Telecom

Telecom

The government’s big idea is to pull Thailand into the digital age with its “digital economy”. To do this it needs to lay the groundwork by making the internet accessible to all its citizens no matter where they live – and in order for this to happen, it needs to open more spectra for mobile data use, specifically for 4G. This is good news for mobile players, who will benefit from higher ARPU. Already offering 4G, TRUE is ahead of the game and is thus our top pick. 

What is the digital economy? The digital economy is defined as an economy based on digital technology, sometimes called the Internet Economy. While new for Thailand, it has long been known in other countries – but what is different now is the mode of internet access. The old-style digital economy required computers to access the internet but today more people are using other, more mobile devices such as smartphones and tablets. This means wireless broadband and 4G are crucial if a digital economy is to become a reality.    

More spectra needed to support long term data traffic growth. The growing importance of wireless broadband in the digital economy and the faster speed offered by 4G (100 times faster than 3G) means that if the government truly wants a digital economy, it must open up spectra to service providers, making an auction vital. Initially, it was putting up just the 1800MHz and 900MHz for bidding for 4G but now it has a new idea – take back the 2.6GHz spectrum from MCOT and auction it as well. This offers bandwidth of about 140MHz, far more than the 25MHz for 1800MHz and 20MHz for 900MHz, making it more practical for 4G, which requires more bandwidth. Although we see no reason the government cannot simply reclaim this spectrum from MCOT, as with any political issue, it will take time. And if the government insists on a single auction for everything, it may make it impossible for the auction to be held in August, as it had planned. We do expect an auction for 4G – but we see early 2016 as more likely than August this year.       

Whole industry to benefit from 4G. The industry as a whole will benefit from getting more spectra. Despite the fact that internet access via mobile is now primarily for social networking, it still led to a surge of 25-40% in data revenue growth over the past two years. This suggests that if the digital economy can, as planned, stimulate greater online trade transactions, data revenue growth could continue to step up strongly for many years to come. In addition, it will be ARPU accretive, since operators can charge more for 4G; however, it is far too early in the game to even attempt to quantify it.  

TRUE is our top pick. We maintain Buy on TRUE with DCF-based target price of Bt17. A successful capital increase and the rise to #2 in the postpaid market shoved the share price up and we expect another move up as it challenges ADVANC for top spot. Backing its thrust is its first-mover advantage in 4G, made even keener by the delay in the 1,800MHz auction plus DTAC’s struggle to protect its market share. We thus expect TRUE’s gain in revenue share will continue for at least the next three years.