Thailand’s mobile landscape is on track to turn into a duopoly in 2022 if a proposed merger of True Corp and dtac receives regulatory approval, raising concerns from many sectors the narrow playing field will weaken competition.
The merged entity would control more than half of the total market at about 95.3 million subscribers, with current market leader AIS maintaining a share of about 46 per cent. National Telecom (NT), formed in January through a merger of TOT and CAT Telecom, is in theory the third player, but had less than 1 million mobile subscribers at end-September.
Obboon Thirachit, director of Asia Pacific corporates at Fitch Ratings, wrote in a research note the move underscores the importance of size to drive cost efficiencies during the Thai telecoms sector’s slow growth and high investment, in particular for 5G deployments.
The tie-up is tipped to receive speedy approval by Thai regulators, as the country’s largest private company Charoen Pokphand Group (CP Group), which owns True, is unlikely to face resistance at any level despite competitive concerns. Dtac parent Telenor and CP Group aim to reach a deal in Q1 2022, subject to approvals from boards, shareholders and regulators.
An industry source requesting anonymity said Thailand’s National Broadcasting and Telecommunications Commission (NBTC) will likely be able to justify a trio of operators is a good balance, since many markets in the region have the same number. The deal also requires a green light from competition regulator the Trade Competition Commission.
Bob Fox, chair of the Digital Economy and ICT Group of the Joint Foreign Chambers of Commerce in Thailand and European Association for Business and Commerce, told Mobile World Live (MWL) telecoms markets have typically evolved to support at least three significant players, explaining if two of the three major players merge, market concentration will obviously increase.
In the case of Thailand, he said this concentration would rise to the point where a duopoly would have a 96 per cent market share.
“We make no comment about any party involved, our concern is about the uncompetitive nature of the resulting market should such a plan, without conditions, come to pass. We would urge all parties including regulatory agencies to consider the need for Thailand to be competitive in this important sector which underpins the digital economy,” Fox stated.
Somkiat Tangkitvanich, president of the Thailand Development Research Institute, was much more blunt, accusing the regulator of “failing to do its job” when it did not oppose the proposed merger, which he said would set the country back 17 years to when Thailand had just two major players, The Nation reported.
He added the consolidation could lead to a downgrading of service quality and consumers having fewer choices.
The third player
Cognitio Consultants CEO Keith Taylor outlined a different view, suggesting to MWL while the merger would result in higher market concentration, it could be “the beginning of a process and not the destination”.
He said the move will result in NT becoming the de facto third operator, but perhaps not exactly as the government had envisaged. “With the right regulatory measures, it could also see a broader opportunity for the development of the MVNO business in Thailand.”
While NT’s customer base is minuscule, its spectrum holding is now sizeable, after CAT Telecom acquired 10MHz in the 700MHz band and TOT was awarded 400MHz of mmWave in 2020.
NT also holds 15MHz in the 2100GHz band and 60MHZ in the 2300GHZ band.
But is the enterprise comprised of two companies which consistently lost money over the past decade a real contender?
It is widely known the state-run entity didn’t address any of the deep-seated challenges the individual units faced, including a bloated workforce, and overlapping and inefficient operations, with it not expected to ever post a profit on mobile services.
Obboon pointed out the proposed merger is driven by a need for scale, as it is challenging for smaller operators to absorb the high investment cost, without an immediate RoI, noting the similarity to the plan for Celcom Axiata and Digi to merge in Malaysia.
Dtac’s subscriber base dwindled over the past six years, dropping from 28.4 million to 19.3 million at end-September and its market share declining from 34 per cent to 20 per cent, data from GSMA Intelligence showed. Its profitability also suffered, declining for five consecutive quarters.
Fitch Ratings expects the consolidation in Thailand to result in capex and opex savings, and long-term price stability and profitability, putting the new company in a better position to compete against AIS, which has a strong balance sheet to fund 5G investment.
In a global research report, HSBC estimated potential synergies of between $2.2 billion and $5.5 billion through capex and opex savings, and revenue enhancements. On the regulatory front, the bank believes the merger has merit as neither operator is generating sufficient free cash flow to make the required network investments.
Despite the touted benefits for both operators, as Telenor pulls back from Thailand in the face of intense competition and falling profitability, there is an argument consumers could be worse off as they enjoy fewer options.
With the Philippines finally seeing mobile broadband speeds rise and more competitive data tariffs following the regulator awarding a third licence to Dito Telecommunity, it seems ironic Thailand is headed in the opposite direction.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.