence of its broadcast counterpart and the legal dispute related to the auction of the 2.1 GHz frequency for 3G services. These hurdles reflect the fact that the telecommunications industry involves substantial commercial interests such that any regulatory move is subject to intensive scrutiny by both interest and non-interest parties. The 3G auction last year was a significant move forward although the auction, in my opinion, was more like a ‘hand out’ of the 3G license as there was no ‘real’ competition between the three contenders.
Earlier this year, Thais had a glimmer of hope to have 4G services which will provide a download speed up to 100 Mbps, or five times faster than the 3G services. This is because the cellular phone concession issued to True Corporation and, currently used for 2G service on the 1800 MHz spectrum, will expire on the 15th of September 2013. This hope was dashed, however, when the National Broadcasting and Telecommunications Commission (NBTC) decided to extend the current 2G service for one more year, citing the need to migrate existing customers. It appears odd that the NBTC has not made arrangements for mass migration any earlier given that the termination of the contract is a known fact.
The NBTC’s decision appears also to be in stark contradiction to the Spectrum Allocation Master Plan — in place since April 2012—which stipulates that spectrums used under a concession must be returned to the NBTC upon expiration of the contract to be auctioned off as prescribed by the law governing frequency allocation. Numerous well-known academics in the legal circle have criticized the decision as likely to be unlawful. CAT Telecom, the state-owned operator which is the concessioner, accused the NBTC of catering to the interest of the private concessionaire and threatened to bring the case to the Administrative Court.
The sub-committee on preparing for the 1800 MHz auction, in which the author is also a member, has proposed, since January 2013, that the NBTC should urgently inform customers about the expiration of the concession so that they may make own migration decision. However, the NBTC failed to do so until very recently when it advertised in newspapers, merely a few months away from the actual expiry date.
As customers were not promptly informed, many entered into contractual obligations which extend well beyond the expiration date of the concession. Pre-paid customers continue to purchase credits that may not be used up by the concession termination date. It is thus not surprising that a termination of the service in September will be chaotic. The NBTC needs to explain why it does not take moves to prevent the problem given that it had full knowledge of the contract expiration.
It is interesting to note that both concessionaires — True Corporation and DPC – did not seem to perceive the termination of the concession as a problem. TRUE had notified the NBTC of its willingness to migrate its 17 million customers in preparation for vacating the spectrum slot, but the NBTC did not issue clear instructions on how to proceed at the time.
The delay of the 1800 MHz spectrum will certainly impose costs on the Thai economy, which can be substantial. According to an academic paper, the forgone consumer surplus associated with a delay in the auctioning of the 3G spectrum in England was estimated to be five to seven times of the value of the spectrum. If we use the price of the recently auctioned 3G spectrum at 4,500 million baht per 5 MHz as a reference price (it is assumed that the value of the 4G spectrum is not lower than that of 3G given that TRUE decided to develop 4G services on the 3G spectrum) , the 1800 MHZ spectrum auction (totaling of 25 MHZ) would be worth approximately 22,500 million baht. Multiplying this by five to seven times and it will result in the estimated consumer surplus loss of approximately 112,500 – 157,500 million baht per year.
The above figure is only a rough estimation of the potential loss from the delayed auction delay. The actual figure will need to be estimated based on local variables. I believe that any decision has both cost and benefit. The NBTC needs to explain to the public why it was not able to migrate customers in time and whether it had taken into consideration the downside of its decision.
In my view, the NBTC had given dubious reasons with regard to why it had not taken steps to mass migrate customers and prepare for the auction. These include, for example, not having sufficient time due to the preparation for the 3G auction that took place in 2012 to not having the legal authority to inform the public about the expiration of the contract and to hold an auction prior to the contract termination. In my opinion, the NBTC, with roughly 1000 staff and a generous budget, has no excuse not to prepare, in a timely manner, to auction off the 1800 MHz spectrum as required by the law and the Spectrum Allocation Master Plan.
The NBTC is an “independent regulatory body” created by the Constitution. It is independent from the executive power and has its own budget and human resource management. However, its independence is not properly balanced by accountability. For example, it does not conduct thorough impact assessment of its major decisions where potential cost and benefit are estimated. It does not disclose many documents to the public, including the Report of the Subcommittee Preparing for the 1800 MHz Spectrum Auction submitted in January this year. I believe that if we want to ensure that the Thai telecom sector moves forward, we all should demand greater transparency and accountability of the NBTC’s decisions.
 Thomas Hazle, Roberto Munoz and Diego Avanzier (2012), What Really Matters in Spectrum Allocation Design?Northwestern Journal of Technology and Intellectual Property, Vol 10.Issue 3.