VZCZCXRO7637
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #2020/01 0970516
ZNR UUUUU ZZH
R 070516Z APR 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 6085
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHNY/AMEMBASSY OSLO 0940
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SECTION 01 OF 03 BANGKOK 002020 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EB/CIP, EAP/MLS 
STATE PASS USTR FOR JMCHALE 
USDOC FOR 4430/EAP/MAC/OKSA 
 
E.O. 12958:N/A 
TAGS: ECON ETRD ECPS TH
SUBJECT:  THAI TELECOM CONCESSIONS ON THE PRECIPICE 
 
REF: BANGKOK 1203 
 
¶1.  Summary:  Thailand's Council of State is reviewing amendments 
made over the years to the private telecom concessions and is likely 
to conclude that the amendments were granted illegally.  The 
Ministry of Information Technology and Communication (MITC) could 
use the Council's finding to move ahead with cancelling all 
concessions and effectively nationalize the sector, but will more 
likely use its strong position to renegotiate the contracts.  MITC 
and the coup-installed government in general claim to be using their 
limited time in office to strip away the corruption of the Thaksin 
years and level the playing field for the years ahead.  They would 
also like to see state-owned telcos strengthened.  Inflicting pain 
on Shin Corp, formerly owned by Thaksin, would be an added bonus, 
exacting a measure of revenge for the alleged corruption the company 
was involved in during the Thaksin years.  The RTG's proposals may 
be injurious to the investment environment, but serious action does 
need to take place in Thailand on the status of the telecom sector. 
However, in the end this government may not have the time to push 
through radical changes.  End Summary. 
 
¶2.  Thailand's private mobile and fixed telecommunications providers 
have long operated under a Build-Transfer-Operate system, wherein 
the private telcos build the infrastructure, transfer ownership to 
state-owned telcos TOT or CAT, then operate their business under a 
concession of limited duration.  The original concessions were 
scheduled to end between 2006 and 2013 for the three largest private 
providers, but over the years they negotiated amendments that 
extended those concession lives to up to 2018 and reduced regulatory 
fees. 
 
¶3.  The MICT's own recent review of the concessions concluded that 
the RTG Cabinet did not approve the amendments as required by law 
and they are therefore invalid.  They suspect as well that the 
amendments were questionably obtained and may have involved 
corruption on the part of senior executives from TOT and CAT.  The 
Council of State, the RTG's legal agency, is reviewing the legality 
of the amendments and is expected to issue a recommendation for 
remedy as well.  Although the Council's opinion is non-binding, it 
would guide the government in its attempts to seek redress through 
the judicial system. 
 
Is this the end for concessions? 
-------------------------------- 
 
¶4.  In a worst-case scenario for the private telcos, all non-Cabinet 
approved amendments would be cancelled and concessions would revert 
to their originally approved timeframes.  For market leader AIS 
(owned by Shin Corp, itself owned by Singapore's Temasek), their 
concession would be cut from 2015 to 2010, and be required to share 
30 percent of their revenues with TOT vice the current arrangement 
of 20 percent plus a portion of the VAT tax.  Analysts doubt AIS 
could recoup their investment under these limitations. 
Norwegian-owned DTAC would be hit even harder:  their original 
concession ended in 2006, and they essentially would be forced to 
close their doors.  In addition, a reduction in revenue sharing won 
in the mid-1990s would be eliminated, and DTAC could be liable for 
underpayment of revenue sharing over the past ten years.  TRUE Move, 
the third largest provider, operates under an amendment to DTAC's 
concession, and would have to close shop as well.  If courts rule 
the telcos underpaid revenue sharing payments, they could also 
impose substantial fines. 
 
¶5.  Although the worst-case scenario is a possibility, analysts 
believe that outright cancellation would be tantamount to 
nationalization and have a disastrous effect on the investment 
climate.  Rather, they believe the RTG would instead use its strong 
position to renegotiate the concession contracts.  One analyst 
predicts the RTG would seek to level the playing field, and set the 
same concession termination dates and revenue sharing arrangements 
for each telco rather than the hodgepodge of individual agreements 
that exists today.  The RTG could choose to set termination dates at 
2013, consistent with that of TRUE Move.  This would trim AIS's 
concession by two years and DTAC's by five.  Revenue sharing would 
be set at 25 percent, equal to DTAC and TRUE's current arrangement, 
but a tad higher than what AIS currently pays.  The telcos may also 
be liable for fines for underpaying revenue sharing. 
 
¶6.  TOT Chairman General Saprang Kalayanamitr recently proposed that 
all telecommunications assets be brought together in a "telecom 
pool".  After pulling back the private concessions, TOT would become 
a national telecommunications company, managing the nation's assets 
and leasing use of the networks to private companies.  Critics 
question the TOT's competency in managing the entire network, and 
worry that consolidation will bring a return to government monopoly 
 
BANGKOK 00002020  002 OF 003 
 
 
of the industry.  TOT would maintain sole control over expansion of 
the network and leasing rates.  MICT Minister Sittachai later took a 
step back on the telecom pool idea, saying that only the two 
state-owned providers would consolidate network management. The 
telecom pool idea appears to be losing strength, but the idea still 
has support within the coup leadership. 
 
¶7.  The private telcos are intimidated by the MICT Minister's and 
TOT Chairman's comments regarding withdrawing the concessions, but 
do not believe the worst will pass.  And, as one operator told 
Econoff, "If they do, we'll see them in court."  From their 
perspective, the responsibility to obtain Cabinet permission for the 
amendments belonged to TOT and CAT, and if a court rules them 
invalid the private companies will sue for damages.  However, the 
RTG suspects corruption played a hand in the approval of the 
amendments.  The telcos say they received the concession extensions 
in a tradeoff for increased competition in the sector, but other 
telecom analysts say the amendments were so one-sidedly in favor of 
the telcos, particularly for Shin-owned AIS, that corruption almost 
certainly was involved.  Though difficult to prove, if the 
amendments were obtained illegally the concessionaires will have no 
legal recourse, even if the concessions are withdrawn completely. 
 
Still gunning for Thaksin? 
-------------------------- 
 
¶8.  RTG officials say, and most analysts agree, that the 
government's motivation in investigating the concessions is to clean 
house in the telecom sector and eliminate the corruption and shady 
deals that took place both before and during the previous 
administration.  MICT Minister Sittichai has said he wants to 
rebuild the telecom industry on a foundation of "fairness, justice, 
legitimacy, and transparency."  Disturbed by the scope of the 
revenue lost to the government from the amendments, he is determined 
to guide the sector with a firmer hand.  Punishing the telcos for 
their illegal behavior not only levels the playing field, but sets a 
precedent for future corruption, sending the message that corrupt 
activities will be discovered, perhaps not soon but eventually, and 
will be severely penalized. 
 
¶9.  Nevertheless, it is hardly coincidental to the investigation 
that the former owner of the largest telecom provider was the 
now-deposed PM Thaksin.  Coup leaders justified the coup by claiming 
a culture of corruption surrounding Thaksin and have launched 
numerous investigations (mostly fruitless so far) to prove it so. 
The RTG's vendetta against Thaksin has hit hardest on his former 
company, Shin Corporation, and its current Singaporean owners 
Temasek.  As a holding company, Shin holds mobile provider AIS, 
satellite company Shinsat, independent television station ITV, and 
discount airline Thai Air Asia.  Since Temasek made its bid for Shin 
in January 2006, the stock price has dived by more than half. 
 
Shin takes it on the chin 
------------------------- 
 
¶10.  In December 2006, in a case similar to the current telecom 
investigation, a court ruled that the Cabinet had not approved an 
amendment to ITV's contract and was therefore invalid (reftel).  The 
government withdrew ITV's operating concession after it was unable 
to pay 100 billion baht in fines (approx. USD 2.8 billion), 
effectively eliminating the last non-state owned television station. 
 Although ITV was a minor possession of Shin Corp and had little 
effect on its bottom line, the case set a disturbing precedent for 
the telecom concessions and the investment environment at large. 
 
¶11.  In February, coup leader Sonthi Boonyaratkalin called for the 
return of ShinSat's satellite assets, terming them "Thai national 
assets", adding that as a soldier he would "not tolerate a loss of 
territory, not even a square inch.  It is the same with natural 
resources."  Sonthi also alleged that the Singaporean owners were 
secretly bugging Thai telephones via the satellites.  MICT officials 
 
SIPDIS 
examined ways to take possession of ShinSat and though ruled out an 
outright nationalization of the assets, considered buying out 
Temasek's stake in the company.  The MICT also reviewed Shin 
Satellite's concession, and while it found several discrepancies, 
decided they were of a limited technical nature and took no action. 
As quickly as it began, the RTG's quest for the return of the 
satellites ended, as PM Surayud coolly announced that the government 
would not be interfering in the matter and would leave it to the 
private sector.  Analysts surmised that the RTG leadership realized 
either that its relations with Singapore were being unnecessarily 
damaged, or that perhaps taking full ownership of the debt-laden 
ShinSat was not such a good acquisition after all. 
 
NTC on the ropes 
 
BANGKOK 00002020  003 OF 003 
 
 
---------------- 
 
¶12.  Thailand's independent regulator, the National 
Telecommunications Commission, confided their concerns in a meeting 
with the European Commission, fearing that cancellation of the 
concessions will preclude a power shift away from NTC and back to 
the state.  NTC accuses the state-owned telcos of routinely ignoring 
NTC regulations, a situation that would only worsen if telecom 
assets were concentrated under state control.  The NTC believes that 
if its regulatory powers shift to the state, Thailand will be out of 
compliance with its WTO commitments to maintain an independent 
regulator and separate regulatory and operational functions.  The 
NTC pleaded with the EU to inform RTG officials of the potential 
impact concession cancellation could have on the investment 
climate. 
 
¶13.  The National Legislative Assembly (NLA) has held two public 
hearings on potential amendments to the Telecom Act and the 
Frequencies Act.  The key amendment would consolidate the NTC with 
the yet-to-be-formed National Broadcasting Commission (NBC).  The 
years-long delay in creating the NBC has delayed the issuance of 
licenses for 3G services as the technology crosses both areas. 
Telecom providers are enthusiastic about the proposed amendment, as 
is the NTC, but media groups oppose the proposition on the grounds 
that a combined NTC/NBC would give broadcasting issues short 
shrift. 
 
¶14.  Comment:  The telecom sector is in a highly volatile state and 
the high degree of uncertainty is affecting the investment climate 
beyond just this sector.  The constant pronouncements of plans for 
radical changes in telecom by a diverse range of actors in the 
government is raising blood pressures among telecom providers. 
However, despite the volatility of the RTG's statements, it should 
be noted that they have yet to follow through on the more radical 
ideas.  Time is also an issue.  The current government plans to hold 
elections by end of year and may find it difficult to complete what 
would be drawn out negotiations with private telecom providers over 
concessions, not to mention possible court actions.  Current ideas 
for telecom changes may have a negative impact on the sector, but 
the silver lining is that serious discussions are now taking place 
on the role of the regulators, the state-owned agencies and their 
relationship with the private telcos.  End comment. 
ARVIZU