We think that the 900MHz spectrum win and the recent upward revision of planned capex will help enhance DTAC's network quality in rural areas and address its falling market share and service revenue. In addition, as a condition of the 900MHz auction, DTAC will be allowed to use the 850MHz spectrum - used for its 2G concession which expired in September 2018 - for 3G services. This should prevent network deterioration and assist subscriber retention. We believe this benefit outweighs the high 900MHz spectrum acquisition cost.
DTAC's loss of market share over the past few years has partly been due to its inferior spectrum holding and network quality. DTAC has wide spectrum bandwidth, but only in high-frequency bands, including 1.8GHz, 2.1GHz and 2.3GHz, which are suitable for serving city areas.
The acquisition cost for the 900MHz spectrum and elevated capex will affect DTAC's cash flow and financial leverage. However, Fitch believes DTAC's relatively low financial leverage should give it the flexibility to support additional investment over the medium term. We expect its FFO-adjusted net leverage to remain below 2.5x over the next two years (end-1H18: 1.4x), in line with its current ratings.
Fitch expects DTAC's FFO to deteriorate in 2018 and 2019, but to remain strong at THB27 billion-25 billion a year (2017: THB29 billion), and for its EBITDA margin to narrow to 34%-36% (2017: 38%) due to additional payments to TOT Public Company Limited to use the 2.3GHz spectrum and the rental of concession equipment from CAT Telecom Public Company Limited.
On 29 October 2018, DTAC announced that its wholly owned subsidiary, dtac TriNet Company Limited, won two 5MHz blocks of 900MHz spectrum with a total bid of THB38.1billion.