The proposed merger of TOT and CAT Telecom is seen as the latest government effort to help the two troubled state telecom enterprises survive after the previous plan of splitting them into two new companies failed.
The Digital Economy and Society (DE) Ministry says a merger is the best alternative because the concept has the support of the rank and file, in particular the labour unions of the two companies, as opposed to previous decisions that were made using a top-down approach.
The merger procedure has faced challenges caused by chronic problems, including egotistical behaviour from both companies' top managers, who are concerned about their future positions, and a perceived lack of sincerity from the Finance Ministry, the sole shareholder of both two companies.
Two critical issues need to be clarified: the spectrum usage rights for each company after the merger, and the status of legal disputes between TOT and CAT and between TOT and some private firms.
While the clock is ticking, the merger needs to be concluded and submitted to the cabinet by the end of the year for approval before starting the merger process by February 2019 in order to replace the existing cabinet resolution.
The existing cabinet resolution ordered TOT and CAT to split into two new companies, both of which must start full-scale operations by February 2019.
This means the government may have to return to the previous plan, which had been criticised by labour unions and industry veterans, if the merger fails to be implemented by February.
There are no guarantees that the merger plan will be carried out.
TOT and CAT cannot operate under the existing organisational management structure, especially after 2025, the year that each enterprise's right to use spectrum resources ends.
Pichet Durongkaveroj, the DE minister, told the Bangkok Post that the merger is not only the best solution at present but is also accepted by all parties, especially labour unions.
“The concept was mainly driven by real demand from staff and management of the two enterprises in a down-to-top approach to government after they made comparisons with the former process of splitting new two companies from TOT and CAT Telecom,” Mr Pichet said.
Four objectives, four benefits
The merger aims to serve four critical objectives for the survival of TOT and CAT: long-term improvement, efficient operations, preserving employee welfare and enterprise benefits.
The move aims to consolidate TOT and CAT into a single organisational management structure that is 100% held by the Finance Ministry. The management decision will be made by the National Telecom board.
The merger method was introduced after the original proposal of splitting new two subsidiaries from TOT and CAT was widely criticised as impractical and harmful to the enterprises in the long term.
The merger process has been moulded for months by intensive participation by all related parties, including the labour unions of both state telecom enterprises.
Mr Pichet said that after implementing the merger procedure, the government expects at least four benefits: building the business into a proper management structure; efficiently eliminating redundancy of investment of the two enterprises; creating open-access infrastructure for industry and the public through the two enterprises’ asset consolidation; and creating added value from the existing assets.
Not necessarily new
The merger was first floated in 2002 and studied by Thaksin Shinawatra's government (2001-06) when Surapong Suebwonglee was the first minister of information and communication technology, the precursor office to the DE minister.
During that time, TOT and CAT Telecom were being prepared for partial privatisation through an IPO on the Stock Exchange of Thailand, but the plan was derailed after the Thaksin government was overthrown on Sept 19, 2006.
Telephone Organization of Thailand (TOT) was under the Transport and Communication Ministry and became a public company called TOT Corporation in July 2002. The Communications Authority of Thailand became CAT Telecom in August 2003.
Soon after the coup that removed Thaksin, Gen Surayud Chulanont announced plans to merge CAT with TOT.
The junta at that time appointed Gen Saprang Kalayanamitr as the new chairman of the board of directors for both CAT and TOT.
The merger plan failed to move ahead.
Apart from politics and influence from powerful telecom players, one major barrier to the merger plan was the two enterprises' financial status, which was healthy and driven by annual revenue from their concessions.
Since then, all major concessions for fixed-line and mobile service have ended. The last mobile concession between Total Access Communication (DTAC) and CAT Telecom on the 1800- and 850-megahertz bands ended in September.
Although TOT and CAT have partnered with private operators to generate revenue, all partnerships will end by 2025, after which TOT and CAT have to return the spectrum they hold to the telecom regulator for reallocation.
Academic eyes options
An independent academic and telecom specialist, Anuparp Thiralarp, said the initial plan to split into NBN and NGDC was doomed to fail, as it retained the optimum benefits of the two enterprises and employees. Additionally, the plan did not have checks against political and capital intervention.
The four companies (TOT, CAT Telecom and CAT's two subsidiaries) are hard to do business with, Mr Anuparp said, due to a lack of flexible investment and decision-making procedures.
He doubts that the merger will be realised.
“A core obstacle is the mindset of top executives at both enterprises, as well as the competency of their business and service in the midst of intense market competition,” Mr Anuparp said.
Over the decades, TOT and CAT have enjoyed benefits and revenue through concessions and contracts and have not carried out improvements for competency in critical areas in the digital era.
Mr Anuparp is open to other alternatives, such as the government ordering TOT and CAT Telecom to jointly set up an infrastructure fund and listing on the Stock Exchange of Thailand.
Under an infrastructure fund, TOT and CAT would directly own telecom assets in the fund and a professional fund management committee would be responsible for optimising benefits from the assets to serve fund unit holders.
Under this arrangement, TOT and CAT could allocate the fund’s units to their employees.
"The real strength of the two enterprises is infrastructure, and they should be real infra-sharing providers," Mr Anuparp said.
Merger faces challenges
The working panel for the merger is trying to finalise an action plan for submission to the cabinet in November for approval by year-end.
Mr Pichet said the DE Ministry through the working panel sent a letter to the National Broadcasting and Telecommunications Commission (NBTC) last month to ask for its opinion on whether TOT and CAT each can use their existing spectra until 2025, regardless of the merger.
The NBTC has yet to reply to the working panel.
The working panel has also asked the Office of the Attorney-General (OAG) for its opinion on the matter of court disputes but has yet to receive an answer.
NBTC secretary-general Takorn Tantasith has said he personally believes that TOT and CAT will be able to use the existing spectrum ranges until expiry in 2025.
"Although the right of spectrum usage is specific to each company, the merger would be done under the Public Company Act and specific laws under the Commerce Ministry that would affect TOT and CAT's rights," Mr Takorn said.
CAT Telecom chief executive Sanphachai Huvanandana said the CAT board and its labour union fully support the merger procedure, as it is better than the previous alternative.
"CAT and TOT have to enter the new structure to ensure sustainable growth in the long term instead of depending on the existing resources," Col Sanphachai said.
Remaining concerns
On Oct 11, Pongthiti Pongsilamanee, acting president of TOT's labour union, sent urgent letters to the directors of the State Enterprise Policy Commission and the NBTC, urging the two authorities to settle their concerns about the impact of the merger procedure.
Mr Pongthiti was criticised by some who suggested he was acting on behalf of top TOT executives who did not agree with the merger plan.
The letters expressed concerns over possible legal quagmires arising from the resolution from the NBTC and the OAG in support of the merger implementation.
Mr Pongthiti asked who would be responsible for possible damage in the future if CAT and TOT comply with state authorities' suggestions, and what remedy measures would be available for enterprises in the future.
According to a source at TOT, several high-ranking executives of TOT and CAT Telecom do not fully support the merger plan, especially those at TOT, which has a bigger organisational structure than CAT's.
TOT has 10 senior executive vice-presidents and 21 executive vice-presidents, while CAT has eight senior executive vice-presidents and 15 executive vice-presidents.
TOT has roughly 15,000 employees, while CAT has 5,800.
The source said several executives are due to retire soon and may not be overly concerned about what happens to the companies over the next seven years.
TOT in particular is enjoying a slightly improved performance generated by partnership deals running until the 2025 expiry of the deals.
TOT is in partnership with DTAC through DTAC TriNet (DTN) to jointly develop 4G service on TOT’s 2300MHz spectrum. The deal lasts through 2025.
Under the deal, DTN is committed to investing in more than 20,000 base stations nationwide to cover 80% of the population and pay an annual fixed payment of 4.51 billion baht to TOT for 60% of total network capacity.
TOT in turn will rent equipment from DTN and use the remaining 40% of network capacity to provide its own 4G service.
TOT also entered a partnership deal with top operator Advanced Info Service (AIS) in January to provide 3G service on TOT’s 2100MHz spectrum.
The deal with AIS is set to generate almost 10 billion baht a year in revenue for TOT.
Sungvorn Poomtian, president of CAT Telecom's labour union, voiced concern that the timeline of the merger process is set up to fail, especially if a new government comes into power next year while the merger is incomplete, exposing the plan to the risk of being scrapped.
CAT's labour union urged the working panel handling the merger procedure to conclude all related details by November and urgently submit the plan to the cabinet for approval to ensure a proper timeline to start implementing the plan by February 2019.
"If the plan is not carried out as scheduled, implementing the merger becomes close to impossible," Mr Sungvorn said.
The merger procedure must be approved by the cabinet to replace the existing cabinet resolution that orders TOT and CAT to form new two companies and start full-scale operations by February 2019.
Mr Sungvorn said the Finance Ministry, as the sole shareholder in both TOT and CAT, must propel the procedure for the benefit of both enterprises in the long term.
