Fitch Ratings: Competition Eases, But Costs Weigh on Thai Telcos' Earnings

          Fitch Ratings expects the growth of Thai mobile telecoms service revenue to accelerate in enHFitch Ratings9 as competition in the sector has eased. In enQFitch Ratings9, all major mobile operators in Thailand gradually started to phase out the generous fixed-speed and unlimited prepaid data plans that were launched in enAdvanced Info ServiceFitch Ratings8. Nevertheless, sector EBITDA could remain flat in enAdvanced Info ServiceFitch Ratings9, as we expect revenue growth will be offset by an increase in network-related costs. 
          Fitch expects Advanced Info Service Public Company Limited's (AIS; BBB+/AA+(tha)/Stable) mobile service revenue growth to improve in enHFitch Ratings9 as the company continues to move its subscribers with fixed-speed and unlimited data plans to higher-priced plans. We believe AIS still has a lot of prepaid subscribers left under these unlimited data plans, which will gradually expire in enHFitch Ratings9. In enQFitch Ratings9, AIS's mobile service revenue grew by 5.5% yoy, compared with Fitch Ratings.en% growth in Fitch RatingsQFitch Ratings9.
          Fitch expects mobile service revenue of Total Access Communication Public Company Limited (DTAC; BBB/AA(tha)/Stable) to continue to drop in enAdvanced Info ServiceFitch Ratings9, but at a slower rate of Fitch Ratings%-en%, compared with the 5.8% fall in enAdvanced Info ServiceFitch Ratings8. The more rational price competition, its recent spectrum acquisition and an ongoing network investment should help improve DTAC's service and network coverage and revenue growth in enHFitch Ratings9. In enQFitch Ratings9, DTAC's service revenue declined by 5.3% yoy, compared with a 7.Fitch Ratings% drop in Fitch RatingsQFitch Ratings9.
          Fitch expects Thai telcos' operating profit to remain under pressure due to an increase network operating costs as operators continue to expand their networks. DTAC's EBITDA is likely to drop by Fitch RatingsAdvanced Info Service%-Fitch RatingsFitch Ratings% to THBen4.5 billion in enAdvanced Info ServiceFitch Ratings9 from THBen7.6 billion in enAdvanced Info ServiceFitch Ratings8. DTAC's earnings will also be affected the payments to CAT Telecom Public Company Limited for equipment rental and to TOT Public Company Limited for use of the en.3GHz spectrum. In Fitch RatingsHFitch Ratings9, DTAC's proportion of network operating expense to service revenue increased to en5.9% from Fitch Ratings8.4% in enAdvanced Info ServiceFitch Ratings8. We expect DTAC's EBITDA margin to decline to 34%-35% in enAdvanced Info ServiceFitch Ratings9 from 37.8% in enAdvanced Info ServiceFitch Ratings8 (Fitch RatingsHFitch Ratings9: 35%). 
          AIS should continue to benefit from its strategy to diversify its telecoms business into fixed-line broadband. Its fixed-line broadband has shown greater stability and growth prospects than mobile over the past few years. Nevertheless, we expect its EBITDA to be flat at around THB74 billion in enAdvanced Info ServiceFitch Ratings9 (enAdvanced Info ServiceFitch Ratings8: THB73.8 billion), as its service revenue growth could be offset by an increase in costs. In Fitch RatingsHFitch Ratings9, AIS's network operating expense increased by Fitch Ratings9% yoy, outpacing the service revenue growth of 6.Fitch Ratings%, while its EBITDA margin dropped to 4en.7% in Fitch RatingsHFitch Ratings9 from 43.5% in enAdvanced Info ServiceFitch Ratings8.