True Corporation

True Corporation Plc (TRUE)
What’s new? Mr Kittisak Sriprasert, CEO of CAT, said the state-owned telco will scrap the six TRUE-Hutch contracts it signed with TRUE in January 2011, citing that they breached Section 46 of the 2010 Frequency Allocation Act. CAT is in the process of drafting new 3G network and Mobile Virtual Network Operator (MVNO) contracts with TRUE, which are expected to be submitted to the CAT board on August 8. In order to comply with the 1992 Public-Private Joint Venture Act the contracts must also be approved by Cabinet.
The CEO added that Hutch's existing 2m subs won’t be affected, but TRUE must freeze its 3G-HSPA network rollout and TRUE Move-H subscribership drive.
In line with expectation: The news is negative for TRUE and in line with our expectation. We were skeptical about the legality of the contracts when they were signed and anticipated that they would be scrutinized if the government changed (which it did).
Two major changes in new contracts: CAT told the media that it will scrap the condition in the contracts that Real Move can lease up to 80% of CAT’s 3G bandwidth; that will free up bandwidth to offer to other MVNOs. Secondly, the state telco plans to amend the network leasing terms it has with BFKT (a subsidiary of TRUE), which has leased 3G equipment to CAT. The stated forthcoming contract amendments will downgrade TRUE’s status from being a near-exclusive partner with CAT-Hutch to being an MVNO sharing bandwidth with other MVNOs.
Possible consequences? TRUE will almost certainly litigate over the rescinding of the contracts if it fails to come to an acceptable deal through horse-trading. Regardless, TRUE Move-H’s YE12 target of 4m subs has crashed. CAT’s abrogation of the Move-H contracts doesn’t affect TRUE Move subscribers or revenues (about 18m subs), but that concession is due to expire in Sept 2013. TRUE will have to win new bandwidth at the 2.1Gz-3G auction in October, or it may not have a viable business platform.
Action: Our HOLD rating stands. We will revisit our model once CAT announces new contracts.