ISP is Thailand's litmus test for privatization

CommunicationsWeek International, Oct 22, 2001 by Geoff Long

Thailand's largest Internet service provider will push ahead with an initial public offering next month.

Internet Thailand (Inet) is the first of a raft of Thai state-owned companies that the government aims to privatize, including telecom operators the Telephone Organization of Thailand (TOT) and the Communications Authority of Thailand (CAT.)

Potential investors are looking to Inet's listing for signs that the government is serious about liberalizing the telecoms sector, which is due to be completely opened by 2006, in line with commitments to the World Trade Organization. But other agencies are dragging their heels, most notably the TOT and CAT, which are well behind schedule with plans to list in the middle of next year.

And analysts say even a successful debut by Inet would not represent anything like a competitive market in Thailand.

"Inet is a small company compared to CAT or TOT," said Somkiat Tangkitvanich, research director for information economy at the Thailand Development Research Institute, which has advised the government on liberalization.

Inet has just 200 staff, compared with a total of about 50,000 at the other two companies.

"The general economy is not good," said Inet president and chief executive Trin Tantsetthi. "But this doesn't change our ability to make profit. We connect Thailand to the world, and our high growth and profitability are linked to a low churn rate and high service quality."

Inet's IPO is expected to raise at least 300 million baht ($6.7 million). It will list on the Stock Exchange of Thailand shortly after.

Trin is one of Thailand's Internet pioneers and has been with Inet from the beginning. He will be staying on after privatization.

Inet is one of only a few of the country's 18 ISPs to consistently make a profit. It has around 36% of the local Internet market, with most of its revenue generated by corporate clients.

Founded in 1995. Inet was also the country's first commercial ISP. It is a joint venture between the TOT and CAT, which each holds a 33% stake, and the national science and technology development agency, which holds the remaining 34%.

Following the listing, the combined share of the three state agencies will be 49%, with 7% to be held by staff and the remaining 44% sold to the public. "Even though it's a state enterprise, it's very business-oriented," said Somkiat. "Inet is already like a privatized firm."

Reluctant liberalization

CAT has signalled that it won't give up its monopoly privileges without a struggle. The agency operates the country's only international Internet gateway and one of two domestic Internet exchanges that provides a common link between ISPs.

However, it has recently made moves to shut down the alternative domestic Internet exchange operated by the National Electronics and Computer Technology Centre (Nectec)--known as the Internet Information Research (IIR) center and used by most of the ISPs--and force them to move to its national Internet exchange.

The government has mandated privatization for CAT but still has to establish a National Telecommunications Commission as an independent regulator. It is now about 12 months behind schedule and no licenses can be granted until the body is up and running.

ISPs have already held meetings in the hope that CAT would back down over IIR, but according to Nectec director Thaweesak Koanantakool, it is pressing ahead. "The ISPs are still showing their support for IIR by continuously increasing its bandwidth," Thaweesak said. "It is expected that by Christmas, IIR will reach the gigabit per second level unless ISPs are unnaturally forced to disconnect from IIR."

The potential for privatization is indicated by a recent IPO from one of Thailand's smallest Internet players, Roynet. Despite posting a net loss of 11.2 million baht for the first half of the year, this small ISP and training firm saw its initial public offer of four million shares snapped up within a few hours of opening on 8 October.