Telecom business will see fierce competition after TRUE and JAS won 900 MHz licenses

• On 19 December 2015, the National Broadcasting and Telecommunications Commission (NBTC) announced the winners of 900 MHz auctions that included two licenses, each with 10 MH bandwidth. JAS won the first license at 75,654 million baht, and TRUE won the second at 76,298 million baht. Together, the two licenses totaled 151,952 million baht.

• The 900 MHz auctions saw fierce competition as expected. Generally, mobile network operators need to own high and low frequency bands in order to serve the different areas. Higher frequency bands have smaller coverage, requiring more base stations. They are therefore suitable for densely-populated areas such as cities. On the other hand, low frequency bands have larger coverage and do not require extensive transmission network. As a result, they are suitable for provincial areas. Since this was the last 900 MHz bidding in the next 15 years, every service provider was intent on winning the bands. Furthermore, more flexible payment requirements for this 900 MHz auction, as compared to 1800 MHz, contributed to an especially intense competition. As a consequence, the price of the two licenses combined was bid up to almost five times the expected reserve value of the frequency bands. Moreover, the average price of 1 MHz in this auction was almost 3 times of 1800 MHz auction past November, and the auction saw the world’s highest price for 10 MHz licenses.
  
  
  

• Losers of 900 MHz auctions may see competitiveness deteriorate. Although DTAC currently possesses concessions for over 50 MHz bands, but some of those, including 1800 MHz frequency bands (totalling 25 MHz) and 850 frequency bands (totalling 10 MHz) are set to expire within 2018. Therefore, failing to win both 900 MHz and 1800 MHz auctions may hurt confidence in the company. Moreover, in order to maintain customer base, DTAC will have no choice but to invest in existing licenses, even though they will expire within three years. Such investment will suffer from high depreciation costs and may pose risks to long term outlook of the business.
  
  

  Regarding AIS, losing 900 MHz auctions will leave the company with only 30 MHz of frequency bands, down from 45 MHz it previously owned. Because these are all high frequency bands, the company may have difficulties serving large provincial areas with scattered data usage. Investing in base stations in order to improve coverage will be costly and may not pay off. Moreover, the company risks running out of bandwidth to sufficiently provide for growing data needs of consumers in the future. However, AIS is expected to spend the funds it saved from the auctions to improve existing networks. It may also consider renting frequency bands from CAT and TOT to make up for the supply shortage.
  
  
  
• Given the limited number of cellphone devices compatible with 4G, auction winners are expected to use the 900 MHZ for 2G/3G systems instead. EIC projects that in the initial stage, TRUE and JAS will employ the new licenses for 2G/3G systems in provincial areas. This is due to the limited number of cellphone models compatible with 4G-LTE on 900 MHz frequency bands. Nevertheless, TRUE may combine 900, 1800, and 2100 MHz frequency bands (Carrier Aggregation) for an LTE-Advanced service that is faster than the regular 4G-LTE service, creating a competitive edge.

• Telecom business in 2016 will see more intense competition, with JAS as the forth major player. After the auction, Thailand’s telecom business is with four major players, each with different advantages and disadvantages. On one hand, the provider with the largest amount of frequency bands can provide faster data service, but may face financial constraints. On the other hand, the provider with large existing customer base is constrained by limited amount of bandwidth, but its strong financial standing allows for more investment in the networks. The new player may be disadvantaged in terms of funding and business expertise, but can build on its existing customer base of over 2-million broadband users. Given such landscape, EIC expects competition in the telecom business in 2016 to be especially fierce, as service providers strive to win over larger customer base and market shares. The new player may partner up with foreign companies to devise marketing and pricing strategies to attract new customers. Existing players, however, may capitalize on superior service, thanks to larger bandwidths. They can also cut back on prices in order to retain existing customers. The ensuing price war will surely affect the performance of each provider, and those with frequency bands under licensing scheme, which entails lower regulatory cost, will be in a better position than those under concession schemes.
  
  
  

• In the medium to long-term, however, the telecom business may undergo major structural changes to reach an equilibrium with four major players. The latest of such changes was when TRUE acquired HUTCH late 2010. Hutch used to provide mobile service under the CDMA (Code Division Multiple Access) system at 800 MHz. However, the company faced a number of limitations that curtailed its competitiveness, such as insufficient bandwidth of only 10 MHz, and concession coverage that was limited only to the Bangkok area and 25 central provinces. As such, HUTCH only commanded 2-3% of the market share, and was subsequently acquired by TRUE in December 2010, after seven years of operations in Thailand.
  
  

  Directions and possible structural changes in the telecom business should be closely monitored going forward. In developed countries with population sizes close to Thailand, such as Germany, France, The United Kingdom, and South Korea, the numbers of mobile service providers are usually not large, only 3-4 companies. Also, the smallest of the providers tend to maintain at least 10% of the market share in order to operate sustainably.

Figure 1: Details of frequency bands ownerships