Thailand mobile operators Advanced Info Service and True Corp. won 4G mobile spectrum in an auction of 1.8 GHz spectrum. The licenses run for 18 years.
Considering that AIS had been a laggard, and True a leader in 4G services, the results might be viewed as a win for AIS, allowing it to compete in the 4G market, and a win for True, to help maintian its leadership.
But spectrum auctions have been troublesome for mobile operators in the past, for winners as well as losers. Though lack of spectrum clearly is a barrier to business success, excessive prices have nearly bankrupted any number of mobile service providers who overpaid to win 3G spectrum in the past.
The danger in Thailand is a similar "winner's curse," where the contestants might eventually find they cannot monetize their investments at levels commensurate with the prices paid to win spectrum.
At least one ratings agency now warns that the high prices paid in the 1.8 GHZ auction, and expected similar high prices in the next auction of 900-MHz spectrum, could trigger a ratings downgrade for AIS.
Because prices paid at auction were high, AIS and True will face financial pressure in the form of balance sheets that are more challenged, some note.
“The spectrum auctions are shaping up to be far more expensive than what we or the street had initially envisioned given the participation of Jasmine International,” Arthur Pineda, analyst at Citigroup said in a note.
Ratings agency Fitch warns that prices paid in the recent 1.8 GHz spectrum auction were significantly higher than Fitch's expectations.
“If the competition in the 900 MHz spectrum auction scheduled for December 2015 is equally intense and AIS acquires the spectrum at a significantly higher price than we expect, we may consider negative rating action should the company's funds flow from operation (FFO)-adjusted net leverage rise above 1.5 times,” Fitch said.
“The high upfront spectrum fee and sustained high capex for network expansion will raise net debt for most telcos, and thus their financial leverage is likely to deteriorate over the next two years,” said Fitch.
“Free cash flow will be negative as these operators are likely to maintain high dividend payouts,” Fitch noted.
Fitch estimates AIS's FFO-adjusted net leverage will rise by 0.5 times over the next two years
The stiff competition at this auction suggests that the next one for 900MHz could be equally intense.
Market leader AIS, 23 percent owned by Singapore Telecommunications Ltd, had been the only major Thai mobile service provider that did not offer 4G services.
True Corp is 18 percent owned by China Mobile.
AIS had only 15 MHz operating bandwidth on the 2.1GHz spectrum, which was largely occupied by 3G services and left no room for 4G services.
Total Access Communication Public Company Limited, the second-largest operator by revenue, has the largest operating bandwidth of 50 MHz, while True Corporation Public Company Limited's mobile business has 30 MHz (including the 850Mhz spectrum rented from CAT Telecom Public Company Limited).
True is viewed as a leader in the 4G market, while AIS had been most exposed to 4G losses.
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