Great AIS week culminates with TOT partnership for 3G-2.1GHz service

AIS said in its proposal to TOT that the agency would earn revenue of Bt4.5 billion per year from the partnership. Of the total, Bt3.9 billion will be a cash payment every year and Bt600 million is from the cost of AIS managing TOT’s 5,320 third-generation base stations.
AIS will establish about 11,000 3G base stations for TOT.
TOT will wholesale 80 per cent of the 3G bandwidth on all its base stations and the planned ones to AIS. TOT will wholesale the remaining 20 per cent to other companies.
The state agency’s board yesterday officially resolved to select AIS out of five suitors, said acting TOT president Montchai Noosong. The partnership is expected to be formally signed next month, he added, declining to provide more details.
A TOT source said the board asked the agency’s management to respond in writing to the AIS partnership proposal and quickly sign a memorandum of understanding with the telecom giant, during which a trial service will be conducted.
AIS would have rescinded its offer had TOT not selected it by tomorrow.
The partnership and it clinching a licence on the 1800-megahertz spectrum gives AIS access to greater bandwidth. It will get even more bandwidth if it can clinch a 900MHz licence featuring 10MHz at an auction on December 15
Currently AIS operates 3G on 15MHz of the 2.1-gigahertz spectrum under a National Broadcasting and Telecommunications Commission licence. It won a licence for 15MHz on the 1800MHz spectrum from NBTC’s auction this week. TOT operates a 3G service on 15MHz of the 2.1GHz spectrum.
Telecom industrialists expect competition for the two 900MHz licences to be just as intense as it was for the two 1800MHz licences.
Advanced Wireless Network of AIS, True Move H Universal Communication of True Corp, DTAC TriNet of Total Access Communication, and Jas Mobile Broadband Jasmine International bid for the 1800MHz licences and will do the same for the 900MHz licences.
A telecom analyst believes that the likely reason behind the fierce competition for the 1800MHz licences was Jas, which was more aggressive than expected.
Since Jas is also a bidder for the 900MHz spectrum, there is a chance that competition will again be intense.
The worst scenario is that the three other companies exhausted their financial resources in the 1800MHz auction and will fail to prevent Jas from winning the 900MHz spectrum, the analyst added.
A telecom industrialist said True would also fight fiercely for a 900MHz licence after clinching a 1800MHz licence as it is eager to replace AIS as the No 1 cellular player in Thailand.
AIS won block two of the 1800MHz spectrum for almost Bt41 billion, 158 per cent above the minimum starting price and 136 per cent above the analyst’s forecast. While the additional bandwidth will ease AIS’s spectrum-shortage concerns, the high cost will raise the spectrum amortisation expense and the funding cost.
With a higher-than-expected spectrum price, AIS’s ratio of debt to earnings ratio before interest, taxes, depreciation and amortisation (EBITDA) is expected to remain below 2:1 over the next few years.
However, its debt-to-equity ratio will reach the 200-per-cent level stipulated in the loan covenant if AIS maintains its 100-per-cent pay-out ratio.
This prompted the analyst to lower the forecast pay-out ratio between 2016 to 2020 to 90 per cent, which would be enough to keep the debt-to-equity ratio below 200 per cent.
True managed to grab a 1800MHz licence for almost Bt40 billion, 150 per cent above the starting price and 129 per cent above the analyst’s forecast. With higher-than-expected spectrum prices, the analyst forecast True’s spectrum depreciation expense and funding cost will be higher and revised down its earnings estimates.
The analyst expects True to post losses at a pre-exceptional level until 2019, instead of breaking even in 2017. The analyst expects the telecom’s debt-to-EBITDA ratio to peak at 4.1:1 in 2018 and its EBITDA-to-interest ratio to remain decent at above 3:1 times over the next few years.