Bangkok--10 Apr--Fitch Ratings
Winning the 2.3GHz spectrum partnership contract with TOT Public Company Limited (TOT) is important to Total Access Communication Public Company Limited (DTAC; BBB/AA(tha)/Stable) as it would boost spectrum holdings, at least in the short term, says Fitch Ratings.
Nevertheless, this contract alone is unlikely to solve all DTAC's spectrum risk, as more spectrum will be required over the next two years to support its growing mobile operations over the medium term.
TOT opened a request for proposal (RFP) for its 2.3GHz spectrum in February 2017. Private mobile operators were required to submit proposals to TOT before end-March, and TOT will select the operator within 60 days of the RFP deadline, most likely in May 2017. Fitch expects key considerations for TOT are likely to include fees payable by private mobile operators and the network rollout plan over the eight-year contract period.
Fitch expects DTAC could be the potential winner among the three private mobile operators which participated in the beauty contest for the 2.3GHz spectrum contract, as DTAC needs the spectrum the most - and therefore has the greatest incentive to propose the most attractive terms to TOT.
DTAC needs new spectrum over the next two years to replace the 35MHz – of its total spectrum of 50MHz - which it is losing as its 2G concession expires in 2018. The 15MHz of 2.1GHz band spectrum it owns under the licence regime may not be enough to support the rapid increase in mobile traffic and technology upgrades in the medium term.
Fitch believes that DTAC's loss of market share to competitors over the past few years was partly a result of its inferior spectrum holding position. Additional spectrum and more network investment could help improve DTAC's network quality and slow down its decline in market share and service revenue.
Even if DTAC secures the 2.3GHz contract, we would expect the company would still need to participate in the auctions for 1.8GHz and 850MHz spectrum, which are likely in 2018, as it still largely relies on these frequencies to provide 3G and 4G services. Furthermore, 2.3GHz-compatable handsets are not popular in Thailand, and DTAC may need to offer a deep handset subsidy to encourage its subscribers to move to the new spectrum.
Fitch expects that any arrangements between TOT and a private-sector operator would involve an annual fee payment to TOT for the rights to use the 2.3GHz spectrum, similar to the partnership contract between Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable) and TOT for 2.1GHz spectrum. Such additional cost may put pressure on DTAC's cash flows in the medium term. However, DTAC has moderate financial leverage and has suspended dividend payment for 2016's performance, so we expect that FFO-adjusted net leverage should remain below 2.5x (end-December 2016: 1.9x), in line with its current ratings.