Bangkok--23 Mar--Fitch Ratings
Jas Mobile Broadband Company Limited's (JasMobile) failure to become the fourth operator in the Thai mobile telecommunications market is unlikely to significantly reduce industry competition in 2016, Fitch Ratings says. The three incumbent mobile operators will continue to compete aggressively to increase or defend their market shares.
Fitch maintains a negative outlook on the Thai telecom industry for 2016 because we expect the credit metrics of most telcos to deteriorate from tougher competition, slow revenue growth and larger capex for network investment and spectrum payments.
The Thai mobile telecom sector will continue with three companies dominating the market in the medium term, after JasMobile failed to submit the first instalment payment and bank guarantee to secure the licence for 900MHz spectrum before the 21 March 2016 deadline.
Fitch expects the competition in the Thai mobile market to intensify in 2016 as operators compete more aggressively on price and handset subsidies. True Corporation Public Company Limited's mobile business (True Mobile), the third-largest operator by service revenue, has strengthened its financial and market positions and aims to gain market share. The other two operators – Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable) and Total Access Communication Public Company Limited (DTAC; BBB/AA(tha)/Stable) - are determined to defend their market shares.
Guidance for weaker financial metrics from AIS and DTAC, which account for around 80% of revenue market share, highlights the challenges facing the industry. AIS has revised down its EBITDA margin guidance for 2016 to reflect the one-off expenses relating to the shutdown of its 2G, 900MHz network. The company needs to offer handset subsidies to its 2G customers to encourage them to move to the 3G network before the 2G network shuts on 14 April 2016. AIS now expects EBITDA margin to drop to 37%-38% in 2016 from 45.6% in 2015. DTAC expects its EBITDA margin to decrease to 27%-30% in 2016 compared with 31.8% in 2015, to reflect the more aggressive marketing activities as the company aims to regain market share.
Fitch still expects the three incumbents to invest to expand capacity on the 3G and 4G networks this year, with industry capex (excluding spectrum payments) to increase to around THB80bn in 2016 (2015: THB65.4bn, 2012-2014: THB27bn-61bn/year). The potential re-auction of the 900MHz spectrum could drive capex in the medium term. As a result, most telcos' free cash flows are likely to be negative, and their financial leverage will increase over the next two years.
Nevertheless, the rating Outlooks of AIS and DTAC remain Stable, reflecting Fitch's expectation that their market position should remain strong in the medium term and they still have sufficient buffers to mitigate these downside risks. However, their credit metrics are likely to deteriorate over the next two years, which will reduce their rating headrooms.