Mobile telecom

Telcommunications (mobile) sector

The telecoms panel under the National Broadcasting and Telecoms Commission (NBTC) has approved the award of 15-year 2.1GHz licences to the three winning bidders (AIS, DTAC and True) with the condition that operators cut voice and data tariffs by 15%. The progress of 2.1GHz/3G licensing is in line with our and market expectations but the NBTC’s proposed tariff cut lacks clarity and may lead to hefty mobile interconnection rate cuts, adversely reducing 3G cost-savings. So we reiterate our contrarian Underweight call as start-up costs for 3G could outweigh cost savings, leading to earnings disappointment. Our top pick is Shin Corp. 

What Happened
On 7 Dec, local newspapers reported that the telecoms panel under the NBTC has approved the award of 2.1GHz spectrum and business licences to the three winning bidders (AIS, DTAC and True) and will issue official licences by 14 Dec. Commissioner Colonel Settapong Malisuvarn said that the licences come with the condition requiring 3G telcos to lower 3G voice and data tariffs by 15% vs. 2G tariffs. On 8 Dec, local newspapers reported that the ombudsman has decided to bring his case against the 3G auction to the Supreme Administrative Court.

What We Think
As expected, the NBTC’s accelerated licence award is to establish a point of no return as telcos start to spend to upgrade networks and transfer 2G customers to 3G networks. So, we put little weight on the ombudsman’s appeal or any possible lawsuits against 3G after licences are granted.
We argue that the NBTC’s proposed condition to cut tariffs by 15% will have minimal to no effect as voice tariffs are quite fluid whereas data tariffs are largely bundled with voice. The right way to control prices is to impose a more effective interconnection charge system, not just for 3G but also for 2G.

What You Should Do
Given concerns over 3G start-up cost overruns, an overhang given the Supreme Administrative Court’s ruling on the ombudsman’s appeal and lack of clarity around the NBTC’s proposed tariff reduction, 3G telcos (AIS, DTAC and True) remain Underperforms. Shin Corp is still the best 3G play given its deep discount to market-based NAV, higher dividends from Thaicom and potential growth from new ventures into digital terrestrial TV.