TOT/Dtac deal: damn the legal uncertainties and full steam ahead!

tot dtac 2300

State telco TOT and Dtac held a press conference Friday  to provide details on a deal that will see Dtac build a 2300-MHz TDD-LTE network for TOT and then rent back 60% of it as an MVNO until TOT’s grandfather license expires in 2025. However, while the agreement – which has been in the works since the end of 2014 – is a breath of fresh air for Dtac, who failed to win any new spectrum in the last two rounds of auctions, many questions were left unanswered – most of them to do with the legality of the deal.

TOT CEO Montchai Noosong said that there were 12 or 13 initial applicants, six of which submitted documents for the beauty contest. He stressed that that three of those were new entrants to the market, denying claims that new entrants had been barred from participating.

Montchai declined to give details on how the beauty contest was scored, saying only that Detecon was the advisor for the process, which meant that everything was above board.

However, after repeated questioning, he did say that Dtac’s financials offered the best return and that on the technical evaluation, Dtac was the only one to offer 3GPP Release 13 whereas all the other five bidders put forward 3GPP Release 12.

Dtac CEO Lars Norling commented that the cellco already had boasting rights to possessing 20 MHz contiguous on 1800, the most of any carrier in Thailand, and how the TOT deal took them from 20 MHz to 60 MHz on one single band. Dtac CTO Prathet Tankuranun said that 70% of handsets currently on the network already support band 40 (2300 TDD), so device support will not be an issue.

The TOT/Dtac agreement is still in the draft phase. The draft will go to the State Enterprise Policy Board, as TOT is under the Digital Economy Ministry (and 100% owned by the Ministry of Finance). Montchai said he expected to deal to be signed before the end of the year.

However, Montchai insisted that the deal did not need to gain cabinet approval, but the Digital Economy Minister might inform the cabinet of the deal if he wished to. He said the National Broadcasting and Telecommunications Commission (NBTC) was being kept informed of the deal.

About those legal issues …

However, that in turn raises questions of how the TOT/Dtac agreement squares with a raft of recent rulings and statements from the NBTC that – at least on paper – seemed to indicate that the arrangement might violate so many laws that it would require invoking Article 44, the absolute power clause, to get it approved.

For example, an NBTC board meeting on February 21 recommended the 2300-MHz spectrum be recalled on the grounds that TOT’s business plan broke Section 46 of the NBTC Act – which prohibits sub-letting of spectrum.

Disruptive.Asia asked Dtac’s Norling how this deal worked in the context of that ruling. He didn’t respond, but TOT’s Montchai explained that Section 46 does not apply because under this deal, a Dtac subsidiary (TeleAssets) will build the network for TOT. TOT will operates the network and the NOC and sell the capacity to another Dtac subsidiary, DTN (Dtac Network).

“This is not the first time. There have been earlier cases,” he said, referring to the True-BFKT-RealMove model utilizing the 850-MHz band.

Questions have also been raised as to whether the deal contravenes public-private partnership laws that require that any project worth over $29 million (1 billion baht) receive cabinet approval, which Montchai insisted this deal doesn’t need. Montchai responded that since rights to the spectrum are not transferred and TOT is being paid by Dtac for services provided, the PPP law does not apply.

“Why would they recall? We have been using this spectrum since ancient times for rural wireless broadband. It is a good thing for the people,” he said.

Montchai said that 60% of the capacity will be sold to Dtac, 20% will be used by TOT for its own network and the remaining 20% will be used for wireless broadband for rural areas where cables cannot reach in areas with a population density of five to 13 people per square kilometer.

“Yes, they have the power to revoke the spectrum, but they have to look at what benefits the industry and what benefits the people of Thailand. We are using it for the underprivileged,” he said.

Disruptive.Asia also asked Norling repeatedly how Dtac can be a TOT MVNO when the NBTC’s 2013 MVNO Notification requires 10% of capacity to be given to an MVNO that is not connected to the spectrum license holder. (TOT is Dtac’s third largest shareholder with 5.58%.) Norling did not reply; Dtac’s Prathet stepped in to say the notification in question does not apply, but did not give details. 

The press conference took a turn for the surreal when Disruptive.Asia asked Norling to explain how the announcement fit in the context of the offer from NBTC Secretary-General Takorn Tantasit to use Article 44 to fast-track the 2300-MHz project and ignore any laws holding it back.

Again, Norling did not reply, but TOT’s Montchai denied having any knowledge of that report, despite it being widely published in the Thai Press, first by Bangkok Biznews, the Thai language sister publication to The Nation.

“Are you saying you did not hear the Secretary-General’s offer to use Article 44?” Disruptive.Asia asked.

“No,” Montchai replied, “I’ve no idea what you are talking about.”

However, Montchai then went on at length to explain that Article 44 is only to be used when there is an impasse, and he said he is confident that the deal can be finalized under normal laws.

Oh, and this won’t be like the AIS MVNO

Montchai was also asked how TOT could be confident in a quick sign-off given the endless delays plaguing AIS’s 2100-MHz MVNO agreement with TOT in December 2015, which is similar in structure to the Dtac agreement (i.e. AIS would build a network for TOT and buy back 80% of the capacity). One and a half years later, nothing has happened.

Montchai said the delays in that agreement were due to technical issues that had to be resolved first, particularly interference (as AIS already runs its own 2100-MHz network), whereas 2300 is empty, so the Dtac network can be rolled out more swiftly.

However, Norling said that Dtac is sticking to its existing capex plan of $499-587 million (17 to 20 billion baht), and any additional capex investment in the 2300-MHz network would be part of next year’s budget, suggesting that perhaps Dtac does not see things progressing quickly. (Dtac is committed to building 20,000 sites for the new network.)

He also refused to entertain questions pertaining to a Plan B if the MVNO deal does not happen before Dtac’s 850- and 1800-MHz concessions end next year, saying only that he was confident that Dtac’s subscribers would not be affected.

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