An Alternative Take on the Thaksin Shinnawattra's Confiscation Ruling and Concessions for Mobile Phone Service Providers
(Translated Version)
The judgment addressed a number of issues such as the conversion of concession fees into an excise tax through the enactment of an ordinance amending the Excise Tariff Act of 1984 and 2003, or the amending of the One-2-Call contract which diluted the share to revenue ratio set for mobile services using prepaid cards in advance to AIS, and the modified license for mobile phone network “roaming”. Thai society should be well aware of these issues since people could be easily misled if they don’t consider the key issues involved in the case.
Under the “judgment in rem”, which is a legal decision regarding the status of a subject, property of thing – in this case, the AIS mobile phone concession, it is necessary to thoroughly separate the issues. Actions taken by the former prime minister at the time cannot be justified, as his siblings, wife and relatives all held a significant number of shares in the business which benefitted from government policies. Also, last Friday 26 February, the Court may very well have set a precedent regarding conflict of interest cases of politicians. However, there is another side of the coin to look at; that is, whether people were able to gain easier access to public utilities (mobile networks) or pay lower rates. These policies were beneficial to both the country and its people. Thai people must clearly be able to distinguish between one politician’s illegal action that contributes to his own business interests and policy that yields benefits for the country. Or else, there might be the assumption that all such policies are detrimental to the country, which may impede its development.
The first thing to consider is what “damage to the country” would entail. At present, some people claim that whenever a politician does something which causes the government to lose revenue, he is a traitor or commits treason, despite the fact that those policies may be of enormous benefit in other ways. It is important to understand that the government is not a state. A state consists of an entity of four parts: sovereignty, territory, government and people. In this case, the loss of several thousand-million baht of revenue by the state telecom enterprise TOT Public Company Limited to fellow state enterprise CAT Telecom Public Company Limited has been given as an example to support many criticisms. This writer is of the opinion that the issue to consider is the damage done in this case to the two state enterprises and to the people. This is because the damage done to the two state enterprises might actually be beneficial for the people. Part of the judgment excessively highlights Khun Thaksin’s actions that contributed to his business interests even though, as a matter fact, there is no need to do so for the argument. Stating the actions taken that contributed to his own interests was enough for the judgment of this case. Loss or gain regarding the interests of the state was not truly considered; it is sufficient enough to make judgment on said “action” only to the extent that contribution to personal business interests is shown.
Moreover, the contestation of the “enormous damage” done to the state in this case may lead to a widespread misunderstanding of what the state’s ‘interests’ are, which should not refer to the interests of the government, government sectors, and state enterprises but should mean the interests of the people who are the real owners of state assets. This is because the main concern to focus on is what is of true benefit to the country. Is it that both enterprises have high revenues to be collected but with people getting substandard utilities while state enterprise executives receive big bonuses? Is the action taken which maximizes the benefits for the people by providing decent and reasonably-priced mobile phone service even if the state is losing some revenue destructive to the country? Examples of these types of situations include the ITV concession where the state is so determined to get income from the private sector that they cannot run their business to provide services to the public, or the case of 3G licensing where people cannot get access to high speed wireless internet. However, it has been claimed that if the license is given to the private sector, the state will suffer a great loss with the people having to pay the price by waiting for the unqualified state enterprise to take up the big project for many years to come.
The second part is of this is that the conversion of the concession fee into excise tax to be paid by mobile phone service providers is positive because the tax reduction will lower costs, enabling them to render services to the public at a lower price and across a wider area. Otherwise, if the state maintains the private tax overcharge, it will not be possible to continue to provide such inexpensive mobile phone coverage across the country. If there were no adjustment to these contracts, we would have suffered with having only one service provider, paying 500 Baht monthly and having less coverage than we had 10 years ago. If the service provider’s production costs are high, no matter how much market competition there is, the reduction in cost would be limited. As for the charges payable to the state, they are unchangeable. There have been confirmed figures showing that when the collection of the excise tax started in 2003, there were 35 million phone numbers. Now, there are 300 million phone numbers. This figure illustrates the benefit people have received from a freely competitive mobile phone service industry which does not have to pay concession fees as barriers to entry.
Since the Supreme Court has ruled along the lines that conversion of the concession into excise tax is obligatory for new providers, this has in effect allowed AIS to become top dog in the competition as they can make the paid concession fees deductible. This may be considered fair and just since AIS has paid its concession fees in advance; whereas other companies that have not yet paid them can do so in the form of annual payment of excise tax. If AIS had not been allowed to deduct the concession fees, they may not have received fair treatment since open competition necessitates operating under the same rules. The status and the obligations of the provider do not have to be taken into consideration and this policy may be considered as benefitting the new providers as well. This is because the new providers do not need to pay large sums up front like the previous concession owners; they merely make their annual excise tax payments.
The change from a progressive rate split for the prepaid system paid to TOT Public Company Limited to the fixed rate of 20 percent under the former contract was addressed in one part of the court judgment. It was noted that the rate change paved the way for much greater use of mobile phone services for the people as there has been expansion in the market from 250 thousand people to 17 million people. The benefit for service end-users is that they get very low-priced service; whereas previously under the prepaid system the minimum service charge for one month required at least 300-500 Baht monthly, with 5 Baht per minute added on top. At present, those who only want 50 Baht worth of service can use that for the whole month. The contract modification making the state partially responsible for roaming expenses is of the same nature. The salient point here is that the reduction in fees for AIS resulted in lower roaming service charges for consumers.
However, with deepest respect for the Court, the part of judgment regarding the issue of prepaid contracts that reads “The AIS’ rival is TAC who has issued “prompt” phone cards in service competition…TAC with greater obligation despite having no clients has made a loss and has no income. CAT Telecom Public Limited Company has then rightfully adjusted the rate charged to them. AIS has asked for a rate reduction in revenue and there is a way to have the reduction as requested, the opinion is that AIS has no cause for a reduced revenue rate which must be given by CAT Telecom Public Limited Company.” This matter may set a precedent on the matter of fair and just competition in future because it may lead to the understanding that fair and just competition is when the state aids the weaker players in the market, which contradicts free market theory. In a free market, each company works under the same rules. Those who cannot compete have to bow out of the business. All must compete on a level playing field regardless of how much capital they have. There should be no limitation for whoever has more clients or greater capability; they must be allowed to have freedom in competition. The state has no right to prop up of the weaker players in the market. We should have a market where those who can offer the lowest price, produce the highest quality product and be the best in management and administration in responding to the consumer’s needs reap the rewards. The only duty of the state is to create the atmosphere most suitable for open business competition. Part of this is certainly to eliminate as much as possible the obstacles to market entry, either with low taxation or low concession fees, and limiting the bureaucracy required in granting license applications. Therefore, the Supreme Court decision not to give AIS a reduction in tax due to the size of its client base and having fewer obligations than TAC seems contradictory to this principle.
In short, we have to understand that the part of the judgment with which the Court wants to establish as a precedent is only a minor point in support of the main argument. As this is of secondary importance, it should not become the norm for legal interpretation. That portion of the judgment only illustrates how actions taken favored the interests of Khun Thaksin’s company; it is not the core of the case. Subsequently there has been a reopening of the concession contract with the private sector as reported in the news, with the ICT Ministry using the result of this court case to show damages incurred due to a loss of state revenues and use it as the rationale for further rate adjustments. Such action, if not taken for the sake of the consumer’s but rather for the enrichment of TOT itself, will only cause more damage to the country -- either through the erosion of investor confidence, or higher mobile phone service fees for consumers.
By: Chris Potranandana
LL.B (Second Class Honor), Chulalongkorn University
Thai Post Newspaper—Wednesday 3 March 2009
With regard to the recent judgment handed down by the Supreme Court on 26 February regarding mobile phone concessions, there are many interesting points worth examining and which deserve further academic scrutiny. With deepest respect to the court of law, this article was not written with the intention of addressing the correctness of the judgment or to take the side of any party, but to academically examine different aspects of the judgment in terms of state and economic policies that affect the interests of the Thai people on the whole.
The judgment addressed a number of issues such as the conversion of concession fees into an excise tax through the enactment of an ordinance amending the Excise Tariff Act of 1984 and 2003, or the amending of the One-2-Call contract which diluted the share to revenue ratio set for mobile services using prepaid cards in advance to AIS, and the modified license for mobile phone network “roaming”. Thai society should be well aware of these issues since people could be easily misled if they don’t consider the key issues involved in the case.
Under the “judgment in rem”, which is a legal decision regarding the status of a subject, property of thing – in this case, the AIS mobile phone concession, it is necessary to thoroughly separate the issues. Actions taken by the former prime minister at the time cannot be justified, as his siblings, wife and relatives all held a significant number of shares in the business which benefitted from government policies. Also, last Friday 26 February, the Court may very well have set a precedent regarding conflict of interest cases of politicians. However, there is another side of the coin to look at; that is, whether people were able to gain easier access to public utilities (mobile networks) or pay lower rates. These policies were beneficial to both the country and its people. Thai people must clearly be able to distinguish between one politician’s illegal action that contributes to his own business interests and policy that yields benefits for the country. Or else, there might be the assumption that all such policies are detrimental to the country, which may impede its development.
The first thing to consider is what “damage to the country” would entail. At present, some people claim that whenever a politician does something which causes the government to lose revenue, he is a traitor or commits treason, despite the fact that those policies may be of enormous benefit in other ways. It is important to understand that the government is not a state. A state consists of an entity of four parts: sovereignty, territory, government and people. In this case, the loss of several thousand-million baht of revenue by the state telecom enterprise TOT Public Company Limited to fellow state enterprise CAT Telecom Public Company Limited has been given as an example to support many criticisms. This writer is of the opinion that the issue to consider is the damage done in this case to the two state enterprises and to the people. This is because the damage done to the two state enterprises might actually be beneficial for the people. Part of the judgment excessively highlights Khun Thaksin’s actions that contributed to his business interests even though, as a matter fact, there is no need to do so for the argument. Stating the actions taken that contributed to his own interests was enough for the judgment of this case. Loss or gain regarding the interests of the state was not truly considered; it is sufficient enough to make judgment on said “action” only to the extent that contribution to personal business interests is shown.
Moreover, the contestation of the “enormous damage” done to the state in this case may lead to a widespread misunderstanding of what the state’s ‘interests’ are, which should not refer to the interests of the government, government sectors, and state enterprises but should mean the interests of the people who are the real owners of state assets. This is because the main concern to focus on is what is of true benefit to the country. Is it that both enterprises have high revenues to be collected but with people getting substandard utilities while state enterprise executives receive big bonuses? Is the action taken which maximizes the benefits for the people by providing decent and reasonably-priced mobile phone service even if the state is losing some revenue destructive to the country? Examples of these types of situations include the ITV concession where the state is so determined to get income from the private sector that they cannot run their business to provide services to the public, or the case of 3G licensing where people cannot get access to high speed wireless internet. However, it has been claimed that if the license is given to the private sector, the state will suffer a great loss with the people having to pay the price by waiting for the unqualified state enterprise to take up the big project for many years to come.
The second part is of this is that the conversion of the concession fee into excise tax to be paid by mobile phone service providers is positive because the tax reduction will lower costs, enabling them to render services to the public at a lower price and across a wider area. Otherwise, if the state maintains the private tax overcharge, it will not be possible to continue to provide such inexpensive mobile phone coverage across the country. If there were no adjustment to these contracts, we would have suffered with having only one service provider, paying 500 Baht monthly and having less coverage than we had 10 years ago. If the service provider’s production costs are high, no matter how much market competition there is, the reduction in cost would be limited. As for the charges payable to the state, they are unchangeable. There have been confirmed figures showing that when the collection of the excise tax started in 2003, there were 35 million phone numbers. Now, there are 300 million phone numbers. This figure illustrates the benefit people have received from a freely competitive mobile phone service industry which does not have to pay concession fees as barriers to entry.
Since the Supreme Court has ruled along the lines that conversion of the concession into excise tax is obligatory for new providers, this has in effect allowed AIS to become top dog in the competition as they can make the paid concession fees deductible. This may be considered fair and just since AIS has paid its concession fees in advance; whereas other companies that have not yet paid them can do so in the form of annual payment of excise tax. If AIS had not been allowed to deduct the concession fees, they may not have received fair treatment since open competition necessitates operating under the same rules. The status and the obligations of the provider do not have to be taken into consideration and this policy may be considered as benefitting the new providers as well. This is because the new providers do not need to pay large sums up front like the previous concession owners; they merely make their annual excise tax payments.
The change from a progressive rate split for the prepaid system paid to TOT Public Company Limited to the fixed rate of 20 percent under the former contract was addressed in one part of the court judgment. It was noted that the rate change paved the way for much greater use of mobile phone services for the people as there has been expansion in the market from 250 thousand people to 17 million people. The benefit for service end-users is that they get very low-priced service; whereas previously under the prepaid system the minimum service charge for one month required at least 300-500 Baht monthly, with 5 Baht per minute added on top. At present, those who only want 50 Baht worth of service can use that for the whole month. The contract modification making the state partially responsible for roaming expenses is of the same nature. The salient point here is that the reduction in fees for AIS resulted in lower roaming service charges for consumers.
However, with deepest respect for the Court, the part of judgment regarding the issue of prepaid contracts that reads “The AIS’ rival is TAC who has issued “prompt” phone cards in service competition…TAC with greater obligation despite having no clients has made a loss and has no income. CAT Telecom Public Limited Company has then rightfully adjusted the rate charged to them. AIS has asked for a rate reduction in revenue and there is a way to have the reduction as requested, the opinion is that AIS has no cause for a reduced revenue rate which must be given by CAT Telecom Public Limited Company.” This matter may set a precedent on the matter of fair and just competition in future because it may lead to the understanding that fair and just competition is when the state aids the weaker players in the market, which contradicts free market theory. In a free market, each company works under the same rules. Those who cannot compete have to bow out of the business. All must compete on a level playing field regardless of how much capital they have. There should be no limitation for whoever has more clients or greater capability; they must be allowed to have freedom in competition. The state has no right to prop up of the weaker players in the market. We should have a market where those who can offer the lowest price, produce the highest quality product and be the best in management and administration in responding to the consumer’s needs reap the rewards. The only duty of the state is to create the atmosphere most suitable for open business competition. Part of this is certainly to eliminate as much as possible the obstacles to market entry, either with low taxation or low concession fees, and limiting the bureaucracy required in granting license applications. Therefore, the Supreme Court decision not to give AIS a reduction in tax due to the size of its client base and having fewer obligations than TAC seems contradictory to this principle.
In short, we have to understand that the part of the judgment with which the Court wants to establish as a precedent is only a minor point in support of the main argument. As this is of secondary importance, it should not become the norm for legal interpretation. That portion of the judgment only illustrates how actions taken favored the interests of Khun Thaksin’s company; it is not the core of the case. Subsequently there has been a reopening of the concession contract with the private sector as reported in the news, with the ICT Ministry using the result of this court case to show damages incurred due to a loss of state revenues and use it as the rationale for further rate adjustments. Such action, if not taken for the sake of the consumer’s but rather for the enrichment of TOT itself, will only cause more damage to the country -- either through the erosion of investor confidence, or higher mobile phone service fees for consumers.
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