Total Access Communication

Total Access Communication Plc (DTAC )
 

What’s new? DTAC announced the temporary suspension of its network upgrade, following a second service interruption, this time in the seven southern provinces. It took place at 3.30pm on Jan 5, 2012 and wasn’t fully rectified until 8.30pm. The network upgrade will resume once the firm can ensure compatibility between existing and new equipment.
The call success rate of DTAC’s Mobile Switching Center (MSC) in Surat Thani province dived to 50-60%, causing 1.8m postpaid DTAC customers in the coverage area and elsewhere to have difficulty making and receiving calls. The problem was resolved at around 8.30pm, when the call success rate returned to 98-99%. DTAC said it will waive service fees for 48 hours to all the affected subscribers as compensation for the service interruption.
The first service disruption was on Dec 21, 2011, which impacted 20m subscribers (of 23m) for 1-2 days.
Analysis: With regard to the first service interruption on Dec 21, we estimate the negative impact on 4Q11 revenue and costs (mostly SG&A expenses) at about Bt300m and on the 4Q11 bottom-line of Bt250-300m (11-14%). That suggests FY11 net profit squeeze of 2-3%. As compensation for the first service interruption, DTAC waived fees for all 23m customers for 48 hours. With regard to the second service interruption on Jan 5, we estimate the negative impact on 1Q12 revenue and earnings to be in the region of Bt20-25m, assuming the waiver of fees for 48 hours for 1.8m post-paid customers. That suggests negligible 1Q12 bottom-line squeeze of about 1% (and 0.2% for FY12).
Action: The service interruptions constitute short-term negatives for 4Q11-1Q12. All the operators are prone to service disruptions when they upgrade networks, exacerbated by the fact that Thai cellular firms are prone to mix-and-match vendors, based on which of the equipment suppliers (Nokia, Ericcson, Siemens, Huawei, ZTE, Motorola, etc) offers the most attractive financing package on the day. We reiterate our BUY rating on DTAC in anticipation of 3G auctioning late this year. Our YE12 target price is Bt105.