Moody's: Auction of 3G Licenses Positive, but No Impact on True Corp Ratings

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Moody's Investors Service says that True Corp's successful bid for three lots of spectrum bandwidth under the 2.1GHz auction is positive but has no impact on True Corp and True Move's B2 debt ratings and stable outlooks.

On 19th October, True Corp confirmed that its 99.99% owned subsidiary, Real Future, had successfully bid for three lots of spectrum bandwidth for a total bid price of THB13.5 billion. However, before being officially awarded the license to operate 2.1GHz, Real Future is required to fulfill certain conditions precedent set by the NBTC, the Thai telecom regulator, within 90 days of receiving the official auction result.

"Completion of the 3G spectrum auction is positive following years of protracted regulatory uncertainty in Thailand. However, uncertainty continues around the auction format and pricing which could be challenged in court. The conclusion of the auction process and award of licenses, which could take up to 90 days, will help alleviate some of the uncertainty regarding True's 3G strategy," says Nidhi Dhruv, a Moody's Analyst and also Lead Analyst for True Corp and True Move.

Issuance of the 3G licenses under the current format and prices will be credit positive for True Corp, as it will bring certainty to True Corp's operating platform ahead of the expiration of its existing 1800MHz concession agreement with CAT in September 2013; its 850MHz 3G reseller agreement with CAT also needs to be renegotiated as a result of regulatory scrutiny.

"True Corp has enjoyed an early mover advantage in its current 3G services under "TrueMoveH" which had 2.0 million subscribers as of June 2012. However, a level playing field now exists on which all three operators have equal allocations of 3G 2.1 GHz 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.

"We expect the spectrum payments to be primarily funded through 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.

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, 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, the 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.

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Tags: true move  Thailand 

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