Why MVNOs in Thailand have failed

There are lessons to be learned, and first lesson is – a new approach is needed

The introduction of MVNOs in Thailand six years ago has not succeeded in laying the foundation to ensure innovation, the achievement of the broader industry and national economic objectives. However, there are lessons to be learned, and first lesson is – a new approach is needed

This article is the second in a three part series on spectrum, MVNO and digital economy in Thailand. The first one is: Unused MVNO network capacity in Thailand and the third and last article in the series is: Break down the silos and enable the digital economy.

36 MVNO licenses in Thailand

Thailand’s National Broadcasting and Telecommunications Commission (NBTC) has issued 36 MVNO licenses so far since the introduction of MVNO in Thailand 6 years ago. However only 6 MVNOs have launched, with no one showing promising signs so far.

Combined with the two MVNO host operators, state-owned TOT and CAT Telecom, the MVNOs have only managed to obtain less than 100,000 subscribers over the last six years.

MVNOs in Thailand have failed because of:
  • MVNO reluctance from the private operators,
  • Insufficient network capacity at launch,
  • Insufficient MVNO experience and quality,
  • No MVNA/MVNE platform with experience,
  • Poor planning and execution,
  • Legacy systems and red tape.

Likewise, the Thai telecom operators also lack fundamental skills regarding MVNOs e.g. wholesale pricing structure towards MVNOs, as well as being able to determine the value proposition of MVNOs.

Even though the NBTC notification regarding MVNOs use the words like “fair, reasonable, non-discriminatory“, it clearly hasn’t provided the intended results.

NBTC Notification Regarding Mobile Virtual Networks Service in Thailand B.E. 2556 (2013)

…to promote free and fair competition, as well as to promote market entry for small entrants in order to escalate mobile service competition and provide service alternatives to customers.

The Notification requires the licensee (Type III mobile operators and mobile operators under concessions), who is a wholesaler – to treat Mobile Virtual Network Operators (MVNOs) on a fair, reasonable and non-discriminatory basis, and charge can be determined by the agreement between the wholesaler and MVNO on a fair, reasonable, and non-discriminatory basis, as well as must be reasonable comparing with the retail rate paid by the wholesaler’s customers.

In addition, this Notification has also prescribed criteria and procedures for contract negotiation and dispute resolution where an agreement cannot be reached among the licensees.

Leading international MVNOs are seeking to establish themselves in Thailand but are meet with reluctance from the private operators. Local brands are also very interested, but lacks the telecom knowhow to succeed.

One such example is the MVNO Tesco Mobile who had been knocking on the doors of local mobile operators, AIS and Dtac for 2 years, before finally giving up and going to the state-owned CAT Telecom instead. The 50:50 JV investment contract with CAT, is expected to be signed early next year, while commercial service would be launched in mid-2016.

RELUCTANCE TO MVNOs IN THAILAND

Thailand’s National Broadcasting and Telecommunications Commission (NBTC) seems to have noticed the lack of success and recently announced it had hired a consulting company to look into the MVNO market in Thailand. We welcome such initiative, and concur that after 6 unsuccessful years, it is very much needed.

It has however, come to our attention that the consulting company is virtually unknown among MVNOs and mobile operators, when it comes to MVNO. Similarly, we have not seen any documents for the consulting project, or process, in regards of public hearing or invitation to comment. Therefore, we feel the need to add our comments and ideas to the table.

Based on our local and international MVNO experience and research, as well as information from MVNOs, colleagues and former employees from the private telecom operators in Thailand, we clearly see AIS, Dtac and True, being reluctant to open up for wholesale partnership with MVNOs.

So much so, that we have encountered claims of the private operators having a “mutual agreement” not to enable MVNOs on their networks. Or, if not the result of a coordinated behavior between the operators, then by deciding individually that MVNO access should be prevented, in which their self-interest causes a collective outcome of resisting MVNOs on their networks.

Doing so, the mobile network operators act as gatekeepers to the essential radio network access needed by MVNOs. Where we would anticipate it is the NBTC, which should retain the gatekeeper role, and prevent the operators exercising such power in the market.

The reluctance to open their networks to MVNOs, manifest itself in:

  • Refusing to reply to questions regarding MVNO/wholesale on their network.
  • Claiming not to be aware of the 10% capacity for MVNOs in their own license terms.
  • Saying they are already in talks with other MVNOs for x years now and waiting for them.

– or alternatively, expressing an interest, but then suggest a margin share offer so low, knowing it is impossible for any MVNO to do business on.

Although these accusations could be brushed aside as being speculative, the proof of the reluctance is however evident from the fact, that no MVNOs have launched on any of the private telecom operators network, despite 3 years since the introduction of notification 16.5.1 regarding allocation of 10% MVNO capacity, in the 2100MHz licensing terms.

The reluctance and missing efforts of the telecom network operators to negotiate and launch MVNOs, represents a failure in normal market forces, which warrants intervention. The current approach has proved unrealistic and unworkable in practice and we therefore advocate for specific competitive safeguards in addition to the current, more regulatory oversight of the market.

We believe that without some form of regulatory measures, competition and innovation of mobile services in Thailand, and thereby the digital economy, may not evolve as it should, or at all.

We agree that commercial negotiation should be the main principle for MVNO provisioning. MVNO wholesale agreements must be a win-win for both the telecom operator and the MVNO.

However, without some form of safeguards or intervention mechanism, and some basic ground rules establishing a framework, in which commercial negotiations can take place – e.g. specifics as to what, how and within what timeframe, significantly weakens the chances of mobile network operators seeing MVNOs as serious, equal and credible partners in negotiations.

RECOMMENDED CHANGES TO THE NBTC MVNO REGULATION IN THAILAND MVNO
  1. The NBTC should publish a clear policy statement requiring the telecom network operators to provision MVNOs on their network,
  2. The detailed terms and conditions of MVNO provisioning should first be left to the parties to negotiate on a purely commercial basis,
  3. The NBTC should exercise its regulatory mandate to monitor the market and the negotiations to ensure that mobile network operators conduct negotiations fairly and in good faith – and that the policy objectives of the mobile market are fulfilled,
  4. It would be in the public interest for the NBTC to intervene, and assist the parties – or if necessary, settle and resolve in case a mobile network operator is acting in bad faith, engaging in any form of anticompetitive conduct, or if, after a reasonable period (2 months) of in-good-faith negotiations, a commercial agreement cannot be reached between the parties.

In addition, as a last resort only, a regulatory mechanism allowing the NBTC to intervene in the negotiation, to:

  • Ensure fair and reasonable terms for access,
  • Safeguard fair and non-discriminatory competitive behavior,
  • Bring parties to the negotiating table at the earliest opportunity,
  • Avoid any potential frustration of the policy goal and legislative purpose,
  • Introduce and safeguard the principle of in-good-faith commercial negotiations.

I.e., the mobile network operator shall enter into a wholesale agreement with the MVNO, within a period of 2 months from the date of issuing a Letter of Intent (LoI) or Memorandum of Understanding (MoU) and submit a copy of the same to the NBTC (licensor).

NBTC would have the power to intervene in the agreement if deemed necessary by the parties.

The Regulations/Directives/Orders of NBTC in this regard would be binding on the telecom network operators and the Mobile Virtual Network Operators (MVNO).

LESSONS TO BE LEARNED

The rationale for the introduction of MVNOs into a market, include – but are not limited to,

  • Stimulate competition,
  • Efficient utilization of network resources,
  • Introduce new or better services aligned to lifestyle propositions currently unserved/underserved,
  • Promote investment opportunities for local and international businesses in the telecom market.

Consequently, MVNOs are intended to support innovation, bridge digital divide, and contribute to the growth in the ICT sector to ensure the achievement of the broader industry and national economic objectives.

With Thai consumers’ increasing reliance on data and mobile broadband, the government’s policy on digital economy, technology and service evolutions in the industry (e.g., Internet of Things / Machine-to-Machine), there is a need and attractive opportunities for new players to enter as MVNO in Thailand to provide services.

The number of MVNOs worldwide increased by 70% between June 2010 and June 2015, reaching 1,017 this year, according to GSMA Intelligence.

The clear international evidence is that MVNO have proved successful in delivering:

  • More consumer choice
  • Innovative pricing plans
  • Innovative products and services
  • Innovation in, and better customer service

With more than 15 years of history, MVNO is no longer a new concept but a proven business, and the development of the MVNO market has long been encouraged by regulators in Europe.

This has recently been underlined by the importance of MVNOs as a regulatory remedy in mobile telecoms mergers for the European Commission to preserve competition in the region.

The past few years have seen a number of mobile mergers in in Austria, Ireland and Germany where each merger was subject to conditions involving MVNOs.

E.g., the Austrian merger between Hutchison 3G and Orange came with the condition that the merged entity would provide wholesale access for up to 30% of its capacity and up to 16 MVNOs. An upfront commitment ensured that Hutchison could not complete the acquisition of Orange, before it had entered into such wholesale agreement with an MVNO.

Likewise, before approving the merger between O2 (Telefonica) and 3 in Ireland, 3 was required to commit up to 30% of the merged company’s network capacity to minimum two MVNOs. While in Germany, E-Plus and Telefonica agreed to similar conditions, which would potentially create up to three new MVNOs in the country.

Which brings us back to Thailand. One could ask the questions wherein the broader industry and national economic objectives is, in the mobile operator AIS partnership with state-owned telco TOT?

Although not a merger, AIS is after all the largest mobile network operator in Thailand with significant market power (SMP), grabbing another big chunk, and thereby actually becoming a MVNO on TOT themselves.

It is ironic that the private telecom operators are reluctant to open up for MVNOs on their own networks but have no issue becoming a MVNO themselves, when it suits them.

  • AIS as an MVNO on TOT with 80% of TOTs capacity
  • Dtac as an MVNO with 50-100% capacity of CATs 1800MHz
  • TrueMove already a MVNO with 80% capacity of CATs 850MHz

Would this kind of partnership have passed in other countries/industries, without some kind of regulatory intervention? It would have been interesting to see the NBTC fulfilling its constitutional task by subjecting AIS, DTAC and TRUE to conditions regarding capacity to MVNOs before allowing them to become one themselves.

Instead, the NBTC gave TOT the green light to upgrade its existing unused 2300MHz spectrum to provide 4G service for 10 years. Saying it would help TOT create a new revenue stream to offset vanished concession revenue. E.g., a state enterprise, who has had six years to turnaround and start making profit, but still as of writing this, have not managed to do so.

AIS will be allowed to rent up to 80% of TOT’s 2100-MHz network capacity. TOT can rent the remaining 20% to other companies, this is exactly where we were 6 years ago when MVNOs was introduced on TOT. Back then, TOT also set aside up to 20% capacity to MVNOs.

Last year, TOT was told to come up with a turnaround strategy going from Build-transfer-operate (BTO) to a license scheme. Since then TOT has been chewing through three acting presidents, two finance ministers, two ITC ministers, months of consulting from Deloitte, and still, a year later haven’t been able to utilize the capacity or find help. Despite a handful of proposals from possible partners.

Question is – if TOT is actually signing is own dead sentence with the AIS agreement. For years is has been doing nothing else than holding on to spectrum rights having AIS utilizing it. Which is what put them in the mess they are in today in the first place. Now they are ready to the same thing again. If they cannot do anything with spectrum themselves, is there a need for them – aren’t they just an obsolete expensive middleman.

Perhaps the Nikkei Asian Review publication explained it better, in its article about the Thai 1800MHz auction

“TOT and CAT Telecom have been wasting public assets entrusted to them by failing to use their frequencies to deliver high-quality services. This is something that the companies’ management and labor unions would both do well to consider as they move toward starting their own 4G services, but recent actions indicate the two companies might be too self-absorbed to realize their obligations to the public”

AIS/TOT is not the only one, a similar – perhaps not partnership but more a forced marriage has happened between Thailand’s second mobile operator Dtac (Telenor) and CAT Telecom, where Dtac has been pulled into a 30%-revenue sharing deal with CAT.

Having failed at securing a 4G license in the 1800MHz auction, Dtac has decided to spend 5MHz of its (3G) 2100MHz spectrum for 4G services, capacity that should have been utilized by MVNOs on the 2100MHz for the last 3 years according to the license terms.

In other words, we are back at where it all started, level of competition is only maintained but not enhanced. AIS is back home at TOT and Dtac and True with CAT Telecom. No new competition to innovate and take the market forward just old wine on new bottles.

MONOPOLY

State-owned CAT Telecom has however been busy accepting MVNOs, not because they are the best choice, but because they are the only choice, due to the lack of regulatory intervention and the MVNO reluctance from the private telecom operators – which has created a monopoly for CAT Telecom to take advantage of.

Two other options exist, which most MVNOs have chosen instead. Wait for AIS, Dtac and True to live up to the MVNO terms of their licenses. Alternatively, in case of TOT, wait for them to select a partner who has a platform, a track record in launching and creating successful MVNOs, as well as Thai market knowhow.

CAT has even signed up MVNOs who used to be on TOT e.g. 365 Communication (now 168) and i-mobile with the latter expected to launch in 2016. The two other MVNOs are Data CDMA Communication and True Move H, which technically is a MVNO.

A similar deal is being suggested with DTAC, who would invest in the 1800MHz network on CAT in exchange for allowing it to lease all capacity of the network. DTAC would lease the network equipment to CAT, and the state enterprise would then sell the network capacity to DTAC through a wholesale deal.

Again, the private operators apparently have no issues with MVNOs as long as the MVNO is themselves on another network.

CAT Telecom lacks the fundamental understanding of the MVNO business and this became evident when CAT Telecom announced it had signed up the MVNO 168 formerly known as 365 Communications.

In September 2013, 365 Communication’s agreement with TOT was terminated. TOT reasoned that 365 Communication had failed to place a guarantee of THB 3 million required for the purchase of airtime allotment.

The MVNO resurrected again in 2015 as “168”, and got the all clear from CAT to launch. No one from CAT questioned the lack of a business plan from 168, in their eagerness to sign on MVNOs.

The NBTC however, rejected 168’s first approach, reasoning that the company had no clear strategy. The MVNO has launched today but as expected, is struggling to obtain the needed customers having fewer than 10,000 subscribers and issues paying its fee to CAT Telecom.

Another issue is the CAT/TRUE “MVNO” setup. BFKT (a TRUE subsidy) is managing CAT’s 850MHz network, and as part of that, likely to get access from CAT – to business information from the MVNOs in order to manage the network, including direct/in-direct competitors. One such competitor could be the coming MVNO “CTH”, set to launch next year on CAT, CTH is a pay-TV/Sat-TV competitor to another of TRUE’s subsidies (True Vision).

In our next article in this series, we outline our recommendations for introducing a one-stop digital economy enabler to Thailand. We believe this approach will utilize the MVNO capacity and resources more effectively in Thailand, achieve the broader industry objectives of driving innovation and economic development.

You can download the whole series as a white paper on Slideshare

CONNECTING THAILAND’S DIGITAL ECONOMY

Unused Spectrum Capacity, MVNOs and Digital Economy in Thailand

DEFINITIONS USED THROUGHOUT THIS DOCUMENT

MVNO – MOBILE VIRTUAL NETWORK OPERATOR It is an organization, which offers mobile services. The MVNO does not own spectrum, instead it enters into an agreement with either a network operator or MVNA to obtain bulk access to network services at wholesale rates, and then sets its retail prices independently. An MVNO may use its own customer service, billing support, marketing systems or employ these services from a MVNE

MVNE – MOBILE VIRTUAL NETWORK ENABLER It is an entity, which provides infrastructure and services to both network operators and MVNOs, which enables existing, and new MVNOs to offer their services on the operator’s network, while leaving the backend enablement to the MVNE. The MVNE provides services, such as billing, business workflow, product setup, service delivery, customer care, fraud management, web services, reporting, sale platforms, etc.

MVNA- MOBILE VIRTUAL NETWORK AGGREGATOR The MVNA is an entity, which purchases mobile airtime in bulk from the partner network, and then wholesales this airtime and service to multiple MVNOs, who each in turn sells the mobile service to end-users.

MVNA/MVNE – MOBILE VIRTUAL NETWORK AGGREGATOR & ENABLER is a combination of, Mobile Virtual Network Aggregator and Enabler. The MVNA/MVNE is an entity, which purchases mobile airtime in bulk from the partner network, adds its service platform (MVNE) on top, and then wholesales this airtime and service as end-to-end to multiple MVNOs and service providers.

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
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