Q & A for 900MHz Spectrum Auction

Finally, 900 MHz bidding has come to end on the night between December 18 and December 19 of 2015. The shocking results have led to countless questions during and after the bidding process concerning the future of the four bidders. Some of the questions and answers to these unsolved mysteries can be summarized as follow:

1. Why do other service providers with allocated spectrum still enter 900MHz spectrum bidding process?

Currently and in the near future, mobile broadband service shall become the core service in mobile service industry (in addition to incoming-outgoing call service). While the speed of mobile broadband service depends on the range of spectrum used, modern technology has allowed service providers to combine various spectrums in providing their services. It is therefore not surprising to see service providers joining the bidding process of nearly every spectrum range in order to take the leading position within the industry.

2. Why is the price of 900 MHz band more costly that the price of 1800 MHz band?

Since 900 MHz band can cover longer distance when compared to 1800 MHz band, one base station antenna of 900 MHz band can therefore cover the areas equivalent to three base station antennas of 1800 MHz. This allows lower expenditure for network deployment within the same service area. In addition, the average price per unit of 900 MHz band worldwide tends to double the price per unit of 1800 MHz band.

3. Why is the price of the first set of spectrum cheaper than the second set when they are both in 900 MHz band?

The first set is usually connected to 850 MHz band which DTAC is currently using for providing 3G service. Since this may result in signal interference, a guard band which is equivalent to 3.5 MHz is often allocated to avoid such problem and leaving 900 MHz spectrum to be available for service by only 17.5 MHz. However, NBTC has reduced guard band by another 2.5 MHz during the bidding process in order to combine with the spectrum of which concession agreement has ended, adding another 20 MHz to the bidding spectrum. So, technically the bidder who won the bidding in the first set may need to install additional device to cope with signal interference issue which can be as costly as Bt 3,000 million. Unlike the first set, no signal interference occurs in the second set and therefore does not require any additional expenditure. From this data, it is not surprising why AIS (who lost in the second set) was unable to defeat JAS (winner of the first set) in spite of higher price offers. If it wants to win the bidding in the first set, AIS must prepare additional budget for handling signal interference problem which can be very costly. As result, it decided to end giving the price offer in the second set.

4. Is this the world’s highest bidding price?

The shockingly high bidding price that won this auction has led to the question of whether or not this is the highest bidding price in world. Based on recent study by ITU which collects bidding results from various countries (since not every country is included in the study, it cannot be treated as global statistics) for 900 MHz band valuation, it can be found that the world’s highest bidding price for 900 MHz band ever recorded took place in Hong Kong in 2011 at 64 Baht per MHz per population while Thailand’s highest bidding price for 900 MHz band is only at 57 Baht per MHz per population. However, if we considered in terms of purchasing power parity, Hong Kong’s average price will be equivalent to only 51Baht per MHz per population which is lower than Thailand’s bidding price in spite of Hong Kong’s exceedingly higher return on investment (ROI).

5. Is the number of bidding rounds highest in the world?

The total number of rounds for this auction was 198, which is longer than the recent bidding of 1800 MHz spectrum. This leads to the question of whether or not this is the world’s longest bidding to ever be recorded. By considering from the facts, the number of bidding rounds by 3 digits is considered normal in foreign countries. In 2008, spectrum bidding in Canada took as long as nearly two months, or a total of 331 rounds to be exact. However, most spectrum bidding process in foreign countries does not require the bidders to be held like in Thailand.

6. Why was the final price shockingly high?

The shockingly high final price reflects high level of competition among bidders which is often due to several contributing factors including:

Technical: 900 MHz spectrum requires only limited budget for network deployment and only 20 MHz in this band is available for bidding. Unlike Thailand, other countries like India or Germany have higher 900 MHz spectrum availability for bidding. Due to supply shortage, it is therefore not surprising why the final price for 900 MHz band in Thailand is shockingly high.

Market share: While the number of new players in mobile service market continues to increase, some current service providers must try to hold on to their allocated spectrum that was once under concession agreement to maintain service quality and some others wanted to acquire the spectrum in order to reduce potential risks that may follow the ending of concession agreement. Most importantly, some service providers wanted to gain higher market share by acquiring additional spectrum up to the point where some competitors are forced to leave the market.

Installment payment: In the case of other spectrum range, NBTC requires the winning bidder to make 1^st installment payment by 50% of the bidding price, followed by 25% for 2^nd and 3^rd installments. So, the higher the bidding price, the higher amount needed to be paid for 1^st installment. However, in the case of 900 MHz spectrum bidding, NBTC requires the winning bidder to pay Bt 8,000 million in full amount for 1^st installment payment, followed by Bt 4,000 million for 2^nd and 3^rd installment payment and the rest for 4^th installment payment. Hence, the increasing bidding price had no effect on the three installment payments. Also, the winning bidder can raise income in the first 4 years through the acquired spectrum and make payment in the last installment without increasing any burden of debts or short-term interests.

7. Is there any possibility of defaults by the winning bidder in the case of unsuccessful business operation?

Based on the previously mentioned installment payment scheme, the winning bidder must make installment payment by 10 : 5 : 5 : 80. In other words, the winning bidder must pay nearly 80% of total bidding price in the last installment. This leads the question of whether or not there will be any chance of defaults in case the business of the winning bidder becomes unsuccessful. Yes, NBTC has required the winning bidder to pay Bt 8,000 million for the 1^st installment. However, it also requires the submission of a guarantee letter from financial institution for collection of outstanding amount in the remaining installments at one time. Hence, any defaults shall result in legal proceeding for further confiscation of guarantees.

8. Will the shockingly high final price cause 4G service to become more expensive?

Spectrum bidding is similar to buying the rights to utilize spectrum for providing services. No matter how much we pay in order to acquire it, we must sell our service at the same rate as market price. Otherwise, we will lose our customers to the competitors. Hence, high final price cannot be avoided. At the same time, losing a bidding do not necessary mean you cannot provide service to the customers. This can clearly be seen in the case of AIS and DTAC who lost the bidding but are still able to provide 4G service to the consumers. If the winning bidder wants to gain higher market share, he should definitely avoid selling 4G service at higher price.

9. How will the consumers be affected?

NBTC has already determined rules regarding average service fees which should be lower than the current average service fees. Hence, it might be possible that the winning bidder will gradually reduce its prices in order to keep its business running. But if the winning bidder is in short of network deployment budget, it will likely affect service coverage rate. Nevertheless, NBTC is responsible for monitoring any otential impacts and implement additional measures to ensure consumer protection.

10. What future competition trends can be expected in mobile service industry after the bidding process?

Although AIS and DTAC did not win the bidding, both service providers tried their best to remain in competition by offering bidding price of no less than Bt 70,000 million. This clearly reflected that neither is willing to be forced out of Thailand’s mobile service market. Today, both service providers are not under any distress due to the fact that each already has other spectrum range for providing their services. Nevertheless, both AIS and DTAC must develop appropriate strategies in order to maintain service quality and market share. TRUE, on the other hand, clearly aims to take the leading position in Thailand’s mobile service market by acquiring both 900 MHz and 1800 MHz bands for the benefits of TRUE service quality and service coverage.

Meanwhile, new player in mobile service market like JAS, which formerly provides only wired broadband and WI-FI services, now launched mobile broadband service to comprehensively meet the needs of broadband customer group. Although JAS bidding price is considered to be relatively high for a new entry to generate profits, it is likely that JAS will be teaming up with current players that did not win this bidding in order to cut down costs. The question is whether or not this new player will be able to successfully form business alliance with current players in the market.

Nevertheless, the entering of new players into the market can help to raise the competition level within mobile service industry, especially among the three giant service providers, which can be highly beneficial to the consumers.

11. Is it true that the recent bidding of 900 MHz spectrum has generated a large sum of revenue for NBTC?

NBTC is responsible for conducting spectrum allocation through bidding process. All income earned during the bidding process after expenditures deduction must be entirely submitted to the Thai Government as part of state revenue and shall be managed and spent by the state alone as deemed appropriate. However, the telecommunications sector would like the government to consider allocating such income for driving digital economy development which shall in turn help to promote continuous growth in mobile service industry and related industries. Also, the task of NBTC does not only end with bidding process but also included issuing license, regulating telecommunications businesses and, most importantly, ensuring consumer protection. What’s more, NBTC is also responsible for developing proper measures for handling any potential monopoly by significant market players.