Fitch Ratings says it would make sense for DTAC to partner with state telecom TOT on a 2.3-gigahertz spectrum deal.
Mobile firm needs spectrum, says agency
It is important for Total Access Communication Plc (DTAC) to win a 2.3-gigahertz spectrum partnership contract with TOT Plc as it would boost the mobile operator’s spectrum holdings, at least in the short term, says Fitch Ratings.
However, a contract alone is unlikely to solve all of DTAC’s spectrum problems, as more spectrum is needed over the next two years to support its growing mobile operations over the medium term, said the ratings agency.
TOT opened a request for proposal (RFP) for its 2.3GHz spectrum in February 2017. Private mobile operators were required to submit proposals to TOT before the end of March, and TOT is expected to select an operator within 60 days of the RFP deadline, most likely in May 2017.
Fitch expects key considerations for TOT to include fees payable by private mobile operators and the network rollout plan over the eight-year contract period.
Fitch believes DTAC could be the potential winner among the three private mobile operators that participated in the beauty contest contract, as it needs the spectrum the most.
DTAC needs new spectrum over the next two years to replace the 35MHz, of its total spectrum of 50MHz, it is losing as its 2G concession expires in 2018. The 15MHz on the 2.1GHz spectrum it owns under the licensing regime may not be enough to support the rapid increase in mobile traffic and technology upgrades in the medium term, said Fitch.
Fitch believes DTAC’s loss of market share to competitors over the past few years was partly a result of its inferior spectrum-holding position. Additional spectrum and more network investment could help improve DTAC’s network quality and slow down its decline in market share and service revenue.
Even if DTAC secures the 2.3GHz contract, the company still needs to participate in the auctions for 1.8GHz and 850MHz spectrum, which are likely in 2018, as it still largely relies on these frequencies to provide 3G and 4G services, said the ratings firm. Furthermore, 2.3GHz-compatible handsets are not popular in Thailand, and DTAC may need to offer a deep handset subsidy to encourage its subscribers to move to the new spectrum, it said.
Fitch expects any arrangements between TOT and a private-sector operator would involve an annual fee payment to TOT to use the 2.3GHz spectrum, similar to the contract between Advanced Info Service and TOT for the 2.1GHz spectrum.
Such additional costs may put pressure on DTAC’s cash flows in the medium term. However, DTAC has moderate financial leverage and suspended dividend payments for 2016 performance, so Fitch expects funds from operations-adjusted net leverage to remain below 2.5, in line its current ratings, said Fitch.