Delayed telco payments will help AIS, DTAC: Fitch Ratings

The government’s plan to split the up-front licence fee for the 900MHz spectrum over several instalments will relieve some cash flow pressure amid rising capex. However, the telcos will have to acquire 700MHz spectrum in the pending spectrum assignment as a key condition for the payment extension. The National Council of Peace and Order issued the extension measure last Thursday.
Fitch expects the new payment schedule will ease the ratings headroom for AIS and DTAC, as their largest spectrum payments were originally scheduled for 2020 and 2022, respectively. An agreement to apply for the new spectrum payment term could reduce AIS’s projected funds from operations (FFO) adjusted net leverage by around 0.5x to 1.4x in 2020, while that of DTAC could be lowered by around 0.4x to 2.3x in 2022. Fitch has negative triggers of 2.0x for AIS and 2.5x for DTAC. 
Under the 900MHz payment extension term, AIS’s remaining spectrum payments for 900MHz of Bt64 billion could be spread out equally at around Bt10.6 billion a year over 2020-2025, from the previous Bt4.0 billion in 2019 and Bt60 billion in 2020. Meanwhile, DTAC will be paying around Bt3.7 billion a year over 2020-2027, compared with the former payment schedule of Bt2.0 billion a year in 2020-2021 and a lump sum of Bt25.8 billion in 2022.
Investments in 5G have been selective, with only a handful of 5G trials taking place in the Asia-Pacific region, underscoring the unproven business case for 5G and limited device availability. Fitch believes that the 4G technology should be sufficient to support Thailand’s growing demand for mobile data in the medium term. The uncertain business case for 5G investment in the absence of a complete ecosystem will widen negative free-cash flow and weigh down telcos’ balance sheets. The regulator has yet to announce details on the 700MHz spectrum allocation.