Telecom sector

This ruling was widely expected by the market, nevertheless remains positive for TRUE. This could imply that other telcos (AIS and DTAC) could think of entering into similar rental greements for asset sharing; for example, media reports indicate that AIS could sign contracts with TOT to run mobile services on the 2.3GHz frequency to provide 4G service for 14 years.

 

This news is positive for TRUE but was expected 

Despite a series of investigations/litigations, the general market expectation has been that TRUE will continue to offer its 3G-850MHz services. Since signing the contracts in January 2011, TRUE has been facing investigations from many parties. NBTC’s investigation is one of the key investigations.

 

Will the investigation end?

Given the NBTC’s investigation resolution, consumer protection groups could take the case to the Senate committee before it is passed to the National Anti-Corruption Commission (NACC). NACC has already been investigating the TRUE-CAT contracts and could refer the issue to the

court. If the court rules that CAT’s management is guilty, it will not directly impact the signed contracts between TRUE and CAT, but this could lead to further litigations against TRUE on the TRUE-CAT contracts. Even though TRUE should have an advantage from the NBTC’s ruling, a potential lawsuit could bring negative sentiment to the share price.

Prawit Leesathapornwongsa was the only commissioner to vote against the contracts on the grounds that the telecom panel is not the final decision maker and it is up to the courts to rule on the case. Prawit is the NBTC member selected from the consumer protection field and was

previously the Director of the Telecommunications Consumer Protection Institute. His disagreement could be followed by further action by consumer protection groups and NGOs.

 

More contracts similar to TRUE-CAT could happen

TRUE-CAT contracts could be a precedent case for other private operators and state enterprises (TOT and CAT). The state enterprises (TOT and CAT Telecom) have telecom licenses and frequency and are struggling to monetise their assets to generate revenues to offset the

revenue sharing losses once concession contracts expire after 2013. A potential similar situation could be that of AIS signing contracts with TOT to run mobile services on the 2.3GHz frequency to provide 4G service for 14 years, as per media reports. 

 

Regulations are being challenged

The TRUE-CAT contracts investigation is testing NBTC’s authority to enforce operators to comply with the law. It looks like NBTC needs more clarity on regulations for the enforcement. We understand that NBTC is in the process of drafting regulations on network rental service to avoid

any loopholes in the law, like the one that enabled the TRUE-CAT contracts.

 

Our top pick is AIS

We like AIS as its 3G-2.1GHz rollout strategy tends to protect any potential legal issues that might come up in the future. Also, AIS has a solid financial position with a good track record on dividends. AIS is trading at FY13F P/E of 17x with dividend yield of 5.8%. We maintain Reduce on TRUE. We expect TRUE to continue making losses in FY13- 15F. Its estimated net debt to EBITDA at 5-6x raises concerns over the funding source given its aggressive capex plan on all 3 businesses (pay TV, online and mobile).