On 11th December, True Corp's 99.99% owned subsidiary, Real Future Company Limited ("Real Future"), was issued three 2.1 GHz spectrum licenses as well as a Type Three Telecommunications Buiness License for a total price of THB13.5 billion. The licenses, issued by Thailand's telecommunications regulator, National Broadcasting and Telecommunications Commission ("NBTC"), are valid for 15 years until December 2027.
"Completion of the 3G spectrum auction and licensing is positive following years of protracted regulatory uncertainty in Thailand. The conclusion of the auction process and award of licenses in a timely manner, helps to alleviate some of the uncertainty regarding True's 3G strategy, concession structure and operating platform," says Nidhi Dhruv, a Moody's Analyst and also Lead Analyst for True Corp and True Move.
Issuance of the 3G licenses brings certainty to True Corp's operating platform ahead of the expiration of its existing 1800 MHz concession agreement with CAT in September 2013; its 850MHz 3G reseller agreement with CAT is also being renegotiated as a result of regulatory scrutiny.
"True Corp has enjoyed an early mover advantage in its current 3G services under "TrueMoveH" which had 2.5 million subscribers as of September 2012. However, a level playing field now exists on which all three operators have equal allocations of 3G spectrum. This is likely to lead to intense competition in 3G services as operators jockey for position which will test True Corp's execution strategy," adds Dhruv.
True Corp intends to continue offering 3G services under its "TrueMoveH" brand, and to use the newly acquired 2.1GHz spectrum in conjunction with CAT's 850 MHz spectrum to expand capacity and coverage.
In keeping with the license conditions, True Corp will invest approximately THB8 billion as first phase investment taking its initial investment to THB21.5 billion, which will be substantially debt funded. All three license holders, including True Corp, must expand 3G network coverage to 50% of the population within the next two years, and to 80% of the population within four years.
True Corp has made payment for 50% of the license fees (THB6.75 billion) to NBTC in October, and is expected to pay another 25% in 2014 and the remaining 25% in 2015.
"The spectrum payments and capex will be primarily funded through new bank debt, which will result in increased leverage over the near-term on a consolidated basis for True Group, but note this can be accommodated in the current stable outlook given the regulatory and operating certainty provided," says Dhruv. True Corp's adjusted consolidated debt/EBITDA for the 12 months ended September was 5.1x.
Moody's also notes that the cumulative license fees for the 2.1Ghz licenses at 5.75% are much lower than the 30% revenue sharing arrangements under True Move's existing concession agreement and the cost-plus arrangement under Real Move's contracts with CAT. The lower fees should support operating margins and help in moderate de-leveraging at the True Corp level over the next 2-3 years.
Nonetheless, there remains some uncertainty on NBTC's stance with regard to lowering charges for voice and data services and interconnection charges, which are still being negotiated.
Moreover, the B2 ratings continue to encapsulate True Move and True Corp's exposure to an evolving and politicized regulatory environment. Moody's also continues to remain concerned about execution risks for the HSPA 3G upgrade, migration of subscribers from the CDMA network to the new HSPA platform and True Corp's competitive strategy for rolling out 3G services under the 2.1GHz spectrum.
The principal methodology used in rating True Corp and True Move was the Global Telecommunications Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
Headquartered in Bangkok, True Corp is an integrated provider of fixed-line, broadband, internet, and mobile services, and pay TV. True Corp is listed on the Thai Stock Exchange; the Charoen Pokphand Group (CP Group) is the major shareholder (64.74%). Its wireless business is conducted predominantly through its 99.99% subsidiary, Real Future (unrated) and 99.32%-owned subsidiary, True Move (B2 stable), which together position it as Thailand's third largest mobile telecommunications operator.
Nidhi Dhruv Analyst Corporate Finance Group Moody'sInvestors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Laura Acres Senior Vice President Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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