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Thai Telcos Face More Competition With New Entrant

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Fitch Ratings expects greater competition in Thailand's telecommunication sector after new entrant Jas Mobile won an auction in December 2015 for 900MHz spectrum with a THB75.7bn bid.

Jas Mobile plans to launch a 4G service and is likely to pursue an aggressive marketing strategy to build up its subscriber base and gain market share from the incumbent operators. Jas Mobile is a subsidiary of Jasmin International Public Company Limited - a major fixed broadband provider in Thailand.

Fitch expects the data tariff in Thailand's mobile market to decline further as incumbent operators - AIS, DTAC and True Corp's mobile business - compete on price with Jas Mobile. Their marketing expenses are likely to rise as competition increases, which will offset the regulatory cost savings stemming from the migration to the licence regime. Incumbents are also likely to increase investments in 4G capacity ahead of the newcomer's launch and to support a growth in data traffic. As a result, their free cash flows are likely to be negative, and financial leverage will increase in 2016.

Fitch expects Jas Mobile to face difficulties in providing nationwide coverage in the absence of mandatory infrastructure sharing and domestic roaming arrangements. Jas Mobile will burn through a lot of cash to build a subscriber base, given the significant capital outlay, high spectrum cost and intense price competition. Nevertheless, the company should benefit from its low frequency 900MHz spectrum as it is more cost-efficient to roll out because of its wider coverage than higher frequency bands. Jas Mobile is likely to launch its 4G service in 2016.

Fitch does not expect an increase in competition from Jas Mobile to have an immediate impact on the ratings of the two largest mobile phone operators - AIS and DTAC. Operating EBITDAR margins for AIS and DTAC remain strong and their financial leverage low. The companies are generally well-positioned to cope with tougher competition without having a major rating impact. Downside risks remain, though. Significant higher-than-expect competition that reduces market share, margin and cash flow from operations for a prolonged period would impair these companies' ability to sustain high levels of investment and dividend payouts without hurting their credit quality.

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Tags: jas mobile  fitch ratings  Thailand