dtac risk management aims at identifying, assessing and treating all relevant, foreseeable risks in a way that is effective, proactive and fit-for-purpose. Risk Management supports the organization in achieving defined ambitions and goals by having a holistic and enterprise-wide perspective, linking to the relevant goals, maintaining risk exposure at acceptable levels and managing the significant threats and exploiting the significant opportunities.
Key risks that may affect the operation of the Company and its subsidiaries are as follows:
1.1 Risk from the termination of the Concession Agreement before its term
a. Uncertainties on regulation and enforcement of related laws and regulations in the telecommunications industry
The telecommunications business is governed by two main acts, namely the Frequency Act and the Telecommunications Act.
The NBTC is empowered to issue regulations to regulate the telecommunications business, such as organizing the spectrum auction, fixing service fees and tariff structure and issuing rules and measures for consumer protection, resolving frequency interference problems, etc. Such regulations might reduce the Company’s and its subsidiaries’ ability to make profits and/or might increase the cost of operation of the Company and its group companies (as the case may be). On the contrary, whereas the NBTC has announced various rules, however, the enforcement of such rules may not be clear in practice and causes delays, such as delays in the enforcement of rules governing the resolution of interference problems, etc. These may impede the operation of the Company. If this is the case, it may affect the ability of DTN for network rollout for the 900 MHz and 2100 MHz frequency band, as well as the existing spectrums that DTN is currently using.
b. Legal implications concerning the amendments to the Concession Agreement
Under the Act on Private Sector Participation in State Undertaking B.E. 2535 (1992) (the “Private Participation Act”), a governmental agency wishing to engage a private entity to join or undertake a government project with a capital investment of THB 1,000 million or more must comply with the process set out in the Private Participation Act which includes explicit process on contract amendment between the relevant governmental agency and the private entity participating or engaging in the government project.
After the Private Participation Act became effective, the Company entered into three amendment agreements with CAT which amended, among others, the term of the agreement and the rates of the revenue share payable by the Company to CAT.
Subsequently, the Council of State gave its opinion (No. 292/2550) that the three amendment agreements to the Concession Agreement were not proposed to the Coordinating Committee under Section 22 of the Private Participation Act for consideration and were not proposed to the Cabinet for approval. Accordingly, it was considered that the three amendment agreements to the Concession Agreement had not been made in accordance with the process set out under the Private Participation Act. Nevertheless, the Council of State has further opined that the three amendment agreements to the Concession Agreement are still enforceable, provided that the Cabinet is entitled to revoke such amendment agreements taking into consideration the benefits of the state and the public interest.
The above mentioned opinion of the Council of State is merely a legal opinion, which has no binding effect on the Company.
The Coordinating Committee under Section 22 of the Private Participation Act has provided its preliminary opinion to the Minister of Information and Communication Technology that it does not acknowledge the third amendment agreement to the Concession Agreement. On 28 June 2011, the Cabinet resolved to send such matter to the NBTC as supporting information in considering relevant rules and measures.
At present, the Private Participation Act has been revoked and replaced by the Private Investment in State Undertaking Act B.E. 2556 (2013) (the “Private Investment Act”), which has become effective on 4 April 2013. The Private Investment Act specifies that if it appears to the State Enterprise Policy Office that any project is not executed duly in accordance with this Act, the State Enterprise Policy Office must seek factual clarification from the project owner and request that appropriate procedure be proposed to the Committee on Private Investment in State Undertaking Policy. If such Committee deems that the private investment agreement should be terminated or amended, the Committee must submit its proposal to the Cabinet for approval.
Currently, it is still unclear to the Company on the interpretation and enforcement of such act or the operation of such matter. However, in case the Cabinet resolves to require the Company to pay additional consideration, although the company will continue to argue against the Cabinet’s resolution in accordance with the legal process, this could have a material adverse effect on the business, financial condition and results of operations of the Company.
c. Uncertainty on the dispute relating to payment of the access charge
TOT Public Company Limited (TOT) and the Company entered into the Access Charge Agreements in 1994 and 2001. The Access Charge Agreements require that the Company pay an access charge to TOT at a flat rate per number in respect of a post-paid customer and a fixed percentage of the value of the prepaid vouchers in respect of a pre-paid customer.
However, after the announcement of the Telecommunications Act, the use and interconnection of networks between operators must be in accordance with the Telecommunications Act and the NTC Notification on Interconnection, which require that the interconnection charge be determined on a fair, cost-oriented and non-discriminating basis.
In this regard, on 17 November 2006, the Company informed TOT and CAT that it would pay the access charge pursuant to the criteria and at the rate prescribed by the applicable laws, instead of the access charge prescribed in the Access Charge Agreements. The Company believes that the access charge under the Access Charge Agreements is not in compliance with the Telecommunications Act and the Interconnection Notification of the NTC.
TOT argued that the Company is obliged to pay the access charge at the rate originally specified in the Access Charge Agreements. On 9 May 2011, TOT submitted a claim against the Company before the Administrative Court requesting CAT and the Company to be jointly liable for the access charge payment in the total amount of approximately THB 113,319 million, including VAT and interests, and requesting CAT and the Company to comply with the Access Charge Agreements. The Company was notified on 10 October 2014 that TOT amended the plaint on 31 July 2014 related to the claim amount including the VAT and interest from approximately THB 113,319 million to THB 245,638 million (calculated until 10 July 2014), other issues of the case remain the same. Currently, the case is being considered by the Administrative Court.
Based on the opinion of the legal counsel of the Company, the Company believes that the Company has no obligations to pay the access charge as requested by TOT. This is because the Access Charge Agreements are not in compliance with the Telecommunications Act, and the NTC Notification on Interconnection, and the Company has already submitted a notice to terminate the Access Charge Agreements.
However, if the court issues a final order or judgment requiring the Company to pay the access charge as requested by TOT, this may cause a material adverse effect on the financial condition and results of operations of the Company.
d. Risk from changes to the accounting guideline which may affect the Company’s accounting method regarding the calculation of the access charge
After the Company notified TOT of the termination of the Access Charge Agreements on 8 November 2007, the Company has changed its accounting method regarding the access charge. The Company has ceased to record the access charge in its financial statements because the Company viewed that its obligations to pay the access charge had already been terminated. The Company has recorded its revenues and expenses using the rates of the interconnection charge set out in the Reference Interconnection Offers (RIO) of the Company and TOT, which have been approved by the NTC.
However, there is currently no guideline relating to the accounting method for recording revenues and expenses accrued in such manner, and there has been no final court judgement on the issue relating to the access charge. If subsequently there is an accounting guideline on this issue, or if the court has rendered a final judgement on the issue relating to the access charge, the Company may have to change its accounting method in relation thereto. The change of the accounting method may have a material effect on the profits and financial condition of the Company. (See further details in “uncertainty on the dispute relating to payment of the access charge” above.)
e. Risk from unclear enforcement of laws governing foreign ownership
The principal laws which impose restrictions on foreign shareholding are as follows:
The violation of foreign shareholding limit may result in the revocation of the telecommunications license or termination of the Concession Agreement. The Company and/or its subsidiaries may not be able to continue the telecommunications business.
The Company believes that the Company is not a “foreigner” under the definitions of the Foreign Business Act, the Land Code and the Telecommunications Act, and has correctly and completely followed the practices applicable in Thailand.
The Company is of the opinion that the Government has no clear policy on the interpretation and enforcement of the Foreign Business Act in relation to foreign shareholding issue, resulting in the Company having to take such risk in undertaking its business. Although the Foreign Business Act has been in force for more than 10 years, there has been no Supreme Court precedent or clear practices of the Ministry of Commerce regarding a “nominee” arrangement under Section 36 of the Foreign Business Act in order for the Company to evaluate or assess the impact of the enforcement or interpretation of such provisions under the Foreign Business Act that may have over the Company and its subsidiaries.
Due to such unclear interpretation and enforcement of the Foreign Business Act, on 14 June 2011, a telecommunications operator submitted an allegation to the Royal Thai Police to take a criminal action against the Company (including its directors, certain shareholders of the Company and their directors) alleging that the Company operated the telecommunications business in violation of the Foreign Business Act. Furthermore, on 22 September 2011, a minority shareholder of the Company (holding 100 shares in the Company) filed a lawsuit against certain state agencies, including the NBTC, before the Administrative Court, alleging that the Company is a “foreigner” under the Foreign Business Act. Both cases are being considered by the Royal Thai Police and the Supreme Administrative Court.
The Company believes that the Company is not a “foreigner” and has correctly and fully complied with the Foreign Business Act. However, if eventually it is decided (by the final Supreme Court judgment) that the Company is not a Thai company under the Foreign Business Act and the Telecommunications Act and such event is not remedied, it may constitute a ground for CAT to terminate the Concession Agreement or the right of the Company to engage in the telecommunications business under the Concession Agreement may be revoked, or the NBTC may revoke dtac TriNet’s Type III telecommunications license. As a result, the Company and/or dtac TriNet may not be able to continue the telecommunications business.
f. Risk from unclear enforcement of the law governing foreign dominance
The NBTC has issued the NBTC Notification on Determination of Foreign Dominance Restrictions B.E. 2555 (2012) (the “Foreign Dominance Notification”), which became effective on 24 July 2012. The Foreign Dominance Notification defines “dominance” as the scenario where foreigners have the controlling power or influential power in policy making, management and operation of the telecommunications business of the licensee by way of, among others, holding shares with half or more than half of the total voting rights. In this respect, the Company is of the opinion that the Company has not acted in any way that conflicts with the Business Dominance Notification and, the Company and DTN has always submitted letter of declaration to the NBTC indicating that the Company and DTN will comply with the NBTC’s Foreign Dominance Notification.
The NBTC may not agree with the Company’s interpretation mentioned above. As for dtac TriNet, it still has the risk from unclear enforcement of the law governing foreign dominance. However, based on the NBTC’s explanation to the public at the public hearing regarding the aim and objectives of the Foreign Dominance Notification and, in particular, the definition of “dominance” in 2012, the Company believes that the Company and dtac TriNet would not be regarded as a company under foreign dominance pursuant to the definition of “dominance” of the NBTC. Nevertheless, the risk from unclear enforcement of law governing foreign dominance may have a material effect on the business operation and business opportunities of the Company and dtac TriNet.
g. Risk from reduction of interconnection charge rate
On 12 March 2013, the NBTC issued an order No. 34/2556 requiring all 2100 MHz telecommunications business licensees, including dtac TriNet, to apply a temporary rate for interconnection charge at THB 0.45 per minute.
On 18 June 2013, the NBTC requested the Company’s cooperation to comply with the resolution of the Telecommunications Commission No. 22/2556, which was held on 10 June 2013, by applying the interconnection charge or amending the interconnection agreement in relation to the interconnection charge for both mobile phone and fixed line services at the same rate of THB 0.45 per minute for call termination and call origination and THB 0.06 per minute for call transit.
On 23 July 2014, the NBTC requested the Company to apply the interconnection charge at the rate of THB 0.34 per minute for call termination and call origination and THB 0.04 per minute for call transit from 23 July 2014 to 31 June 2016. On 22 June 2016, the NBTC granted the extension of such rate to 31 December 2016.
Later, the NBTC had reviewed the interconnection rate and issued the order on 6 December 2016, requesting the operators to apply the interconnection charge at the rate of THB 0.27 per minute for call termination and call origination and THB 0.03 per minute for call transit from 1 January 2017 to 31 December 2017, and at the rate of THB 0.19 per minute for call termination and call origination and THB 0.03 per minute for call transit from 1 January 2018 to 31 December 2018.
It is noticeable that the NBTC has a policy to reduce the interconnection rate continuously. The reduction of Interconnection rate may effect on the revenue of the Company and its subsidiaries from business operation.
h. Risk from disputes over excise tax and revenue sharing
The Government policy is still uncertain on the collection of excise tax from telecommunications services. In addition, in relation to the excise tax issue, CAT submitted a dispute to the Thai Arbitration Institute on 11 January 2008, demanding that the Company pays additional revenue sharing for the concessionary years 12 to 16, including penalty and VAT, in the amount of approximately THB 23,164 million. This was because, during said concessionary years, the revenue sharing was deducted by the excise tax paid by the Company to the Excise Department prior to making the revenue sharing payment to CAT in accordance with the Cabinet resolutions and the letter from CAT. On 28 May 2012, the Arbitral Tribunal rendered its decision to dismiss the dispute raised by CAT on the ground that the Company had fully paid the revenue sharing to CAT and all debts had already been settled. Nevertheless, CAT has appealed the Arbitral Tribunal’s decision before the Central Administrative Court. The Central Administrative Court issued the verdict in favor of the Company and dismissed CAT’s petition. However, CAT may file an appeal with the Supreme Administrative Court.
i. Risk from the disputes
The Company and its subsidiaries had a number of disputes, especially with CAT, which used to be a party of the Concessionary Agreement with the Company. These disputes are included in the notes to the consolidated financial statements. If the Company or subsidiary loses the case, it may affect the business, financial status, and performance of the Company.
2.1 The Thai telecommunications industry is highly competitive and sensitive to price competition
The Thai mobile telecommunications industry is highly competitive and sensitive to price competition due to the fact that the telecommunications market has grown considerably especially data service. There are high competition in terms of price, promotions and other marketing campaigns. If the price competition intensifies and the Company and dtac TriNet are unable to respond to such competition in a timely and costefficient manner, such competition may have a material effect on the result of business operations and business opportunity of the Company.
3.1 Risks caused by the change of low band spectrum held by the Company
To deploy 900 MHz cell site, we need to switch off existing co-site 850 MHz and nearby 850 MHz cell sites in order to mitigate the interference to 900 MHz users. However, there may be also some risk of coverage and capacity reduction when there is no other signals to serve the customer. DTN is carefully planning to deploy 900 MHz system to mitigate the interference to the user. One more risk is associated with some of user device not supporting 900 MHz. In remote areas where there is no other signal other than 900 MHz, such user may experience no service. Such situation may affect operational ability of dtac TriNet to compete in the market and may affect the business and business opportunities of the Company.
3.2 Risks of technology and information security
The amount of data continues to grow exponentially, as does the rate at which organizations share data through online Network. There is also massive IoT coming into view as millions of machinestablets, smartphones, ATM machines, sensors, and much more- are all linked together, increasing inter-dependencies exponentially. Organizations increasingly open their IT systems to a wide range of machines and lose direct control of data security. Cyber thread are very aware of these vulnerabilities. To cope with ever increasing cyber threads, DTN has been working to build up defendable architecture, developing security competency and continuously improving the Security Operation Center (SOC). However, risks of technology and information security are still factors that may affect the business and business opportunities of the Company.
3.3 Risk of interference from the spectrum
890-895 / 935-940 MHz (or 900 MHz band) spectrum that DTN won the auction on October 28, 2018, is a spectrum with small Guard Band, therefore, this may cause interference problems. If this happens, it will affect the service of the 900 MHz band. Even though it is the responsibility of each licensee to install their own filters, as well as to prevent and to resolve the problem in order to prevent interference between spectrums, if the licensee fails to comply, it is the NBTC’s authority to enforce the law to resolve the interference problem. In this regard, DTN has coordinated with relevant authorities to prevent potential problems to ensure that the 900 MHz can be managed effectively and efficiently. However, if the risks of interference from the spectrums are not mitigated immediately, this will affect the ability to provide services, business, and business opportunities of the Company.
3.4 Risk from interruption of network service system and other important systems which may have an impact on service users
The Company and dtac TriNet perceive the risks which may occur as a result of a disruption of the network system and other essential systems that could impact the provision of services. Therefore, the Company and dtac TriNet have continuously prepared for and developed plans to support emergency events and disruption of network system as well as other essential systems.
The Company and dtac TriNet have developed a network management system and prescribed maintenance procedures for the network and equipment so that all network and equipment function efficiently in order to provide telecommunications service to customers effectively, especially voice service and data service. The degrees of redundancy in our transmission network have been enhanced through addition of fiber routes and high capacity DWDM (Dense Wavelength Division Multiplexing) network. In addition, the Company and dtac TriNet have also been developing plans to support the disruption of other essential systems, such as information system, billing system and customer services so that the services can be continuously provided to the customers. The Company and dtac TriNet also have a backup plan in case of emergency which covers an additional investment in important equipment and safety system e.g. fire protection system and real-time network and equipment monitoring system. The Company and dtac TriNet regularly conduct trainings for its staff on their responsibilities and relevant procedures, as well as strictly conduct a test run of the backup plans.
Furthermore, the Company and dtac TriNet has procured insurance policies to cover network and equipment damages in order to minimize the impact of such risk against the Company and dtac TriNet.
3.5 The Company has to rely on third parties for telecommunications equipment
The Company provides mobile phone service through complex telecommunications equipment, including mobile telecommunications network and 2G/3G/4G base stations nationwide. Therefore, the success of the Company’s and dtac TriNet’s businesses (which may share some of the base stations with the Company to provide 2100 MHz services) depends on the effective maintenance and repair of the network and equipment.
At present, the Company engages third parties to provide maintenance and repair services for some base station Total Access Communication PLC. Annual Report 2018 47 equipment and transmission network of the Company. These service providers had gone through thorough selection process and regular performance reviews to ensure that the service levels are in accordance with the standards. If the third parties are unable to perform their duties under the agreement, or unable to perform their duties in a timely and cost-effective manner, which may affect the speed and quality of the services of the Company and dtac TriNet, the Company and dtac TriNet may choose to switch to alternative suppliers, albeit with potentially higher operating costs, to maintain quality of services.
In addition, dtac TriNet providing telecommunications services has to rely on basic network from CAT Public Company Limited and has to roam on 2300 MHz spectrum belonging to TOT. Problems related to network management by the contract partners may affect the ability to run the business, financial status, and business opportunities of the Company.
The principal revenues of the company are denominated in Thai Baht currency, Capital expenditure constitutes the majority of the company’s expenditure. For capital expenditures, the company has established on agreement with suppliers to pay the capital expenditure in Thai Baht.
For the remaining USD exposure, the Company utilizes USD revenue from International Roaming to partially match the USD expense (Natural Hedge) and entering into FX hedging transactions as deems appropriate.
Telenor and Thai Telco Holdings Co., Ltd. are major shareholders of the Company, holding collectively 65.05 per cent of the total issued shares of the Company (information as at 1 November 2018).
Thai Telco Holdings Co., Ltd. underwent a shareholding restructuring in July 2012, whereby Bencharongkul Group, the founder of the Company, now holds shares in the Company through Thai Telco Holdings Co., Ltd. Bencharongkul Group holds 51 per cent of the total issued shares of Thai Telco Holdings Co., Ltd.
As a result, Telenor and Thai Telco Holdings Co., Ltd. (including Bencharongkul Group) may exert influence over corporate decisions of the Company, except for matters which they are not eligible to vote due to any special interest or conflict of interest relating thereto.