Dubious aid for two giants draws flak
AIS and True Move dominate the country’s telecom landscape, but that didn’t stop them from requesting (and receiving) special dispensation from the state over licence fees, write Komsan Tortermvasana and Pathom Sangwongwanich
Public queries have bombarded the military-led government and the telecom regulator after their decision to take the inexplicably generous route of invoking Section 44 to ease the financial burdens of Advanced Info Service Plc (AIS) and True Move, the winners of the 4G licence auctions three years ago.
The move is stirring widespread criticism, mainly because the two telecom giants’ financial health does not appear to warrant such debt relief.
Unlike the plan to assist financially beleaguered digital TV operators, questions are mushrooming about the real intention of the government’s move to provide assistance measures for the two winners of the 900MHz spectrum through a new payment package. Is this an action designed to help the telecom giants in exchange for some form of mutual favour? Can the government accept the revenue losses incurred by extended licence payments?
Some may even wonder whether such a generous effort will result in unfair treatment for Total Access Communication Plc (DTAC), which failed to grab any 900MHz spectrum in the 2015 licence auction.
AIS and True Move, the latter a subsidiary of True Corporation Plc, jointly petitioned the government late last year to invoke Section 44, which gives the prime minister absolute power to make the final decision on all problems. The companies asked permission to gradually make payments instead of the final lump payment, which was originally scheduled for 2019.
Under the new plan, payment will be made in five instalments over a five-year period and the companies are required to pay interest based on the Bank of Thailand’s policy rate of 1.5%.
In 2015, AIS won a 900MHz spectrum licence for 75.65 billion baht, while True Move won another licence for 76.29 billion baht. Each company has already paid two instalments of 8.04 billion baht in 2016 and 4.02 billion baht in 2017.
AIS and True Move are required to pay the third instalment of 4.02 billion baht this year. But the real pain was to kick in next year, as the two companies would have to shoulder colossal payments of 59.5 billion baht (AIS) and 60.2 billion baht (True Move).
UNDESERVED SUPPORT
Somkiat Tangkitvanich, chairman of the Thailand Development Research Institute, argues against the extended payment plan offered by the government and the National Broadcasting and Telecommunications Commission (NBTC), saying that while the winning prices of the 900MHz spectrum licences were high because of JAS Mobile Broadband’s inflated bidding, both AIS and True Move were well aware of the fact.
Assistance provided to AIS and True Move will inevitably ease the two companies’ financial burdens at the state’s expense, Mr Somkiat said.
In his view, the 1.5% interest that the two companies have to pay during the extension is too low when compared with the 15% interest fine for any licence winner that fails to make a payment according to the conditions of the auction.
The difference between the 1.5% interest applied during the extension period and a 15% interest fine is a combined sum of 30 billion baht, but the government seems to have waived the original conditions for the two companies.
Moreover, if the two telecom operators borrowed from banks to pay for their licences as stipulated in the original payment conditions, they would be charged an estimated 9% interest. That means the government is still helping to eliminate a combined 16 billion baht in interest cost shouldered by the two companies.
Mr Somkiat also urged the NBTC to respond to the lingering issue of why the telecom regulator leniently punished JAS despite how the company caused difficulties for the NBTC and the 900MHz spectrum winners.
Previously, JAS’s deposit guarantee of 645 million baht was confiscated and the company had to pay a fine of 200 million baht.
Several analysts voiced disagreement with Mr Somkiat’s opinion, saying his view was rather an extreme prediction.
The analysts said one true effect resulting from the government’s assistance is a loss of opportunity cost of instalments worth a combined 120 billion baht during the five-year extension period.
The two companies will also benefit from a lower cost of capital for their licence payments during the new period.
By the reckoning of some observers, the benefit to the two spectrum winners will not be as large as reckoned by Mr Somkiat. If AIS wants to use bank loans for payment, it may be charged a 3% interest rate, while interest could be 6-7% for True Move.
The government’s plan to use Section 44 to ease the two telecom giants’ financial burden has already induced at least one positive development, as the news lifted AIS and True share prices on the Stock Exchange of Thailand, said Pisut Ngamvijitvong, an analyst at CGS-CIMB Securities Thailand.
Based on the securities firm’s calculations, the payment extension will increase full-year target price estimates by 1% for AIS and by 2.7% for True Corporation.
A relaxation in licence payment terms may let AIS pay dividends and bring about removal of True Corporation’s cash call risk, Mr Pisut said.
If no assistance is given for the two winners of the 900MHz licences, AIS may have to borrow from commercial banks for the last payment with an average cost of 3% interest as a financial burden, he said.
As for True Move, the company may also have to increase its registered capital from existing shareholders to prepare for the last payment in 2019, Mr Pisut said.
Rajiv Bawa, the chief corporate affairs and business development officer at DTAC, declined to say whether the looming extended licence payments for AIS and True Move were tantamount to creating an unfair threat to DTAC.
Mr Bawa said the move to impose Section 44 reinforces that the winning prices of the 900MHz licences were too high and
that they should not be the benchmark for the next auction’s reserve price.
If the NBTC and the government extend the payment term for DTAC’s telecom competitors, the next auction should set payment terms related to the extension, he said.
GENEROUS AID
The NBTC board in December gave support to the two companies’ request for Section 44 assistance, reasoning that such a move would ease their existing financial burdens and let them seek new term loans from creditors in preparation for the 5G licence bidding scheduled to take place soon.
The approved extension to a five-year instalment plan plus interest is actually a reduction from the seven years of payments plus interest originally requested by AIS and True Move.
One catalyst pressuring the government to use Section 44 was the Central Administrative Court ordering the NBTC to return bank guarantees worth 1.5 billion baht to loss-ridden Thai TV, which ceased operating two years ago.
The court said the NBTC had failed to keep its promise as detailed in a prospectus it handed out, arguing that Thai TV had the right to cancel the contract.
But questions have been raised as to why the two 900MHz spectrum licence winners deserve such generous assistance. There are vast differences in the business ecosystem and financial burdens of telecom giants and digital TV operators.
Apart from the substantial cost of digital TV licence payments and an overabundance of TV channels, digital TV operators have been hit by fast-changing communications technology driven by mobile devices and social media, notably YouTube and Facebook, which have invaded the lucrative territory of television.
On the telecom side, over-the-top media services have yet to become core threats to mobile operators. Additionally, mobile operators have enjoyed increasing revenue as a result of rapid growth in data services, especially video streaming.
Mr Somkiat said the move to invoke Section 44 for terrestrial digital TV operators opened the door to further help for the two mobile operators that won 4G licences in the 2015 auction.
ASSISTANCE RATIONALE
NBTC secretary-general Takorn Tantasith said the rationale for providing assistance for True Move and AIS boils down to two main reasons.
First, the winning prices of the 900MHz licences were too high, a situation that was triggered by JAS, which initially won a 900MHz slot.
JAS defaulted on its first licence payment, while AIS, which failed in the first bidding round, was invited by the government to take over JAS’s auctioned licence.
Mr Takorn said the winning prices of the 900MHz licenses were exorbitant compared with spectrum auction prices in the global market and were fuelled by the artificial demand of JAS’s bidding price.
Second, facilitating payment for the licences would be good for the planned 5G licence auction, as it will be easier for AIS and True Move to take out new term loans from creditors in preparation for the next licence auction.
A source in the telecom industry said that the extended payment request was initiated by True Move because the company has considerable financial burdens and less cash flow than AIS.
But AIS didn’t hesitate to join forces with True Move, as it saw an opportunity to reduce its cost of capital. AIS has strong cash flow driven by annual revenue growth and could easily afford to make its final payment in 2019 of nearly 60 billion baht, the source said.
More importantly, AIS alone would not dare to ask for the payment extension, especially under the current military-led government, due to the fact that the company was founded by ousted prime minister Thaksin Shinawatra.
MUM’S THE WORD
Deputy Prime Minister Wissanu Krea-ngam refused to comment on the planned assistance when contacted by the Bangkok Post.
Although the payment amount remains unchanged, the new payment schedule — divided into five instalments instead of the final lump sum at one time — will boost valuations calculated using the discount cash flow method, said Suwat Wattanapornprom, an analyst at Asia Plus Securities.
Since the last instalment was to be hefty, if the government finalises the extended payment scheme then it would be a boon to both AIS and True Move, as their debt burden would be eased, said Veeravat Virochpoka, vice-president of Finansia Syrus Securities.
“The move would be a positive development for the [telecom] industry, but the government does not have to do this because AIS can pay such sum,” Mr Veeravat said. “True Move still shoulders a considerable payment burden, but it has already sold assets and converted them into a fund. True Move would have a greater benefit compared with AIS because True Move has less cash flow.”
In 2015, True Corporation transferred telecom assets worth 14 billion baht to its Telecommunications Growth Fund to try to boost revenue, according to Reuters.
True l aunched the i nfrastructure-focused fund in December 2013 with a US$1.8-billion initial public offering as part of a restructuring plan to cut debt.
The extended payment plan is unfair to DTAC, Mr Veeravat said, because that company could have bid at a greater amount during the auction process.
The share prices of AIS and True have risen after reports of the government’s plan to extend the payment schedule for the two giant telecom operators.
True Move would have a greater benefit [under the extended plan] compared with AIS because True Move has less cash flow.
VEERAVAT VIROCHPOKA Vice-president Finansia Syrus Securities