Fitch Rating: 5G Spectrum Win Trims Rating Headroom at Thailand-Based AIS

          Thailand's largest mobile telco, Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable), should have sufficient rating headroom to absorb 5G licences and investments, says Fitch Ratings. AIS has emerged as the biggest winner of the 5G spectrum auction held on 16 February 2020, with 700MHz (2x5MHz), 2.6GHz (100MHz) and 26GHz (1200MHz) spectrum.
          Fitch expects AIS's FFO adjusted net leverage to increase to 1.6x in 2020 and 1.5x and 2021, from 1.4x in 2019, assuming the company funds the THB42.1 billion in spectrum payments entirely by debt. However, leverage should remain below our 2.0x threshold above which we would consider negative rating action. In addition, the spread of spectrum payments over a 10-year period should ease immediate pressure on the company's cash flow.
          The auction saw aggressive bids by Thai telcos, which drove the spectrum cost of the 700MHz band to USD0.8/MHz per capita, or 95% more than the reserve price. Meanwhile, bidding competition for mid-band 2.6GHz and high-band 26GHz 5G spectrum was moderate, with the final price ending at around 5% above the reserve price. Fitch believes the high demand for 700MHz spectrum was due to the flexible terms on spectrum usage, in light of its tech-neutral policy, which allows telcos to use 700MHz spectrum for 4G services.
          We believe the moderate competition in mid- and high-band 5G spectrum reflects a more measured 5G spectrum investment by telcos, given the lack of use cases and ecosystem infancy. Some operators might opt to wait for the coveted 3.5GHz spectrum band that can be allocated for 5G services in the future. However, it is uncertain when this band will become available, as it is currently used by Thailand's satellite broadcasting service.
          Fitch expects 5G capex risk to be contained for Thai telcos due to the progressive pace of network rollout. We believe Thai telcos are likely to depend on existing 4G technology to provide sufficient speed to cater for data demand and stagger 5G rollout requirements over several years. The regulator requires auction-winning telcos to roll out 5G network to cover half of the eastern economic corridor special economic zone, which includes three provinces - Chonburi, Rayong and Chachoengsao - within the first year, and half of the population in six major provinces, including Bangkok, within four years.
          State-owned telcos - CAT Telecom Public Company Limited and TOT Public Company Limited - also won two 5G spectrum, including 700MHz (2x10MHz) and 26GHz (400MHz), but Fitch does not expect the companies to become the country's fourth and fifth retail mobile operators due to their lack of expertise in mass-market services. The two state-owned telcos are likely to focus on providing 5G infrastructure services to private telecom operators; the companies have partnership agreements with private mobile operators for infrastructure services, allowing the private telcos to utilise their 850MHz, 2.1GHz and 2.3GHz spectrum for 3G and 4G services.