Thailand#s 5G Auction to Raise Ante, Leverage for Telcos

Stocks and Financial Services Press Releases Tuesday February 11, 2020 08:20
Bangkok--11 Feb--Fitch Ratings

The upcoming 5G auction in Thailand is likely to stretch the financial profiles of successful telco bidders, says Fitch Ratings. Five telcos are reportedly vying for a limited range of spectrum in the 16 February 2020 auction, and the winners will have to increase their investments, which will leave them with less flexibility to weather the capex upcycle.

The regulator, Thailand's National Broadcasting and Telecommunication Commission (NBTC), plans to auction low-band 700MHz (2x15MHz), mid-band, notably 1.8GHz (2x35MHz) and 2.6GHz (190MHz), and high band 26GHz spectrum (2700MHz). The five bidders are leading mobile operators - Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable), True Move H Universal Communication Company Limited, Total Access Communication Public Company Limited (DTAC; BBB/AA(tha)/Negative), and the state-owned telcos - CAT Telecom Public Company Limited and TOT Public Company Limited.

Fitch expects the telcos to focus on the highly coveted 2.6GHz spectrum for providing both coverage and capacity benefits. According to the GSM Association, each 5G network would require at least 80MHz-100MHz of contiguous spectrum of mid-bands to provide a true 5G experience. The 190MHz of mid-band 2.6GHz up for this auction might not be sufficient for all bidding participants. There is another mid-band spectrum - 3.5GHz - that can be allocated for 5G service in the future, although it is uncertain when this band will become available as it is currently used by the satellite broadcasting service in Thailand.

Fitch expects the largest mobile operator, AIS, to have sufficient buffer to support the 5G spectrum investment and a progressive network rollout. In addition, the spread of payment terms over 10-year instalments should ease immediate pressure on the company's cash flow. AIS has moderate rating headroom with FFO adjusted net leverage at end-2019 of 1.4x, which is below the 2.0x threshold above which Fitch could consider negative rating action.

In comparison, the third-largest mobile operator DTAC could see a delay in deleveraging if it secures additional 5G spectrum and needs to make spectrum payments and additional investments. DTAC's financial profile is already stretched at its current ratings, underpinning the Negative Outlook. At end-2019, its net leverage of 2.8x was higher than the 2.5x threshold above which Fitch could consider negative rating action, although we expect it to reduce to below 2.5x over the next two years given the anticipated recovery in earnings.

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