AIS and TOT’s partnership – Has TOT learned anything from the past?

AIS and TOT married for 25-years – divorced and now soon to be engaged again

In December 2015, Thailand’s state enterprise telecom operator TOT, pre-approved a proposal from the leading mobile operator AIS to become a MVNO and partner in mobile business

AIS will build 10,000 3G (2100 MHz) base stations for TOT, in return for the rights to lease up to 80% of bandwidth capacity as MVNO for 10 years. TOT expects to achieve a net revenue between THB 3.5 to 3.8 billion annually from this partnership.

A draft of the memorandum of understanding (MoU) 3G-service partnership has been sent to the Office of the Attorney General (OAG) for approval and is expected to be cleared before April 1st.

According to information leaked from the partnership setup, the deal also includes that AIS will have first choice on TOT’s 2400MHz as well, so not only limited to the 2100 MHz spectrum.

The reason for AIS’ interest in a partnership with TOT is obvious. The market leader failed to secure a license for the 900MHz spectrum in Thailand, the exact spectrum that already carried millions of AIS 2G subscribers.

JAS Mobile and TRUE made the highest bid for the 900 MHz spectrum licenses. However, last week JAS Mobile was not able to present the necessary bank guarantees and now a re-auction is set for May 27, 2016.

Prior to all this, AIS and TOT was married for 25 years via a concession agreement, which came to an end in September 2015. TOT was told several times to find another revenue source in order to survive once the concession expired, but TOT never managed to do so.

During the concession period, several doubtful amendments was made to the concession which favored AIS, including TOT lowering the concession fee for AIS’s prepaid service from 25-35% down to a flat 20% until the end of the concession – and under the seventh amendment in 2002, TOT allowed AIS to deduct the roaming fees paid to its subsidiary Digital Phone Co (DPC) from the calculation of the AIS concession fee.

The attempt to clear up the concession-amendment issues has dragged on for years but started to take shape when TOT was told by the ICT Minister last year to seek compensation of about THB 59 billion from AIS.

In the following chapter we look at some of the issues related to the AIS/TOT partnership deal, based on the details from the deal that has been made available in public so far.

ISSUE: ONLY ONE PARTNER (AIS) = ONLY ONE REVENUE SOURCE

With the new AIS deal, TOT is repeating the history by relying on only one partner and one revenue source to provide income, which clearly hasn’t worked out, as this is the reason why TOT has been – and is, in this situation today.

TOT’s history clearly shows, that they never managed to gain any success in mobile retail business themselves e.g. Thai mobile and TOT3G.

SOLUTION: ADAPT A MULTI-REVENUE-SOURCE STRATEGY BY PARTNERING WITH AN MVNE

TOT should partner with a Mobile Virtual Network Enabler (MVNE), who can attract and setup multiple MVNOs and Service Providers. E.g. a multi-partner strategy for multi revenue sources, which mitigates TOT’s high risk of relying on one partner’s revenue success (or failure) and thereby stay in control of its own destiny.

Although we would love to take the credit for this idea, it is not new, and a solution practiced by several operators around the world.

TOT should open with the MVNE first, and then attach the AIS deal to the MVNE setup. Doing so would eliminate possible regulatory issues in the AIS deal (which we highlight below), as AIS would then become a real MVNO on TOT, and TOT would be in control of the network and capacity and able to monitor all activity and usage of AIS on its network.

This is essential to monitor if calls/data are carried out on TOTs network or if AIS is preferring to move users to its own network(s) = no revenue to TOT.

ISSUE: AIS FOCUSSED ON 1800 MHz ROI = LIMITING REVENUE SHARE WITH TOT

To offset the high costs associated with its newly acquired 1800MHz license and infrastructure setup, AIS will probably (understandably) prefer to add customers to its own 1800 MHz and 2100 MHz.

Having a “back-up” on TOT’s 2100MHz (and later on 2300 MHz), AIS will be in a position to migrate its heavy users to its new 1800 MHz 4G, keep the current 3G customers on its own 2100 MHz – and move those 2G/3G customers with low usage to the TOT 2100 MHz deal, thereby securing the top customers on its own network and avoid sharing revenue with TOT on TOT’s 2100MHz – resulting in low revenue to TOT.

SOLUTION: MVNE AND MVNO’s DEPEND ON THE SUCCESS OF TOT

In addition to the multi partner strategy mentioned above, the business setup between the MVNE, MVNO and TOT would be revenue share based and only on TOT’s network.

It would therefore be in the interest of all stakeholders, that the service becomes a success = win/win as the MVNE and MVNOs does not have other networks than TOT, opposite AIS who can divert to other spectra (Its own) and avoid sharing with TOT.

REGULATORY ISSUE I

Earlier this year, the State Audit Commission, under the Office of the Auditor General (OAG) identified issues in TrueMove’s (a subsidy of TRUE Group) controversial 850MHz so-called “MVNO” setup with the other state telco CAT Telecom.

Professor Chaisit Trachoetham, Chairman of the State Audit Commission Office of the Auditor General of Thailand, has setup a committee to identify individuals at CAT Telecom responsible, so that further disciplinary action, civil lawsuits and criminal lawsuits may be taken.

Paragraph 46 in Thailand’s “Act on Organization to Assign Radio Frequency and to Regulate the Broadcasting and Telecommunications Services B.E. 2553” states:

§46. A spectrum license for telecommunications business is the exclusive rights of the licensee and is not transferable.

The licensee who has been authorized to use spectrum for telecommunications services shall carry out the services by himself or herself. Business management either in whole or in part shall not be rendered or permitted to other to act on his/her behalf.

It is well known that True has managed CAT Telecom’s 850MHz, the first contract between the parties stipulated that CAT was not allowed to be involved in network expansion and management plans.

§46 also means that AIS cannot manage the spectrum of TOT. However, AIS has clearly taken notes of the so-called “MVNO partnership” between TRUE and CAT TELECOM, and is copying all they can from that.

Problem is, the TRUE/CAT setup is filled with issues and a new ongoing investigation. If/when a final decision regarding those issues, is reached it would hit AIS/TOT as well, having copied the same setup.

REGULATORY ISSUE II

It is not the first time TOT is willing to let go of its spectrum capacity. In 2013 TOT planned to sign a 12-year contract with Samart I-Mobile Plc. However, the Office of the Auditor General (OAG) said back then, that the contract would place TOT at a major disadvantage, as it would have left TOT with only 5 MHz of its own 15MHz bandwidth going forward.

Will the OAG accept the new AIS/TOT deal which looks very similar?

REGULATORY ISSUE III

As the market will now have two sharing agreements (TRUE/CAT) and (AIS/TOT) it will facilitate co-ordination and result in a wholesale duopoly, with dominant control over the market.

In addition, AIS is classified as a SMP = an operator with significant market power, due to its large (success) market share, and as such, subject to specific obligations and requirements.

TOT is a state-enterprise, and although this is not a merger, and done under the cover of a “MVNO” setup, it would be alarming if AIS/TOT would actually get away with this setup, without any regulatory intervention or requirements.

It is also worth noticing that AIS themselves, are obligated to host MVNOs on its 1800Mhz and 2100MHz network, setting aside 10% of the capacity on each spectrum to MVNOs. However, AIS have not launched any MVNOs on its spectrum since the terms was introduced 3-years ago on the 2100 MHz license.

SOLUTION: SEPARATE TOT’s NETWORK AND RETAIL

TOT manages the network as usual, but work with the MVNE on marketing and operation of TOT’s wholesale to MVNOs and service providers (Retail) without compromising TOT’s network, budget, or brand values e.g. separating network and retail in accordance with regulations.

Opposite AIS (and True) the MVNE is not a subsidy of another mobile operator with own network or base-stations on the side. Its business is to make sure the MVNOs succeed and exert sufficient pressure on the market, and it only makes money when the MVNOs and TOT makes money.

ISSUE: FAILURE TO ATTRACT MVNO’s AND SUCCESS

As of 2016, NBTC has issued MVNO licenses to 39 companies in Thailand. Only five MVNOs have launched at TOT (3 remain). Fewer has launched on CAT Telecom and some will launch on CAT mid-year.

But many, both Thai and international MVNOs are interested in launching MVNOs in Thailand problem is TOT does not have the right platform and most of all experience hosting and managing MVNOs and service providers.

If it was just a question about a technical MVNE platform (Billing, CRM, CDR, etc.) TOT would already have one or buy one. However successful MVNOs are not created using software and hardware and then pressing enter.

The platform needs a team of subject matter experts, who know what it means to run a MVNO as well as M2M, IoT and OTT services (Not an operator) combined with a deep insight in the local market.

SOLUTION: MVNO’s WANTS TO LAUNCH IN THAILAND

Due to our network and consulting MVNOs and service providers globally, we know that some of the world’s most successful MVNOs would like to launch in Thailand, once a real MVNE with experience is in place.

Similarly, we are also consulting companies in Thailand, who would like to launch but need a partner (MVNE) to help with the telecom (MVNO) side of business.

ISSUE: TOT’s EXISTING MVNO’s

TOT still have 3 remaining MVNOs today: Mojo3G, Tron IEC3G, and i-Kool (Loxley) where do they or new MVNOs fit in, in the AIS/TOT deal? If the network at TOT can manage 7 million users and AIS get access to 80% of the capacity, it leaves the 3 remaining and new coming MVNOs with a capacity of just 1.8 million possible users – to share.

SOLUTION: OFFER TOT’s EXISTING MVNO’s TO MOVE TO THE MVNE

The MVNE would provide the existing MVNOs with a much need platform to finally boost its subscriber base and tools to scale. However, it will depend on a mutual review of their business plan to make sure they are still interested and capable. This is vital, as otherwise it will not bring in enough value to TOT.

OTHER ISSUES

THE RE-RUN OF THE 900 MHZ AUCTION

The re-run of the 900MHz auction due to JAS Mobile’s failure to provide the needed funds will give an indication of how willing AIS is, regarding the partnership with TOT.

The partnership doesn’t come free for AIS and questions is, if AIS will find the value of its own old 900MHz more interesting.

Although the signing of the deal with TOT will have to take place before a new auction AIS could, if they enter the auction and manage to win, decide to move TOT further down the food chain to make sure it received maximum revenue on its own spectra first which would then be 900MHz, 1800MHz and 2100MHz and only use TOT as a backup and for low-usage users.

AIS could also, if they win the auction – decide to continue where is left off – keeping the x million 2G users on the 900 MHz in co-operation with TOT’s old 900MHz equipment. This would provide income to TOT although – again the income would be of lesser value as the 2G users are low usage users.

As mentioned the signing of the AIS/TOT deal will have to take place before the 900MHz re-auction on May 27 and it would therefore be wise for both parties to add this to the deal, similar to the parties having added that AIS would have first choice on TOT’s 2400MHz as well.

Depending on the length of the contract other spectra are likely to come up for auction soon in Thailand e.g. 700 MHz, 850 Mhz, 1800 MHz, 2300 MHz and 2600MHz.

WILL IT BE AN ISSUE FOR AIS IF TOT LAUNCHES MVNO’s?

AIS themselves have said they are interested in 80% of the capacity, while TOT could then wholesale the remaining 20%. AIS is a MVNO in this deal, and therefore have no saying in how TOT runs its business and it would, call for regulatory invention if TOT did not open up for other MVNOs.

AIS themselves must provide 10 percent capacity to MVNOs on its own 1800MHz and 2100Mhz. So far they have avoided doing so. However, with the market change and 4G, adding MVNOs have never been more attractive for operators in Thailand.

As competition in the Thai mobile market heats up, AIS will at some point have to open up for MVNOs on its network, to add overall network subscribers and gain revenue to offset its increased CAPEX and OPEX and yes doing so would compete with TOT who will however do the same.

80 PERCENT CAPACITY MVNOไทยในยุค

As mentioned the contract involves AIS getting 80 percent of TOT’s capacity. Although we haven’t seen the MOU in details we assume (hope) this means AIS will be able to get access, on a when-needed-basis up to 80 percent.

What we fear is, if the deal is structured so AIS will get 80 percent of the capacity right away = if they use it or not. If so, it could end up with AIS just using 10 percent, TOT using their remaining 20 percent and then 70 percent capacity wasted.

We also wonder what conditions come to play, if TOT and MVNE manage to add a good amount of MVNOs and service providers – and then end up needing more than the 20 percent available to TOT.

Author: Allan Rasmussen
Managing director at Yozzo. Allan’s expertise includes the development and execution of growth strategies, market insights, trends and opportunities, new business models and strategies
How can we help you?

If you have any questions, please fill out the form and a member of our team will get in touch with you. We are always open for talks on how we can add value to your business.

Looking for a Top Class Technology, Media, and Telecom (TMT) Consultant?