ENTS 630: THE ECONOMICS OF

INTERNATIONAL TELECOMMUNICATIONS

FALL 2023

CASE REPORT

TELECOMMUNICATION INDUSTRY
ECONOMICS ANALYSIS- THAILAND

ROHAN K PANICKER – 119087039

HARSHUL PATEL – 119238943
SAFWAN TRAMBOO – 119362457
AVINASH GUDIPATI – 119085448
The telecommunications sector in Thailand has witnessed substantial growth and evolution

since its inception in 1986. Initially, mobile communication services were provided by state-

owned entities, namely the Communications Authority of Thailand (CAT Telecom) and the

Telephone Organization of Thailand (TOT PLC), utilizing analogue technologies. In the early

1990s, concession agreements were extended to Advanced Info Service (AIS) and Total Access

Communication (TAC), permitting them to offer mobile services based on analogue

technology. However, in light of the limitations of analogue technologies and a burgeoning

demand for mobile services, AIS and TAC sought authorization to introduce digital mobile

systems, which was granted in 1994.

In 1996, TrueMove secured a concession from CAT to operate mobile communication services,

although its commercial launch did not occur until March 2002. Subsequently, TAC underwent

rebranding as DTAC following a collaborative venture with Telenor.

To streamline regulatory oversight, the National Telecommunications Commission (NTC) was

established toward the end of 2004, thereby assuming regulatory responsibilities previously

held by TOT and CAT. The NTC implemented an array of regulations encompassing

interconnection, licensing, market delineation, and Significant Market Power (SMP)

regulation.

In October 2012, the NBTC conducted an auction and awarded 3G licenses to three mobile

service providers, namely AIS, DTAC, and TrueMove. This pivotal auction event spurred a

significant upswing in mobile communication services throughout Thailand.

The market structure within Thailand's telecommunications sector exhibits clear oligopolistic

attributes. Collectively securing an overwhelming majority, upwards of 97%, of market share.

A salient feature of this industry is the formidable impediments constraining both market entry

and exit. Prospective entrants encounter substantial hurdles, chiefly stemming from the

substantial initial capital investments requisite for erecting the necessary telecommunications
infrastructure. These capital demands serve as a substantial disincentive for potential

newcomers, effectively limiting the competitive landscape.

The pricing strategies observed within the telecommunications sector in Thailand are

emblematic of a landscape marked by fervent competition and a nuanced approach to pricing

predicated upon customer segmentation and consumption patterns.

One discernible pricing strategy employed by these enterprises revolves around price

discrimination, wherein distinct tariff plans are tailored to cater to diverse customer cohorts.

These bespoke plans are meticulously crafted to align with the multifaceted requirements and

inclinations of customers. For instance, businesses may be offered plans affording unlimited

usage, while those with more sporadic usage patterns may opt for lower-cost alternatives.

Furthermore, it is imperative to acknowledge the prevalence of non-price competition within

the Thai telecommunications sphere. Firms are ardent proponents of product differentiation,

brand establishment, and service quality enhancements as pivotal mechanisms to attract and

retain clientele. This entails the provisioning of value-added services, an expansive network

coverage footprint, and the continual introduction of innovative features, all designed to

demarcate their offerings from those of competitors.

In summation, the pricing strategies operative in the telecommunications domain within

Thailand are distinguished by their reliance on price discrimination, promotional incentives,

price-based competitive manoeuvring, and a concurrent emphasis on non-price competition, as

firms earnestly strive to captivate and retain patronage in an environment typified by intense

competition.

Foremost among these strategies is product differentiation, where firms endeavor to furnish

distinctive attributes, services, and packages that set them apart from their industry peers.

Notably, this may encompass the provision of exclusive content, such as access to prominent
streaming platforms, or the tailoring of specialized services tailored to specific customer

segments, including but not limited to business clients or gaming enthusiasts.

Brand establishment constitutes another pivotal facet of non-price competition. Corporations

within this sector channel substantial resources into the cultivation of robust and recognizable

brands, thereby engendering favorable perceptions and fostering customer loyalty. This is

achieved through strategically designed advertising and marketing campaigns aimed at

conveying brand values, reliability, and a commitment to service excellence.

The paramount importance of service quality cannot be overstated within the realm of non-

price competition. Firms are resolute in their quest to deliver unfaltering and efficient network

coverage, swift data transmission rates, and exemplary customer support. To this end,

substantial investments are directed toward the expansion and enhancement of infrastructure,

with the overarching objective of ensuring a seamless and gratifying user experience.

Innovation, a perennial driver of competitiveness, also features prominently in non-price

competition endeavors. Enterprises engage in a relentless cycle of technological advancements,

ushering in new services, features, and applications to maintain a strategic edge.

In summation, the non-price competition strategies employed by telecommunications firms in

Thailand pivot around the realms of product differentiation, brand cultivation, the assurance of

service quality, and a steadfast commitment to innovation. These strategies collectively serve

as a concerted effort to entice and sustain customer patronage in a fiercely competitive market

milieu.

Product differentiation emerges as another salient facet within the industry, wherein each firm's

demand curve hinges upon the responses of its competitors. Firms, thus, diligently endeavour

to demarcate their offerings via distinctive features, services, and package offerings, thereby

establishing themselves as discernibly superior and attractive to prospective customers.

Additionally, the paper probes the influential factors that shape the industry's trajectory,

encompassing the influence of both suppliers and buyers, the existence of substitute products,

the susceptibility to new market entrants, and the dynamics of competitive rivalry. These

determinants collectively mould the competitive milieu and dictate the strategic imperatives

adopted by market participants.

Exploring the concept of price elasticity of demand within the telecommunications domain,

discerning the repercussions of both price and non-price competition upon the market

equilibrium. Firms are observed to engage in robust price competition, often characterized by

the rollout of aggressive pricing campaigns, inclusive of discounted rates and specially tailored

packages, all devised with the intent of luring customers into their fold. Concomitantly, non-

price competition strategies, such as brand establishment, service quality enhancement, and

innovation, are diligently deployed to accentuate the differentiation of offerings and thereby

attract and retain a loyal customer base.

In summation, this paper culminates in a comprehensive exposition of the economic facets

inherent to Thailand's mobile communication market. The elucidation underscores the pivotal

roles played by service quality, product differentiation, and competitive dynamics in shaping

the contours of this industry. The insights engendered by this study collectively contribute to

an enriched comprehension of the telecommunications sector in Thailand and the strategic

paradigms embraced by industry actors in their pursuit of competitive ascendancy within the

market.
1. What is the so called first mover advantage of Oligopoly?

The concept of a first mover advantage within an oligopolistic framework pertains to the

competitive edge attained by a firm that pioneers entry into a market or the introduction of a

novel product or service. This advantage emanates from a confluence of factors, prominently

including brand recognition, customer allegiance, and the capacity to erect formidable entry

impediments against prospective rivals.

Scholars such as B. David and V. Gianluigi (2008) delineate several foundational elements

underpinning the first mover advantage within an oligopoly. Primarily, the initial market

entrant has the distinct prospect of cementing brand recognition and nurturing customer loyalty.

This can engender a pronounced challenge for nascent competitors endeavouring to lure

clientele away from the established market incumbent.

Moreover, the first mover stands to accrue advantages associated with economies of scale and

cost efficiencies. By taking the lead in infrastructure investment and the cultivation of a

customer base, the pioneering firm can attain a cost structure characterized by lower per-unit

costs, thereby potentially facilitating the provision of more competitive pricing schemes.

In summation, the first mover advantage within an oligopolistic paradigm endows the

pioneering firm with a distinctive head start in the market, the capacity to foster brand

recognition and customer loyalty, the potential for cost efficiencies, and the means to fortify

entry barriers, collectively affording it a formidable competitive position.

2. What are the challenges faced by the firms in the telecom market in Thailand?

Firms operating within the telecommunications sector in Thailand confront a spectrum of

formidable challenges that significantly influence their operational landscape. These

challenges encompass regulatory constraints, intense competitive pressures, evolving

consumer preferences, rapid technological advancements, and network congestion.

Regulatory Constraints: Firms within the Thai telecommunications market grapple with a

framework of regulatory constraints as imposed by the National Broadcasting and

Telecommunications Commission (NBTC). These regulations span licensing requisites,

interconnection protocols, and market delineation criteria. Navigating and adhering to these

regulatory strictures can be both resource-intensive and time-consuming for market

participants.

Intense Competition: The telecommunications arena in Thailand is characterized by a climate

of intense rivalry, wherein a select few dominant entities ardently vie for market share.

Consequently, firms are embroiled in fierce competitive dynamics, marked by price wars and

assertive marketing initiatives.

Changing Consumer Preferences: The proclivities of telecommunications consumers in

Thailand exhibit a dynamic trajectory, characterized by constant evolution. Customers

increasingly demand elevated data speeds, expansive network coverage, and an array of value-

added services.

Technological Advancements: The rapid pace of technological progress constitutes a

pronounced challenge for telecommunications firms. The emergence of transformative

technologies, exemplified by the advent of 5G, mandates substantial capital outlays for

infrastructure modernization. Firms must diligently position themselves at the forefront of

technological innovation to remain competitive and deliver state-of-the-art services to their

clientele.

Network Congestion: The escalating demand for data-intensive services presents a distinct

challenge in the form of network congestion. As a growing number of consumers engage in

data-heavy applications, such as video streaming and online gaming, network strain intensifies.

Firms are compelled to commit resources to network optimization and capacity expansion to

ensure a seamless and uninterrupted user experience.

3. Explain the rationale for the kinked demand curve of the firms in the

TelecommunicationsSector in Thailand?

The rationale underpinning the presence of a kinked demand curve within the

telecommunications sector in Thailand is elucidated by the distinctive behavior exhibited by

firms operating within an oligopolistic market structure. The kinked demand curve concept

posits that firms in an oligopoly encounter dissimilar demand elasticities when adjusting prices

upward as opposed to downward.

The emergence of the kinked demand curve emanates from the fundamental assumption that

firms within an oligopolistic framework operate in a state of interdependence and vigilantly

monitor the actions of their industry peers. When one firm elects to augment its prices, a

common response among other market participants is to maintain their existing price levels in

order to safeguard their respective market shares. Consequently, the demand elasticity facing

the firm that raised prices becomes notably pronounced, as consumers, perceiving more

competitive pricing alternatives, swiftly shift their patronage to rivals offering more affordable

rates.

Conversely, in instances where one firm opts to reduce its prices, the prevalent practice among

competitors is to replicate the price reduction to forestall the erosion of their market shares.

This engenders a scenario wherein the demand elasticity confronting the firm that initiated the

price reduction remains comparatively inelastic. Customers exhibit limited propensity to

switch to alternative providers offering commensurate pricing, as the differential is perceived

as insufficient to warrant a switch.

The kinked demand curve concept effectively encapsulates this inherent asymmetry in demand

elasticity. It delineates a demand curve that manifests as relatively elastic above the existing

price point, reflecting heightened consumer responsiveness to price escalations.

Simultaneously, the demand curve materializes as relatively inelastic below the current price,

signifying a muted consumer inclination to respond to price reductions.

This behaviour of the kinked demand curve in the telecommunications sector in Thailand is a

product of the competitive milieu and the strategic inclinations of firms aimed at preserving

their market standing. Firms exercise prudence in escalating prices, apprehensive about

potential customer attrition to rival operators. Conversely, they exercise restraint in lowering

prices, cognizant of the anticipation that competitors are likely to emulate such reductions.

4. What is the elasticity of demand of the telecommunications sector in Thailand?

The elasticity of demand within the telecommunications sector in Thailand is a variable

phenomenon contingent upon a spectrum of factors, including alterations in pricing structures,

the availability of substitute services, and evolving consumer preferences. Nevertheless, it is

worth noting that precise empirical data pertaining to the demand elasticity of the

telecommunications sector in Thailand is not readily accessible.

It is imperative to underscore that the demand elasticity profile may diverge among distinct

services encompassed within the telecommunications sector. For instance, mobile services,

internet connectivity, and landline services may each exhibit idiosyncratic demand

characteristics and elasticity profiles, given the unique attributes and consumer behaviors

associated with each.

To procure accurate and contemporaneous insights into the demand elasticity pertinent to the

telecommunications sector in Thailand, one would necessitate recourse to specific studies or

reports that have undertaken an in-depth analysis of market dynamics and consumer

proclivities within this sector. These sources would be instrumental in elucidating the nuanced

elasticity dynamics prevalent therein.

5. How can the concept of Nash Equilibrium be used to analyze the behavior of the firm

in the Telecommunications Sector in Thailand?

Nash Equilibrium is a concept in game theory that describes a situation where no individual

player has an incentive to change their strategy, given the strategies of the other players. In the

context of the telecommunications sector in Thailand, Nash Equilibrium can be used to analyze

the strategic interactions between firms in the sector.

For example, if one firm decides to reduce its prices, it can expect its competitors to do the

same in order to protect their market share. This means that no individual firm has an incentive

to change its pricing strategy, as it would not lead to a significant increase in market share. This

equilibrium of stable pricing levels can be characterized as a Nash Equilibrium.

The application of Nash Equilibrium to the telecommunications sector in Thailand provides

valuable insights into the complex dynamics of strategic decision-making. It reveals the

intricate interdependencies and strategic calculations that underlie the competitive landscape

of the sector, shedding light on the rationale behind firms' strategic choices and the stability of

their chosen strategies.