DTAC leases telecom towers from True infrastructure fund

The signing makes DTAC the first telecom operator outside True group to rent telecom infrastructure from the fund, in which True was the majority holder with 32.5 per cent of the units as of the end of August.

Under the three-year deal, in the first phase DTAC’s subsidiary DTAC Trinet will rent between 100 and 115 towers from the fund to expand its 3G-2.1GHz wireless broadband service. The total value of the deal this year is Bt2 million. 

DTAC Trinet holds a 2.1GHz licence issued by the National Broadcasting and Telecommunications Commission.

A telecom industry source said the monthly network-rental deal between DTAC and the fund was around Bt20,000 per tower.

The company is considering renting an additional 500 telecom towers from the fund next year, according to a DTAC source.

Noppadol Dej-udom, True Corp chief financial officer, said the deal reflected a trend for infrastructure-sharing among telecom operators. It was getting much more difficult for cellular operators to roll out new networks, due to much more complicated regulatory processes, he said.

Infrastructure-sharing such as the deal with DTAC would also enable telecom operators to save costs on new network roll-out and concentrate on competing to provide services to customers, he added.

SCB Asset Management manages Truegif, while the fund’s telecom assets – Bt73.5 billion as of October 20 – are managed by Telecom Asset Management. 

Currently, a partnership between True group and CAT Telecom exclusively leases 4,360 telecom towers from the fund to provide 3G-850MHz service. 

The fund is building another 3,000 towers, which will be on offer to other operators. Construction is scheduled for completion by the end of the year, with plans to build an additional 3,000 towers next year, also for renting out to other operators.

According to a recent DTAC filing to the Stock Exchange of Thailand about its third-quarter financial performance, the company will enhance its mobile network by installing 6,500 3G/4G base stations in the Bangkok metropolitan area and 30 major cities, with completion scheduled by the end of March. These will be a major addition to its existing 16,500 sites for 3G-2.1GHz and 3G-850MHz base stations as of the end of the third quarter.

Meanwhile, Fitch Ratings has revised DTAC’s outlook to positive from stable, and has also affirmed both its long-term foreign currency and long-term local currency issuer default ratings at “BBB”, its national long-term rating at “AA(tha)”, and the company’s national short-term rating at “F1+(tha)”.

The positive outlook reflects Fitch’s expectation that, despite slow revenue growth and heavy investment for 3G network expansion over the next three years, DTAC’s financial leverage will stay below 1.5 times because of strong earnings growth driven by regulatory cost savings under the 3G licensing framework, compared to the 2G concession framework. 

 

Previous expectation  

Its previous expectation was that financial leverage would be sustained above 1.5 times in the medium term. 

Fitch expects DTAC’s operating Ebitdar (earnings before interest, taxes, depreciation, amortisation, and rent or restructuring costs) margin to rise by between 3 and 5 percentage points a year during 2015-2017. 

The positive outlook indicates that an upgrade of DTAC’s ratings could occur over the next 24 months if its earnings and operating cash flow continue to improve strongly as expected, while maintaining its FFO (funds flow from operations)-adjusted net leverage below 1.5 times on a sustained basis.

Fitch expects DTAC’s earnings and cash flow to increase this year and next despite slower revenue growth. Earnings improvement will be largely supported by an increase in the operating Ebitdar margin. 

Although marketing costs will remain high during both years, this should be largely offset by the cost savings that stem from changes in the regulatory framework following the issuance of 3G licences, the ratings company said. 

As a result, Fitch expects DTAC’s operating Ebitdar margin to improve to 36-41 per cent this year and next, from 33 per cent in 2013. Its FFO is likely to improve to more than Bt35 billion in 2016, from Bt28 billion last year.

Sustained high capital expenditure and potential spectrum investment will lead to negative free cash flow (FCF) and an increase in net debt and financial leverage during 2014 and 2015. 

However, DTAC’s solid cash flow from operations and large rating headroom should help the company to absorb the high investment, Fitch said, adding that FFO-adjusted net leverage was healthy at 1.0 times at the end of September. Its forecast is 1.45 times at year-end.

DTAC’s revenue growth, meanwhile, is likely to slow to a flat to mid-single-digit rate both this year and next. Strong growth in data revenue will be largely offset by a drop in voice revenue due to the intense price competition in a saturated market. 

Fitch rates DTAC on a bottom-up basis under the agency’s parent and subsidiary rating-linkage methodology. 

DTAC receives a one-notch uplift to reflect implied support from its parent, Telenor of Norway, which has strong board and management control. 

Consequently, any changes in Telenor’s ownership or support linkage of DTAC would result in a reassessment of the level of support from its parent.