4G in Thailand presents opportunities in telecoms and IT

In late 2015 two 4G auctions were held in Thailand and three companies, Advanced Info Service (AIS), True and newcomer Jasmine International, were awarded spectrum. With $6.4bn in bids, and an additional player being added to the market, the exercise was seen as a great success. The government will receive a considerable influx of funds, while consumers will benefit from lower prices and more innovative services. Some concerns have been voiced, however. Given the huge outlay on spectrum and the additional competition in the market, mobile phone companies are being squeezed, and the viability of some has even been brought into question. “I think the government is happy with the money it got,” Prasit Sujiravorakul, ICT analyst at Bualuang Securities, told OBG. “But the other side of the coin is you have to take a look at the operators. How can they survive?”

Big Deal 

The auctions themselves were twice delayed, first by the 2014 coup and next by the regulators. In early 2015 reports suggested further slippage into 2016, but the schedule was finally confirmed later in the year. In the last two months of 2015 the auctions were held and went exceedingly well.

True Move H Universal Communication, a subsidiary of True, won 15 MHz of bandwidth of the 1800 MHz band for a total of BT39.8bn ($1.2bn) in November. Advanced Wireless Network, an AIS subsidiary, paid BT41bn ($1.23bn), also for 15 MHz at 1800 MHz. The auction went for 30 hours and had 86 rounds, and the prices achieved were twice what the International Telecommunications Union had predicted.

In the December auction, in what was reported as a surprise, Jasmine International and True won 4G licences in the auction, as AIS and Total Access Communication (DTAC) had been expected to win. The bidding went for 65 hours and 199 rounds and the prices surpassed even those of the November bidding. True bid BT76.3bn ($2.3bn) for 10 MHz of the 900 MHz spectrum, while Jasmine came in at BT75.7bn ($2.28bn) for a similar block. These were estimated to be world record prices per MHz acquired.

“It is very high when you compare with other countries, and it is historical from the Thai perspective,” Somkiat Tangkitvanich, president of the Thai Development Research Institute, told OBG. “As I am not an investor in this market, I am totally happy about it.”

Scramble For Cash

True has been trying to raise capital to pay for its purchase of spectrum, totalling over BT116bn ($3.5bn). In 2015 it conducted a BT65bn ($2bn) cash raising exercise, and in 2016 sought to raise a maximum of BT60bn ($1.8bn) in a rights offering. True’s share price fell as it undertook the fund raising. The concern on the part of observers was that the price paid was too high in relation to True’s balance sheet. Overall, Fitch saw the high cost of spectrum increasing the net debt for the country’s telecoms, and the ratings agency said that 4G increased the downside risks for the major players.

Issues remain, however, for Jasmine. At the time of the auction and into early 2016, it was not clear how the company was going to find the funds needed to pay for the spectrum. In March 2016 the company defaulted on its payment, which resulted in the termination of Jasmine’s right to provide 4G. Jasmine’s CEO, Pete Bodharamik, said that the company had been waiting for its Chinese partner’s regulatory approval for the venture in Thailand, which was not likely to come until mid-April. The National Broadcasting and Telecommunications Commission (NBTC) will need to hold a replacement auction in mid-2016 and Jasmine has forfeited its guarantee. Aside from payment issues, it is also lacks a nationwide network. Unlike the others, Jasmine does not have infrastructure in place and would have to build out its offering.

DTAC

DTAC is in a difficult position as well as it failed to win a 4G auction, and it is facing concession expiry. A win was viewed as vital to its future, as without it DTAC could lose the confidence of its customers and see its market share plummet. However, the bidding passed its board-approved budget of BT70bn ($2.1bn) and the company was forced to drop out. It is now facing a challenging future and will have to scramble to keep its service competitive and the public happy. “DTAC did not win a licence at all,” Thanachart Numnonda, president of the Association of Thai ICT Industry, told OBG. “So how are they going to maintain the trust of their existing customers?”

The company wants maintain its 28% market share and has budgeted BT70bn ($2.1bn) for the expansion of its 4G network, with BT20bn ($602m) to be spent in 2016. It will be offering free and heavily discounted phones to attract customers in addition to increasing its dividend payout from 50% to 80% so that it can do more fund raising. DTAC also hopes to double its 4G subscribers to 4.5m by the end of 2016.

In some ways DTAC is in a competitive position, as it now has a total of 20 MHz at 1.8 GHz, more than most of its competitors. This will allow it to offer more sophisticated bandwidth-intensive services than others in the market. DTAC started to test voice over LTE (VoLTE) in 2015, allowing customers to experience high-definition quality sound over their VoLTE-enabled handsets. Voice and data can also run over the same network, rather than having data on 4G and voice on 2G or 3G, while call set up on VoLTE is 10 times faster than on conventional voice networks.

4G Technology Race

In January 2016 AIS started to offer LTE-Advanced (LTE-A) in Bangkok and 42 provinces using its newly acquired 1.8 GHz spectrum and part of its 2.1 GHz, previously used for 3G. A total of 7000 base stations, costing BT14bn ($421.4m), were installed for this service. It plans to invest BT20bn ($602m) to double that number to 14,000 by the second quarter of 2016. The company claims speeds of up to 150 Mbps, though it acknowledges that few smartphones are capable of utilising the LTE-A service. AIS has enlisted Huawei to produce a phone capable of handling speeds of up to 300 Mbps. True also announced the rollout of an LTE-A service. It said that it would spend BT56bn ($1.7bn) on providing LTE-A to 97% of the country, with 13,500 base stations working on 900 MHz for the rural areas and 3000-4000 operating at 1800 MHz for Bangkok and the cities. True said that it will be retasking its 850 MHz 3G network for 4G LTE services. The 850 MHz network is run in cooperation with CAT.

Benefits

According to the NBTC, 4G is going to add an estimated BT1trn ($30.1bn) to the Thai economy over a five-year period. They see the service having 20m subscribers at 1.8 GHz in 2016. The breakdown of economic activity includes; BT119bn ($3.6bn) in telecom business; BT114bn ($3.4bn) for the macro economy; BT284bn ($8.5bn) for the financial markets; BT50.6bn ($1.5bn) in 4G subscriptions; BT109bn ($3.3bn) in mobile transactions; BT18.2bn ($547.8m) in entertainment revenue; BT37.4bn ($1.1bn) in education; BT5bn ($150.5m) in social welfare activities; BT76bn ($2.3bn) in electronic waste-related activity; and BT11bn ($333.1m) in public health activities.

Telecoms spending in Thailand currently totals 2. 3-2.5% of GDP, according to IDC. The market research company believes that could jump two percentage points as a result of the introduction of 4G. CIMB points out that average mobile data usage in the country totals about 1.5 GB per month, compared with Singapore’s 4-5 GB per month, suggesting that the market has considerable upside. The prime minister has said that the proceeds from the 4G auctions will be used to build infrastructure and help the poor.

According to Fitch, the planned entrance of Jasmine would have resulted in increased competition, but it has some concerns about the new environment. The ratings agency sees data tariffs dropping and the cost of marketing increasing. While the transition from concessions to licensing will reduce regulatory costs, that will largely be offset by the burdens related to the additional competition.

Fitch also notes that Jasmine will face significant challenges. On top of the high cost of the spectrum, the company would have to make significant outlays on infrastructure and would have to spend money to build up its subscriber base.

“I think the competition is going to be high in terms of telecoms for the next one or two years because a new player will come in,” Thanachart told OBG.

CAT & TOT

Both CAT Telecom and Telecom of Thailand (TOT) were mollified and did not bring action against the auctions because the authorities gave them their own bandwidth. The Bangkok Post said that CAT was promised 20 MHz at 1.8 GHz for 4G. TOT also received permission to develop 4G service at 2.3-2.4 GHz. CAT and TOT had filed suits in late 2015 questioning the 4G auctions. CAT dropped out of the auction in September 2015 for lack of a foreign partner, and because it would have been required by law as a state company to disclose its budget and receive Cabinet approval. Rival 4G bidders would have known about the planned bidding amount ahead of time.