Thai Telcos Face Higher Costs, Less Revenue

The Thai telecommunications market, which arguably has been unstable over the past decade, looks to get another remake.

A possible merger of state-owned Telecom of Thailand (TOT) and CAT Telecom, a talked-about option since at least 2006, might actually happen, if the Thai government gets its way.

The Thai government proposes to create a new wholesale company providing wide area optical transport services, and also owning the existing mobile tower networks.

Revenue issues for the two state-owned firms arguably have been made tougher by the decision to create a national backbone and tower services firm.

That should negatively affect TOT and CAT, which today are the suppliers of all wholesale communications facilities in Thailand. In effect, the new national backbone network will remove revenue-generating assets. In some cases, where TOT or CAT need those assets to support their own businesses, new costs are added, at the same time.

The current system, where “concessions” rather than “licenses” are the patten, means that 30 percent of retail service provider revenue is owed to the state. Now CAT and TOT might find themselves payers rather than payees for some services.

The potential merger of TOT and CAT, along with the new national backbone network, occur against a  backdrop of an arguably inconsistent and unstable regulatory framework in Thailand.

For mobile services market leader AIS, that means a concession fee for each prepaid customer of 25 percent, and a fee for each postpaid customer of 30 percent.

Most users of voice communications in Thailand have for some time relied on mobile rather than fixed network service provided by private operators, though CAT’s mobile service, majority owned by Hutchison Whampoa, is among the larger firms in the Thai market.

The new backbone network presumably means some of the concession fee will flow to the national backbone company, not CAT or TOT.

That, of course, will have negative repercussions for cost structure at TOT and CAT.

Already, the Thai government appears to have asked both CAT and TOT to rapidly reduce costs by 10 percent. That, combined with a loss of some revenue to the new national backbone network, is one reason a merger between the two firms might be necessary.