Bangkok--7 Jul--TRIS Rating
TRIS Rating Co., Ltd. has upgraded the ratings of Total Access Communication PLC (TAC) and its debentures to “A” from “A-” with “stable” outlook. The ratings reflect TAC’s competitive strength as the second largest cellular operator in Thailand and its ability to capture a still growing, though at a slower pace, demand for mobile services. The ratings also take into consideration benefits in terms of an experienced management team appointed by Telenor ASA, a Norwegian telecommunication company, and its continually improving financial leverage. These strengths are partially offset by a heightened level of competition, which will pressure TAC’s profitability, the large capital expenditures required to expand service coverage and capacity, as well as the uncertainties in several areas of telecommunications regulations.
The “stable” outlook is based on the expectation that TAC, under the helm of its current skilled management team, will sustain its competitive position and will be able to generate sufficient funds from operations (FFO) to expand the network without raising its financial leverage. The outlook is also based on
the expectation that the new telecommunications regulations introduced by the National Telecommunications Committee (NTC) will not have an adverse impact on TAC’s operating performance.
TRIS Rating reported that as of 31 March 2006, the penetration rate of cellular phones in Thailand was 51%, up from 48% at the end of 2005. The industry had enjoyed stellar subscriber growth rates during 2001 and 2002 at 120% and 121% respectively, but the rate declined dramatically to only 14% in 2005. The competitive environment in the industry has intensified since 2002 when True Move PLC entered the market. The Thai mobile industry is still dominated by Advanced Info Service PLC (ADVANC) with a subscriber market share at 51%, followed by TAC at 30%, and True Move at 15%. Offers of
low-tariff packages have been the most commonly used marketing tool by most operators to attract and retain subscribers. As a result, the industry has repeatedly experienced price wars that have encouraged subscribers to make unnecessarily long calls. Subsequently, the price wars have created network connection problems, leading to higher capital requirements for network expansion.
TRIS Rating said, TAC has been able to maintain its market share at around 30% since 2002. This success is largely driven by innovative price promotions, a segmented approach to meet consumer and corporate customer needs, and a customer-oriented strategy. As of the first quarter of 2006, TAC had a total of 9.8 million subscribers, a 13% increase from the end of 2005; the number of subscribers surpassed 10 million in April 2006. Prepaid customers are the major growth engine for service revenues. The company owns a network that covers more than 90% of the population, and plans to expand further especially upcountry, where there are still more rooms for growth. TAC has planned to increase its non-voice revenues by improving network capacity in preparation for Enhance Data-rates for GSM Evolution (EDGE) and 3G technology. TAC is also expected to benefit from the recent additional investment by Telenor in terms of managerial assistance through key management and director positions appointed by Telenor. Telenor’s direct ownership of TAC increased from 29.9% in 2000 to 32.9% after the tender offer in December 2005. At the end of the first quarter of 2006, Telenor’s economic exposure (direct and indirect) in TAC was 70.2%.
TRIS Rating also said, TAC has been successful in lowering its financial leverage. The debt to capitalization ratio has improved from 60% in 2003 to 49% at the end of March 2006. Although TAC’s US$300 million Yankee bond will come due in November 2006, TRIS Rating expects that TAC will be able to refinance it. TAC’s FFO to debt ratio has almost doubled from its 2001 level, driven mainly by healthier operating performance. However, huge capital expenditures for network expansion and 3G technology are expected in the near future and this will likely keep TAC from further de-leveraging its balance sheet.