TRIS Rating Co., Ltd. views the mobile phone industry to continue growing in the second half of 2010 driven by supportive economic conditions and popularity of non-voice services. At the same time, the auction of 3G licenses is facing uncertainty from past litigation challenges and the conversions of the 2G concessions into licenses.
TRIS Rating says in the Mobile Phone Industry Report, released on its website on 27 July 2010, that for many years the road toward 3G has been circling around the Government’s attempts to unlock the industry’s trilemma: only two out of three ideal pillars can be achieved: market liberalization, level playing field, and no state loss. Even though the 3G auction plan drafted by the National Telecommunications Commission (NTC) could open the market to new players, it could not prevent subscriber migrations from 2G to 3G networks, which might erode state enterprises’ revenues.
The 3G auction hit another road bump when the Cabinet approved in principle a plan to convert 2G concessions into licenses and revise 2G license fees to be the same as the fees for 3G at 12.5% of revenue. Currently, private operators pay 25%-30% of their revenues to state enterprises. The license fee for 3G is estimated at 6.5% of revenue. The Cabinet’s proposal largely aims to create a disincentive for private operators to migrate 2G subscribers to 3G network. TRIS Rating reported, “It is unclear how the plan could proceed through the myriad of legal challenges and how state enterprises should be compensated for the potential revenue losses. Certain issues, such as the return of 2G spectrums and a definition of foreign ownership, could delay the auction process.” For 3G, TRIS Rating’s credit focus is on the competitiveness of new business models, cost structural advantages and existing balance sheet capacities to absorb license costs and future network rollouts.
Mobile phone industry has gotten off to a good start in 2010. Supportive economic conditions and the continuing popularity of value-added applications should drive revenue growth at 3%-5% in the second half of 2010. Higher competition is expected in the non-voice segment. In the absence of 3G, capital expenditures should remain noticeably lower than in the past. The industry remains highly exposed to regulatory risks and concerns over rising levels of leverages coming with the new 3G licenses.
TRIS Rating has three mobile phone operators in its portfolio, including Advanced Info Service PLC (ADVANC) with company and issue ratings at “AA/Stable”, Total Access Communication PLC (TAC) with company and issue ratings at “A+/Stable” and True Corporation PLC (TRUE) with company and issue ratings at “BBB/Stable”. -- End
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