Fitch: 1.8GHz Spectrum Win, Network Improvement Crucial for DTAC

Stocks and Financial Services Press Releases Thursday May 10, 2018 11:14
Bangkok--10 May--Fitch Ratings

Total Access Communication Public Company Limited's (DTAC; BBB/AA(tha)/Stable) market position will be strengthened if it can successfully secure the 1.8GHz spectrum that will be up for auction as its relatively weak spectrum portfolio has constrained its business, says Fitch Ratings.

On 7 May 2018, Thailand's National Broadcasting and Telecommunication Commission announced the rules for the auction of three slots of 1.8GHz spectrum with a target auction date of 4 August 2018. The regulator has also set the starting price at THB37.5 billion for each of the slots.

Fitch expects DTAC to win one slot of the 1.8GHz spectrum as it has a greater and more immediate need for new spectrum and therefore more incentive to secure the frequency in this round of auction than other likely bidders - Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable) and True Corporation Public Company Limited - who, in Fitch's view, should have enough spectrum to support their operations in the medium term.

However, the potentially high acquisition cost for the spectrum and an additional payment to use TOT Public Company Limited's (TOT) 2.3GHz spectrum could put pressure on DTAC's cash flow and financial leverage in the medium term.

DTAC needs new spectrum over the medium term to replace the 35MHz that it is losing as its 2G concession will expire in September 2018. We expect the company to need the 1.8GHz spectrum, even though it has the 2.3GHz contract with TOT, as DTAC is still largely reliant on the frequency to provide 3G and 4G services for its customers.

Fitch believes DTAC's loss of market share to competitors over the past few years was partly a result of its inferior spectrum holding. Additional spectrum and more network investment could help improve DTAC's network quality and slow its decline in market share and service revenue.

Fitch expects DTAC's EBITDA to decline by around 4%-7% to THB27 billion-28 billion in 2018 from THB29.1 billion in 2017, mainly due to payment for the 2.3GHz contract with TOT. In addition, the likely high upfront spectrum payment will raise net debt and financial leverage over the next two years. However, DTAC has moderate financial leverage, so we expect its FFO adjusted net leverage to remain below 2.5x in the next two years (end-1Q18: 1.3x), in line with its current ratings.

DTAC announced on 23 April 2018 it had entered into a partnership agreement with TOT to provide wireless service on the 2.3GHz spectrum. DTAC has to pay an annual fixed payment of THB4.5 billion to TOT for the right to use the spectrum.

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