Bangkok--3 Oct--TRIS Rating TRIS Rating Co., Ltd. has affirmed the ratings of Total Access Communication PLC (TAC) and its debentures at “A” with “stable” outlook. The ratings reflect TAC’s competitive strength as the second largest cellular operator in Thailand and its ability to retain market share during the period of aggressive marketing campaigns. The ratings also take into consideration benefits in terms of an experienced management team and its continually improving financial leverage. These strengths are partially offset by an ongoing competitive environment, the large capital expenditures required to expand service coverage and capacity, exposure to technological risks, as well as uncertainties relating to 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 FFO to expand the network without raising its financial leverage. The outlook is also based on the expectation that any changes in the telecommunications regulations will not have an adverse impact on TAC’s operating and financial performance. TRIS Rating reported that during 1999-2004, the number of mobile phone subscribers in Thailand expanded at an average growth rate of 60% per annum. The growth rate slowed in 2005 to 12% as mobile penetration rate reached 49% of the total population. However, the highly competitive environment from the beginning of 2006 with companies offering free SIM-cards, price undercutting campaigns, and expanding upcountry, has stimulated subscriber growth. As of June 2007, the penetration rate of cellular phones in Thailand was about 74%, up from 63% at the end of 2006. The number of mobile phone subscribers is expected to reach the saturation rate within the next few years. The sector will then continue to grow only when there is clarity in the regulations, which is crucial to attract fresh investments and stimulate non-voice services. 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 June 2007, TAC had a total of 14.5 million subscribers, a 19% increase from the end of 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 is still more room to grow. TAC has planned to increase its non-voice revenues by improving network capability in preparation for Enhance Data-rates for GSM Evolution (EDGE) and third-generation (3G) technologies. TAC has received benefits from the investment by Telenor ASA (Telenor), a Norwegian telecom-munication company, in terms of managerial assistance through key management and director positions. By September 2007, TAC completed its shareholder restructuring scheme, which included the 222-million-share initial public offering (IPO) on the Stock Exchange of Thailand (SET). As a result, Telenor Asia owns a third of the company and another one-third is owned by Thai Telco Holdings Ltd. (TTH). Meanwhile, United Communication Industry PLC (UCOM) has become TAC’s 100%-owned subsidiary.TAC’s financial profile is strengthened, largely due to the replacement of its access charges (AC) with the interconnection payments. However, whether TAC can legally remove the AC is unclear. Such regulatory risk will continue to weigh on its credit profile. TAC has been successful in lowering its financial leverage. The debt to capitalization ratio has gradually improved from 60% in 2003 to 43% at the end of June 2007 and the funds from operations (FFO) to debt ratio has doubled from its 2003 level, driven mainly by the Bt3.1-billion equity injection from the IPO and 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, said TRIS Rating.