Regulating the Internet:

Lessons from Thailand

Somkiat TangkitvanichThailand Development Research Institute (

TDRI)

Outline

Status of Internet in Thailand

Impacts of the state monopoly on price and Internet adoption

Impacts of the state’s share-ownership on price and corporate governance of ISPs

Future prospects

The Status of Internet in Thailand

18 commercial ISPs + 4 non-commercial providers + two public interchanges

2.5 billion Bt of ISPs’ revenue in year 2000

Over 600 Mbps international bandwidth

About 3.54 million Internet users (as of Q1 2001)

CAT18 ISPHous

eholdCorporate

Internet

Structure of the Internet Markets

Listed Prices of 64 Kbps Leased Line

0

200

400

600

800

Thailand Hong Kong India Philippines Malaysia Indonesia

$ US/month

Source: TDRI

0.571.131.712.704.05

2 Mbps4 Mbps8 Mbps16 Mbps45 Mbps

Prices of International Half Circuits

0.711.292.223.947.16

CAT MCIMillion Bt/Month

Monopoly and its Impact on Net Use

# Host = 772.6 GDP - 557.2 M x GDP - 41,201 (1)

# SSL Server = 4.25 GDP - 4.0 M x GDP - 49.9 (2)

Identify the IP Address

Locate the IP Address

Tracert Whois

Identify and Locate the IP Address

Neotrace

Two Ways to Locate a Server

Location of Thai Web Portals

USA68.5%

Europe5.4%

Thailand20.7%

Singapore5.4%

Source: TDRI

Consumer Benefit

Quantity

Price

Qc

Pc

Qm = 555 Mbps

Pm=1.43 Pc

Producer’s Profit

Welfare Losses =230 million Bt per year

Welfare Losses

Impacts of CAT’s share ownership

ISPs are required to give 1/3 of its share to CAT in return for a concession to operate

A CAT representative acts as the chairman of the ISP and has a veto rights against any business plan

The Cost of CAT’s Share Ownership

Let X be an ISP’s expected rate of return

P’/P = (2+3X)/(2+2X)

20% price mark-ups for X = 30%

CAT Holding Company

Major Shareholder 1

Major Shareholder 2

ISP Subsidiary 1

Subsidiary 2

Subsidiary 3

32+3% 65%100% 100%100%

Shareholding Structures of ISPs

983.3

-25.7

1588.4

-119.7

2451.6

-280.6-500

0

500

1000

1500

2000

2500

1998 1999 2000

Revenue

Profit

Revenues and Profits of ISPs

Million Bt