3G auction not to financially affect AIS, Dtac: Fitch Ratings
Play
Advanced Info Service Plc and Total Access Communication Plc will witness limited impacts on credit ratings following the new 3G investment, said Fitch Ratings which expect the 3G spectrum auction to draw only 3 bidders.
In a report entitled "Thai Telecoms – 3G Spectrum Auction", Fitch said that aside from the two rated companies, True Group would be the other bidder in the auction which is expected to take place in October.
"Financial leverage for the sector will rise, but Fitch Ratings believes that these two largest operators have sufficient ratings headroom to absorb the effect of significant negative free cash flow," it said.
The rating agency noted that the high licence fee and the additional investment costs for the 3G network will lead to an increase in net debt and financial leverage for the major telecom operators over the next three years, but that is manageable for AIS and Dtac thanks to their solid operating cash flow. Their funds flow from operations-adjusted net leverage ratio is now below 1.5 times and 2.5 times, respectively.
"Fitch does not expect an overly intense bidding competition for spectrum auction. This is based on the agency’s expectation that there will be only three existing mobile operators – AIS, DTAC and True Move – participating in the bidding for 45MHz of 2.1GHz spectrum, and each of the three operators aim to bid for 15MHz of spectrum," it said.
"Fitch does not expect an overly intense bidding competition for spectrum auction. This is based on the agency’s expectation that there will be only three existing mobile operators – AIS, DTAC and True Move – participating in the bidding for 45MHz of 2.1GHz spectrum, and each of the three operators aim to bid for 15MHz of spectrum," it said.
However, there is a possibility that the bidding could become more intense if some operators seek to grasp greater bandwidth share. This could occur if the two largest operators bid for 20MHz of spectrum. This would leave only 5MHz for the third operator, which is unlikely to be enough to support data traffic in the long term. Hence, the third operator would be likely to bid
more aggressively – driving up the price to well beyond the auction start price. Under the draft information memorandum, the 45MHz of 3G spectrum (2.1GHz band) will be divided into nine spectrum slots of 5MHz. In addition, each operator will receive a maximum of four slots (20MHZ) of 3G bandwidth.
The National Broadcasting and Telecommunication Commission has set the auction starting price for each 5MHz slot at Bt4.5 billion.
AIS reportedly plans to invest around Bt50 billion in its network over 2013-2015 (or around Bt16.7 billion per annum), while Fitch estimates DTAC will invest around Bt30billion (or
around Bt10billion per annum). This is significantly higher than the average capex over the past three years of Bt6.9 billion for AIS and Bt5.2 billion for DTAC.
