Industry Risk: Intermediate Risk
TRIS Rating holds the view that the risk of the wireless telecommunications industry is “intermediate”. Demand for data usage is growing despite intense competition among providers of mobile telecommunications services. Service revenues, excluding interconnection charges (IC), across the wireless telecommunications industry is expected to grow at a low single-digit rate in 2017. The growth is driven by higher demand for data services, wider network coverage, and more affordable smart phones. Fierce competition is expected to continue. Given a saturated and price-sensitive market, all cellular phone service providers are using marketing activities, price packages, and handset subsidies in an effort to maintain their subscriber bases and defend their market shares. Network operators have benefited from lower regulatory costs under the license-based scheme. Moreover, two new government initiatives, a digital economy master plan and Thailand 4.0, will stimulate internet usage nationwide.
Industry Recap
• Number of subscribers
The number of mobile phone subscribers dropped in 2015 due to the mandatory registration of prepaid Subscriber Identity Module (SIM) cards. After the drop, the number of mobile phone subscribers across industry rebounded and reached 90 million at the end of 2016. In the first quarter of 2017, the number of subscribers slightly increased to 90.7 million. Postpaid subscribers accounted for 80% of total subscribers as of the first quarter of 2017 (Q1/2017). Prepaid subscribers made up the balance (20%), up from 17% in 2015. The mobile penetration rate in Q1/ 2017 was around 135%. The high penetration rate reflects the saturated market.
In Q1/2017, nearly 99% of total subscribers across the industry were 3G (third generation) and 4G subscribers, the rest was 2G subscribers. All of the 2G subscribers were customers of Total Access Communication PLC (DTAC), covered under the concession scheme. The cellular phone services providers have endeavored to migrate their customers from concession-based networks to license-based networks because the regulatory costs of the license-based networks are lower.
• Proportion of services revenues
Revenue from non-voice services is the major source of services revenues across the industry. Revenues from data services have grown at double-digit rates during each of the last five years. For example, revenue from mobile data services grew by 24.4% year-on-year (y-o-y) in 2016 and 25.1% y-o-y in Q1/2017. Revenue from the mobile data services segment surpassed revenue from the voice services segment for the first time in 2016. Data services revenue represented 54.7% of total service revenues excluding the IC in 2016, up from 24.3% in 2012. In Q1/2017, data services revenue rose to 60% of services revenues excluding the IC. Revenue from data services is moving on a solid course and is expected to grow at a double-digit rate. Data usage is expected to keep rising, driven by the popularity of social networks, video content, online games and applications, and more affordable smartphones.
Cellular phone service providers
• Cellular phone service providers and spectrum allocation
The Thai cellular phone services industry is an oligopoly with three major service providers: Advanced Info Service PLC (AIS), DTAC, and True Corporation PLC (TRUE). AIS is positioned as the Digital Life Services Provider, offering mobile, fixed broadband, and digital services. AIS operates on three frequency bands: 900 megahertz (MHz), 1800-MHz, and 2.1 gigahertz (GHz). AIS holds a total of 40 MHz of spectrum bandwidth under licenses from the National Broadcasting and Telecommunications Commission (NBTC). Adding to that, AIS signed a partnership contract with TOT PLC (TOT) to offer 4G services on TOT’s 2.1 GHz spectrum.
DTAC operates on three frequency bands: 850-MHz, 1800-MHz, and 2.1-GHz. Across the three frequency bands, the company holds a total of 50 MHz of spectrum bandwidth. This amount of spectrum bandwidth is adequate to serve its subscribers. A portion of the total (35 MHz) is covered under the concession agreements for the 850-MHz and 1800-MHz frequency bands. The concession will expire in September 2018. The balance of 15 MHz is covered by the license for the 2.1-GHz band, and the license is valid until 2027. In addition, TOT has recently announced that TOT selected DTAC to co-develop a 60MHz of bandwidth on the 2.3-GHz spectrum. DTAC will build the mobile network and have the right to utilize 60% of the capacity. The contract will valid until 2025. TOT and DTAC will sign the final agreement in the fourth quarter of 2017.
TRUE is an integrated telecom company in Thailand which offers fixed-line broadband internet, mobile phone, and pay-television services. TRUE provides wireless telecommunications services in the 850-MHz spectrum under a wholesale-resale agreement with CAT Telecom PLC (CAT), plus three spectrums under the license regime: 900-MHz, 1800-MHz, and 2.1-GHz. TRUE holds the widest viable spectrums amongst the three operators, with a total of 55 MHz of spectrum.
• Performance of mobile network operators
Industry-wide services revenues (excluding the IC) grew from Bt232 billion in 2015 to Bt244 billion in 2016, up by 5.4% year-on-year (y-o-y). In Q1/2017, services revenues grew by 6.3% y-o-y. The rise was mainly due to strong growth in the data services segment. Despite intensifying competition over the past few years, services revenues of AIS and TRUE in 2016 and Q1/2017 continued to grow. TRUE outperformed its competitors, posting the highest growth in services revenues. In contrast, DTAC’s services revenues declined for the third consecutive year.
• Large capital expenditures
All wireless operators have spent heavily on network rollouts. The mobile operators need to expand their offerings of 4G services to facilitate the fast-growing demand for data services. Capital expenditures across the industry in 2016, excluding license costs, were about Bt71.3 billion, rising from about Bt68 billion in 2015. The industry-wide capital expenditures for 2017-2018 will reach Bt160-Bt180 billion.
• Market share
Market shares in the industry, in terms of services revenues, changed in Q1/2017. As of March 2017, the industry-wide average revenue per user (ARPU) per month for postpaid subscribers reached Bt539, while the ARPU for prepaid users was Bt153.
In Q1/2017, AIS maintained its leading market position in the industry with the largest subscriber base and the highest ARPU. AIS’s services revenues share stood at 48.6% of the industry services revenues. TRUE became the second-largest in the industry with a 25.8% market share. TRUE’s services revenues were slightly higher than DTAC’s services revenues. DTAC came in third, holding 25.6%. TRUE gained more market share owing to its aggressive promotions. The revenue market shares of AIS and DTAC have declined over the last two years due to intense competition across the industry.
In terms of the number of subscribers, AIS held the largest subscriber base with 40.6 million subscribers as of March 2017, or about 44.8%. DTAC had about 24.3 million subscribers in Q1/2017, down from 24.8 million at the end of 2016. DTAC held a 26.8% market share. TRUE held 25.8 million subscribers. TRUE overtook DTAC to become the second-largest, in terms of subscriber market share, since the end of 2016. TRUE took subscribers from AIS and DTAC and reached more customers in the youth segment.
Fierce competition
As the mobile penetration rate shows the market is saturated, the cellular phone services providers need to acquire customers from rivals in order to gain more market share. Thus, the degree of competition in the industry is intense as service providers strive to entice new customers as well as retain their customer bases. All cellular phone services providers offer handset subsidies, spend lavishly on marketing, and offer attractive price packages to draw subscribers.
Customer loyalty has declined after the NBTC allowed the “Mobile Number Portability (MNP)” service in 2009. Any mobile subscriber could keep their existing mobile phone number when switching to another mobile phone network. Moreover, most mobile subscribers are quite price-sensitive. Network operators offer a variety of price packages to reach customers, leading to the larger marketing expenses.
Because customers are using more data services, network coverage and quality have become important factors by which customers choose a network. All wireless operators have shifted away from the voice segment to place a greater emphasis on data services. All operators have expanding network coverage nationwide. The soaring demand for mobile data pushed operators to secure multi-year spectrum licenses, which drove up the prices for licenses.
Competition will remain intense. The carriers will continue to expand their networks and conduct on vigorous marketing campaigns to defend their market shares. Huge capital expenditures are needed to expand the networks. Marketing expenses are expected to remain high to counter the competitive threats. Cellular phone services providers also face high 4G license costs. These factors have combined to leave the network operators with heavier debt loads.
Regulatory
The telecommunications industry in Thailand is regulated by the NBTC. The NBTC also has a duty to allocate spectrum. The telecom industry is believed that the licenses for the 1800-MHz, 850-MHz, and 2.6-GHz frequency bands will be allocated over the next few years. However, the spectrum allocation schedule has not yet been officially announced. The uncertainties about the spectrum allocation plans arose because a new draft of the NBTC bill was recently been approved by the National Legislative Assembly. The term of the current board of the NBTC will end in October 2017. The new NBTC board will be selected by a committee according to the new draft.
Opportunities
As the customer behavior is changing, revenue from the data services segment has become a major source of revenue for all mobile phone services providers. According to a survey, Thailand Internet User Profile 2016 , internet users spent 6.2 hours/day online through their smartphone in 2016. The time spent daily with a smartphone in 2016 was higher than the daily average usage of 5.7 hours/day recorded in 2015. Internet users are likely to stay connected to the Internet all day long. Users can access information anywhere and anytime with internet services. This convenience enhances the popularity of the online activities such as social networks, mobile banking, e-commerce, and more. Thus, data usage will keep rising.
In addition, the smartphone penetration rate is rising. Smartphones are now more affordable and consumers can buy and own the devices conveniently. The heavy promotion and significant subsidies for smartphone devices, offered by the wireless operators, boosted the smartphone penetration in Thailand.
Now there will be an auction of new spectrum licenses during the next few years. The licenses for the 1800-MHz, 850-MHz, and 2.6-GHz frequency bands are expected to be allocated. However, the spectrum allocation schedule has not yet been officially announced. DTAC’s concession agreement for the 850-MHz and 1800-MHz frequency bands will expire in September 2018. As a result, the NBTC is expected to reallocate these spectrum bands through an upcoming spectrum auction. Moreover, the NBTC has a plan to reclaim the unused frequency band of 2.6-GHz from MCOT PLC (MCOT) and put it up for auction for 5G services. However, the NBTC will need to negotiate with MCOT for compensation when it returns the unused spectrum. Moreover, TOT sought a partnership to provide wireless broadband services on 60MHz bandwidth of the 2.3-GHz spectrum. On 24 May 2017, TOT announced that TOT chose DTAC as its partner. DTAC will build the mobile network and rent the network capacity from TOT under a wholesale-resale model. DTAC have the right to utilize 60% of network capacity. DTAC will pay Bt4.5 billion as an annual fee. The contract term will valid until 2025. TOT and DTAC will sign the final agreement in the fourth quarter of 2017.