Thailand is moving closer to a long-awaited auction for third-generation mobile phone licences, now expected in the second week of December, but the issue of foreign shareholders in telecom firms may derail the process.

The telecoms regulator expected to issue licences within two weeks of selecting winning bidders in the auction, Sethaporn Cusripituck, one of the members of the National Telecommunications Commission (NTC), told reporters on Monday.

In our rough timeframe, if there are no obstacles, we should be able to open the auction in the second week of December and the NTC will be able to issue licences two weeks after that. We want it to happen this year, Sethaporn said.

Licensing is a key step in reforming the sector in Thailand because firms will pay licence fees instead of paying a portion of their revenue to two state-owned companies for the right to operate networks they built and paid for themselves, as they do now.

Thai telecoms operators are keen to join the auction as the new payment structure should lead to a reduction in costs.

On Monday, the NTC held a public hearing on draft terms for the auction. These should come into effect after an Information Memorandum is published in the Royal Gazette in coming months.

FOREIGN SHAREHOLDERS

But the question of nominee and foreign shareholders in Thai telecom companies could still prove a stumbling block.

Analysts said the licensing process could be delayed if a Thai court is asked to look into the qualifications of bidders to see if they comply with the telecoms and foreign business laws, which limit foreign shareholding in Thai firms to 49 percent.

Athueck Asvanund, vice chairman of True Corp TRUE.BK, said the NTC should make it clear whether foreign state companies were qualified to join the auction, and also said the 3G spectrum should not be given to foreigners on national security grounds.

The NTC should have clear regulations to verify the shareholding structure of interested bidders, both direct and indirect holdings, said a representative from True, which owns a majority stake in True Move, Thailand's third-largest mobile operator.

Foreigners are major shareholders of two leading players in Thailand's mobile phone market, which is valued $4.7 billion in terms of revenues.

Market leader Advanced Info Service PCL (AIS) is 43 percent owned by Shin Corp SHIN.BK, majority owned by Temasek Holdings [TEM.UL], Singapore's state-run investment arm.

AIS is also one-fifth owned by Singapore Telecommunications, whose parent company is Temasek.

The number two player, Total Access Communication PCL (TAC) DTAC.BK, is controlled by Norway's Telenor.

True, founded by the Chearavanont family, has had no foreign partner since 2004, when France's Orange SA left to focus on markets at home.

The NTC will verify the qualifications of eligible bidders before issuing a licence and will respect the decision of the government agency that rules on the shareholding structure of Thai companies.

Under the draft plan, NTC will issue four 15-year licences for the 2.1 GHz frequency, with one licence of 15 MHz bandwidth and 3 licences of 10 MHz.

AIS shares fell 2.61 percent to 93.25 baht on Monday, while TAC eased 2.91 percent to 41.75 baht. True lost 5.95 percent to 3.16 baht, while the overall market ended 1.76 percent lower. ($1 = 33.59 Baht) (Additional reporting by Manunphattr Dhanananphorn; Editing by Alan Raybould)

Thailand