Telecom

Telecom 

The mobile sector remains on our radar, particularly with several positive catalysts lining up in this 2H15. First, the NBTC is pushing for auctions of both 1800MHz and 900MHz by end of this year despite switch in ICT minister. This implies a push for 4G and with it, upside risk to ARPU. Another positive is the resolution of the tower dispute between private operators and state-owned enterprises via JV partnership. DTAC and CAT have led the way and the others will surely follow. ADVANC and TRUE remain our top picks.  

IM for 1800MHz auction released. The NBTC published the rules and conditions for the 1800MHz auction in the Royal Gazette on August 24, paving the way for a November 11 auction. There are some changes from the draft in the final rules and conditions, as below. 

1) Starting price is now ~Bt15.9bn/license (or ~80% of the full value of the spectrum) for 2x15MHz bandwidth on 1800MHz if DTAC and CAT are able to return 5MHz to the NBTC before September 25. This is higher than the original Bt13.9bn/license (or 70% of full spectrum value) in the draft IM. The price was upped because the NBTC thinks a starting price at 70% is too low given the low competition. 

2) If the 5MHz from DTAC and CAT cannot be included, the licenses will be changed to 

2x12.5MHz per license and the starting price will be Bt13.26bn/license (still 80% of the full value), up from Bt11.6bn (70% of full value). 

3) The life of the license will be shortened by one year to 17 years (Sep 15, 2033).  

4) The spectrum cap requirement has been lifted.  

5) Coverage must reach 50% of the population within year eight; the coverage requirement for the first four years of 40% of the population is unchanged.  

Whole industry to benefit from 4G. The industry as a whole will benefit from the auctions, leveling the playing field by making it possible for all operators to offer 4G services. The more rapid uploading and downloading (up to 10x faster) and better quality will entice greater internet data usage and thus raise ARPU; this has been seen in other countries, such as South Korea and Thailand should be no exception. We have yet to factor higher ARPU in our model.     Overhang from tower disputes heading towards resolution. Early this month, CAT’s board officially approved a plan to settle the disputes over 8K towers with DTAC via a JV. DTAC will hold 51% in the JV and CAT 49%. DTAC will have to inject Bt6.6bn into the JV for its 51% stake. We believe the soonest the process can be completed is early next year. There are two positives in this JV for DTAC. First, it lifts the overhang about whether or not DTAC will be able to use the disputed towers after its concession ends in 2018. Second, CAT will withdraw all 14 of its suits against DTAC. This paves the way for DTAC to employ 4G on its 1800MHz concession. We expect ADVANC and TRUE to follow suit in their dealings with TOT and CAT.    

Action: ADVANC stands to benefit most from the auction as it is the hungriest for spectra to grow with the rising demand for data usage. We maintain our Buy on ADVANC with DCF-based target price of Bt270. TRUE continues to be our top pick even if the auction takes place as planned. We believe TRUE will continue to gain more revenue market share as its network quality compares favorably with leader ADVANCE and DTAC. We reiterate our Buy call on TRUE with DCF-based target price of Bt17.