VZCZCXRO0941
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHBK #0248/01 0290456
ZNR UUUUU ZZH
O 290456Z JAN 10
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9749
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHCHI/AMCONSUL CHIANG MAI IMMEDIATE 7592

UNCLAS SECTION 01 OF 03 BANGKOK 000248 
 
STATE FOR EAP/MLS, EEB/CIP 
STATE PASS TO USTR FOR BWEISEL, BKLEIN, JMCHALE 
COMMERCE FOR EAP/MAC/OKSA FOR JKELLY 
SINGAPORE FOR FINATT BLEIWEIS 
TREASURY FOR OASIA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ECON ETRD EINV KIPR PREL TH
SUBJECT: THAI TELECOMS: FINANCE MINISTER KORN'S PLAN TO BREAK THE 3G 
STALEMATE 
 
BANGKOK 00000248  001.2 OF 003 
 
 
¶1. (SBU) SUMMARY: The Thai government has repeatedly delayed the 
auction and licensing of third generation (3G) telecommunications 
services -- largely because of disagreements over how to deal with 
the two state-owned telecommunications operators, TOT and CAT, and 
the private providers that have concession contracts with them. TOT 
and CAT collect an estimated $1.8 billion a year in concession fees 
from the private mobile phone companies; how to ensure that the Thai 
government will continue to see this revenue stream after the 
introduction of 3G has been a primary concern and one of the reasons 
for the repeated delay of the 3G auction. However, according to 
several contacts in the telecom industry, Finance Minister Korn 
Chatikavanij may have finally brokered a concession conversion deal 
that would satisfy the various stakeholders and allow the 3G auction 
to move forward. Some issues still remain however, such as whether 
the National Telecommunications Commission even has the authority to 
issue 3G licenses. 
 
¶2. (SBU) SUMMARY CONT'D: The eventual rollout of 3G will provide 
numerous business opportunities for American companies, such as 
Qualcomm and Motorola, to provide equipment and services on the new 
platform. Perhaps more important are the opportunities in other 
sectors of the Thai economy that will also benefit from 3G, 
including retail businesses, financial services, and media and 
entertainment -- all areas where American companies have strong 
competitive advantages. END SUMMARY. 
 
¶3. (SBU) COMMENT: Concession conversion has been on the Thai 
government's plate of options for many years, but no one has found 
the right recipe to make a deal palatable to the various 
stakeholders. Most telecom insiders have doubted that TOT and CAT 
would ever agree to concession conversion terms since both would 
lose their stream of revenue sharing payments and be forced to 
compete with the private companies. However, several of our telecom 
contacts believe that Finance Minister Korn's new plan just may work 
this time. Korn first and foremost wants a level playing field that 
would encourage investment in the sector. The current stakeholders, 
including TOT and CAT, will likely negotiate for better terms under 
Korn's scheme, but the plan should still move forward. If this 
proves successful, the concession conversion, and more importantly 
the eventual introduction of 3G telecom services (a feat that every 
previous government has tried but failed to accomplish), will be a 
major political victory for the Abhisit team. END COMMENT. 
 
A Tale of Two Telcos 
-------------------- 
 
¶4. (SBU) As Thailand's economy boomed in the 1980s, the two 
state-owned telecommunications enterprises proved unable to meet the 
country's growing demand for mobile phone services. The 
Telecommunications Organization of Thailand (TOT) had provided 
domestic fixed line services since the 1950s, while the 
Communications Authority of Thailand (CAT) was established in the 
1970s to provide international long-distance services. Beginning in 
the late 1980s when the demand for cellular phones took off, TOT and 
CAT struck numerous deals with private telecom companies to provide 
mobile phone services on the state-owned frequencies. Today, 
Thailand's three main mobile operators (AIS -- which was once one of 
former Prime Minister Thaksin's companies, DTAC and True) still 
depend on these arrangements (called concessions) for their business 
operations. 
 
¶5. (SBU) While the terms of each concession differ, the private 
companies agreed to pay between 20 and 30 percent of their total 
revenues to TOT or CAT in exchange for the use of the frequencies. 
The private companies also agreed to install the required 
infrastructure at their own expense but transfer the ownership of 
these assets to TOT and CAT at the end of the concession period (as 
part of a Build-Transfer-Operate (BTO) contract). The private 
companies retained the rights to use the equipment for the agreed 
period of time. 
 
¶6. (SBU) These concession arrangements, all of which are scheduled 
to expire within the next eight years, generate an estimated $1.8 
billion for the state-owned TOT and CAT each year. Industry contacts 
tell us that only about 10 percent of these revenues actually ends 
up in the Ministry of Finance coffers however. (COMMENT: While some 
of the money is used to finance the overly large, inefficient 
operations of TOT and CAT, several of our contacts believe that a 
significant portion of the cash lines the pockets of not only TOT 
and CAT executives but probably many politicians as well. END 
COMMENT.) 
 
BANGKOK 00000248  002.2 OF 003 
 
 
 
¶7. (SBU) Regardless of where the concession payments end up, this 
revenue stream remains one of the major obstacles to Thailand's 3G 
deployment. Government officials, as well as executives at TOT and 
CAT, worry that after the private operators obtain new 3G licenses, 
they will move their subscribers over to the concession-free 
networks, significantly reducing the payments they make to TOT and 
CAT. This loss of revenue would force the state-owned enterprises to 
drastically change their business model. 
 
Korn's Plan to Break the Stalemate 
---------------------------------- 
 
¶8. (SBU) As Finance Minister, Korn Chatikavanij oversees the revenue 
collection of the state-owned enterprises. After the government's 
failed attempt to jumpstart 3G deployment in 2009, Korn began to 
look for a solution to the impasse, particularly since TOT and CAT, 
which are under his purview as the Ministry of Finance technically 
owns the corporations, were seen as the major obstacles. In late 
November, Korn told the Financial Times, "We have a legacy of 
different concessions being given by different state agencies to 
different people on different terms." He continued, "We want to 
provide a standardization so that free and fair competition could 
exist and the private sector could have a greater level of 
confidence to make the kind of investments we want to see." 
 
¶9. (SBU) After carefully reviewing the options, Korn has proposed a 
solution known as "concession conversion" -- the basics of which 
have been floated around by telecom insiders and government 
bureaucrats for many years. The government, as the sole owner of TOT 
and CAT, would convert the existing 2G concession contracts of the 
private operators (AIS, True, and DTAC) into new 15-year licenses 
with the government. TOT and CAT would also receive new licenses 
themselves for mobile operations and would be allowed to compete 
with the private operators (but this time on a more level playing 
field). In order to maintain the previous revenue flows into the 
government coffers, Korn will require all of the new licensees, 
including TOT and CAT, to pay 15 percent of their total revenues to 
the government as a fee or tax for the use of the frequencies. When 
3G is introduced, this 15 percent fee would apply as well. 
 
¶10. (SBU) TOT and CAT, which would still own the existing 
infrastructure and networks because of the original BTO contracts, 
would be required to permit third parties to access their assets at 
equal and reasonable prices -- another decision that further levels 
the playing field. With the concessions gone, the National 
Telecommunications Commission would become the sole regulator of the 
private and state-owned telcos. 
 
¶11. (SBU) Korn tasked the State Enterprise Policy Office to draft 
the specifics for the concession conversion, a process which he 
hopes will take less than three months. Once the 2G spectrum issues 
are resolved, the government's telecom regulator could then auction 
and issue the 3G licenses to the highest bidders. 
 
A Few Hurdles Still Remain 
-------------------------- 
 
¶12. (SBU) In addition to the concession issues, the 3G auction has 
also been delayed due to a lack of a strong, independent regulatory 
authority to administer and issue the licenses. The Frequency 
Allocation Act of 2000 required the establishment of the National 
Telecommunications Commission (NTC) and the National Broadcast 
Commission (NBC), which would separately manage the broadcast and 
telecom spectrum, as well as develop regulations regarding their 
use. The NTC was established in 2004, but political infighting 
prevented the standing up of the NBC. 
 
¶13. (U) The 2007 constitution added a new layer of confusion, 
however, when it called for the establishment of the National 
Broadcasting and Telecommunications Commission (NBTC), a combined 
FCC-style agency that would regulate all broadcast and telecom 
spectra, including the 2.1 GHz frequency for 3G. Questions then 
arose as to whether the existing NTC held the authority to issue 
regulations or licenses, or if the new NBTC must first be formed. 
The NTC sought the opinion of the Council of State, Thailand's legal 
advisory body, on its authority to issue licenses, but the Council 
has not yet issued a decision. In December, the Attorney General's 
Office weighed in on the matter and publicly stated that only the 
NBTC should have the authority to issue 3G licenses, based on their 
reading of the 2007 constitution. 
 
BANGKOK 00000248  003.2 OF 003 
 
 
 
¶14. (SBU) Even if the question of the NTC's authority is resolved 
prior to the establishment of the new constitutionally-mandated 
NBTC, another stumbling block is the NTC's lack of quorum. Four of 
the seven commissioner seats are vacant. The government recently 
nominated and approved replacements, but the required royal 
endorsement was held up after corruption allegations surfaced about 
two of the four candidates. 
 
¶15. (SBU) On a positive note, the draft legislation to create the 
11-member NBTC is currently under review in Parliament. Industry 
contacts believe that the bill could be endorsed by both legislative 
houses as early as June 2010. If Korn's plan for concession 
conversion also succeeds, the government likely will expedite the 
setup of the NBTC, allowing the 3G auction and licensing to proceed 
without controversy. 
 
Why This Matters to Us 
---------------------- 
 
¶16. (U) U.S. businesses have been eagerly awaiting the commercial 
opportunities that would come with the introduction of 3G. While no 
American companies currently provide mobile phone services in 
Thailand (nor have any shown an active interest in doing so), 
several U.S.-based telecom equipment providers are well-established 
in Thailand and will greatly benefit from 3G opportunities. Cisco 
and Motorola, for example, would likely compete for contracts to 
supply switches, routers, and other equipment to build out the new 
3G networks. Qualcomm hopes many of Thailand's 60 plus million 
mobile phone owners will upgrade to new 3G-capable phones that use 
Qualcomm chips. 
 
¶17. (U) Many American firms are also excited about the multiplier 
effects that 3G will likely have in the Thai economy. The broadband 
penetration rate is currently estimated at only 2 percent, but the 
introduction of 3G services, particularly since the mobile phone 
penetration rate is nearly 100 percent, will greatly improve the 
population's access to broadband services. A recent study by the 
London-based LECG consulting group posited that the introduction of 
3G could generate economic gains of more than $9 billion over the 
next five years across multiple sectors, including retail, financial 
services, and media (sectors where American companies have 
traditionally held strong competitive advantages). In particular, US 
companies that develop software and content for mobile applications, 
such as videoconferencing, internet connectivity, gaming, banking, 
and advertising, will clearly benefit from the 3G upgrade. Computer 
manufacturers, and firms that provide computer components such as 
Intel, also anticipate a sales surge in computers, such as netbooks, 
that can connect wirelessly to the internet over 3G networks. 
 
JOHN