Fitch Rates Advanced Wireless Network'BBB+'; Stable Outlook

          Fitch Ratings has assigned Thailand-based telecommunications company Advanced Wireless Network Company Limited (AWN) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) of'BBB+'. The Outlooks are Stable.

          KEY RATING DRIVERS
          Ratings Equalised with Parent's: AWN's ratings are equalised with those of its parent Advanced Info Service Public Company Limited (AIS: BBB+/Stable), reflecting the strong links between the two companies, in line with Fitch's Parent and Subsidiary Rating Linkage criteria. AIS fully owns AWN, enabling it to control AWN's strategy, financial policy and investments. AWN is the main subsidiary within the group, accounting for 97% of group revenue and 85% of EBITDA in 2017. It is of strategic importance to its parent as the operator of AIS's licensed business. AWN was awarded 2.1GHz, 1.8GHz and 900MHz spectrum licences and won the auction for an additional 5MHz of 1.8GHz spectrum in August 2018.
          Data Supports Revenue Growth: Fitch expects AIS's service revenue, including mobile and fixed-broadband, to increase by around 5%-6% in 2018 and 2019 (1H18: 5%), supported by a continued rise in mobile-data usage and fixed-broadband subscribers. Mobile-service revenue is likely to increase by a moderate 3%-4% in 2018, as strong growth in non-voice services will be partly offset by lower voice revenue. We forecast fixed-broadband revenue to increase to around THB4 billion in 2018, from THB3 billion in 2017 (1H18: THB2 billion). 
          Earnings to Improve: Fitch expects AIS's operating EBITDAR to further improve in 2018 to around THB78 billion, from THB74 billion in 2017, led by revenue growth and margin improvement. The EBITDAR margin is likely to improve to 47%-48% in 2018 and 2019, supported by lower marketing expenses and regulatory costs. Marketing expenses, including handset subsidies, as a percentage of AIS's service revenue fell to 6.6% in 1H18, from 7.7% in 2017. AIS's EBITDAR margin should also benefit from the cut in the universal service obligation fee in May 2017 to 2.50% of licence holders' service revenue, from 3.75%. AIS's EBITDAR margin improved to 47.5% in 1H18, from 46.6% in 2017. 
          Flexibility to Support Investment: AIS's free cash flow (FCF) is likely to remain negative in 2018 (2017: negative THB12 billion), but could turn positive in 2019 due to lower spectrum payments and falling capex after AIS completes the major rollout phase of its 3G and 4G networks during the year. Network investment is likely to decrease to around THB25 billion-27 billion per annum in 2018 and 2019, compared with THB41 billion-48 billion per annum over the previous two years. This should see FFO adjusted net leverage improve to around 1.5x-1.6x in 2019, from 1.7x in 2017, which will provide AIS with more rating headroom and financial flexibility to support additional investment. 
          Leading Market Position: AIS has maintained its leading market position as Thailand's largest mobile-phone operator. Fitch believes AIS should be able to maintain its service-revenue market share of around 50% in the medium term (1H18: 49%). AIS benefits from economies of scale due to its large subscriber base as well as a strong brand and extensive network coverage.

          DERIVATION SUMMARY
          AWN's ratings are equalised with those of AIS due to the strong linkages between the two companies. AIS's credit profile is supported by its solid market position as Thailand's largest mobile phone operator and its conservative financial profile. AIS is rated higher than domestic peer, Total Access Communication Public Company Limited (DTAC), due to the latter's smaller size, weaker market position and lower profit margin. DTAC's 'BBB' ratings incorporate a one-notch uplift from linkages with its parent, Telenor ASA of Norway, which has strong board and management control of DTAC.
          AIS's ratings are at the same level as the 'BBB+' standalone credit profile of Malaysia's fixed-broadband operator, Telekom Malaysia Berhad (TM, A-/Negative). TM has a better business profile than AIS given its market dominance and benign competition in Malaysia's fixed-broadband market, but AIS has a stronger financial profile due to lower financial leverage, its larger size and wider EBITDAR margin.
          AIS is rated one notch above the Philippines' largest telecom operator, PLDT Inc. (BBB/Stable), due to its more conservative financial leverage of below 2.0x (PLDT: 2.6x-2.8x), which offsets its lack of product diversification. PLDT's ratings have also been somewhat affected by the country's moderate operating environment, which Fitch assesses at 'bb' based on its funding characteristics and weak systemic governance.

          KEY ASSUMPTIONS
          Fitch's Key Assumptions Within Our Rating Case for the Issuer
          - Mid-single-digit service revenue growth in 2018 and 2019 
          - Operating EBITDAR margin improving to 47%-48% in 2018 and 2019 (2017: 45%) on lower handset subsidies and a cut in the universal service obligation fee 
          - THB25 billion-27 billion a year in network capex in 2018 and 2019 (2017: THB41 billion) 
          - 70% dividend payout ratio

          RATING SENSITIVITIES
          Developments that May, Individually or Collectively, Lead to Positive Rating Action
          - Positive rating action on AIS, provided linkages between AIS and AWN do not weaken
          Developments that May, Individually or Collectively, Lead to Negative Rating Action
          - Negative rating action of AIS

          For the ratings of AIS, Fitch outlined the following sensitivities in its rating action commentary of 16 October 2018.
          Developments that May, Individually or Collectively, Lead to Positive Rating Action
          - Positive FCF and an operating EBITDAR margin above 45%, both on a sustained basis
          Developments that May, Individually or Collectively, Lead to Negative Rating Action
          - FFO adjusted net leverage above 2.0x for a sustained period 
          - Unfavourable regulatory changes

          LIQUIDITY AND DEBT STRUCTURE
          Adequate Liquidity: AIS's liquidity should be manageable even though FCF is likely to be negative in 2018. Its liquidity should be supported by a cash balance of THB10.7 billion at end-2017, sufficient to cover debt maturing in 2018 of THB9.3 billion. AIS has a committed loan facility of THB15 billion as of end-September 2018 to support the negative FCF.