Thailand's telecommunications industry was stagnant in 2016 as companies witnessed a fundamental change in the way the industry operates. The sector expects 2017 to be no less challenging.
Tough competition has eroded the profitability of mobile firms, while an increase in operating costs, especially huge licence costs operators won from unprecedented marathon auctions for fourth generation (4G) spectrum, has also offset overall revenue growth.
Telecom and mobile operators are also under pressure as companies such as YouTube, Netflix and Line create traffic on their networks, leaving operators to face large costs to upgrade their own infrastructure.
These organisations distributing "over the top" (OTT) content have two advantages over network operators: they can use the infrastructure without paying for it, and they're not subject to the regulatory regimes that apply to operators such as Advanced Info Service (AIS), Total Access Communication (DTAC) and True Move.
At the same time, companies such as Amazon and Facebook compete directly with these operators by providing alternative broadcasting, cable, telephone and messaging services.
Fierce competition, lower revenue for voice and data services and overpriced licences have hit operators's profits.
"I've never seen such tough challenges like this year, after almost three decades of experience in the mobile industry," AIS chief executive Somchai Lertsuthivong has said of 2016.
4G licences fuel competition
Two auctions for the 4G spectrum took place late in 2015 for two licences of 15 megahertz of bandwidth each on the 1800MHz spectrum, and another two of 10MHz of bandwidth each on the 900MHz spectrum.
AIS and True Move each won a licence on the 1800MHz and 900MHz spectra to provide 4G services.
This leaves DTAC tied to legacy concession contracts. Its rivals, meanwhile, have moved on to new licensing schemes.
Third-ranked True Move, the mobile arm of True Corporation, has seen growth jump sharply in recent quarters as its long-held focus on convergence finally appears to be bearing fruit.
Market leader AIS is expanding into video content creation to meet growing demand and maintain its leadership position in wireless broadband.
Competition in 2016 has left an "extraordinary record", with the three major mobile operators fighting for market share through heavy promotional subsidies.
AIS, DTAC and True Move gave away free 4G smartphones to their 3G customers to encourage migration to 4G networks.
"This subsidy campaign has never happened before in the Thai mobile industry," Mr Somchai says.
AIS alone spent 8 billion baht on giving away free 4G handsets.
Industry analysts say the heavy competition is ultimately a losing battle, as evidenced by operators' recent poor performance.
The three mobile operators are experiencing a sharp decline in their profits because of high costs for marketing and aggressive promotional subsidies.
Negative outlook
Fitch Ratings, an international credit rating agency, maintained a negative outlook on the Thai telecom industry for 2016 because it expected the credit metrics of most telecoms to deteriorate from tougher competition, slow revenue growth and larger capital expenditure for network investment and spectrum payments.
The Thai mobile telecom sector will continue with three companies dominating the market in the medium term, after JAS Mobile Broadband failed to submit the first instalment payment and bank guarantee to secure a licence on the 900MHz spectrum before the deadline.
Competition in the Thai mobile market intensified in 2016 as operators competed more aggressively on price and handset subsidies. True Move has strengthened its financial and market positions and aims to gain market share, while AIS and DTAC are determined to defend their own slices of the pie.
Guidance for weaker financial metrics from AIS and DTAC, which account for about 80% of revenue market share, highlights the challenges facing the industry.
AIS has revised down its guidance on earnings before interest, tax, depreciation and amortisation (ebitda) margin for 2016 to reflect the one-off expenses relating to the shutdown of its 2G, 900MHz network. The company needs to offer handset subsidies to its 2G customers to encourage them to move to the 3G network before the 2G network shuts down.
AIS expects its ebitda margin to drop to 37%-38% in 2016 from 45.6% in 2015. DTAC expects its ebitda margin to decrease to 27%-30% in 2016, compared with 31.8% in 2015, to reflect more aggressive marketing activities as the company aims to regain market share.
Customers will be a focus
To further enhance customer experience and satisfaction, mobile operators need to put more hefty investment in their 3G and 4G networks to expand capacity as well as improve connectivity speed and signal quality of wireless broadband services.
The average for data usage among all mobile subscribers in Thailand was four gigabytes per month in 2016, up from 2GB in 2015.
"We expect data usage from mobile users to continue rising in 2017," Mr Somchai says.
Sitthichoke Nopchinabutr, DTAC's chief marketing officer, believes the company needs a new focus for its customers. But fighting for market share through promotional subsidies is ultimately a losing battle.
The advance of technology and networks has essentially reduced mobile telecommunications to a commodity. Rather than fight to simply compete on price, DTAC will look to provide a superior customer experience and promote the values of the brand.
"Retaining customers as the core strategy is more cost-effective and even more profitable than acquiring new customers," Mr Sitthichoke says.
The challenges of OTT
The mobile business marketplace is rapidly changing and pushing mobile operators to adopt and create new business models to retain revenue growth and market position.
OTT content providers are growing rapidly in line with the popularity of a variety of digital content via social media platforms, despite not paying any infrastructure fees for using operators' networks.
Mr Somchai says operators have to collaborate with these OTT providers under a partnership model, in addition to the current cooperation through promotional packages that provide customers lower tariffs for surfing social media or video streaming.
At the same time, operators must better understand their customers' behaviour -- not only the behaviour of those using telecom services -- and they need to provide services that include digital lifestyles and interests.
"Better understanding our customers is critical for the success of mobile businesses amid a changing marketplace in the future," Mr Somchai says.
He says AIS now has data analytic units that carry out surveys and report customer behaviour in relation to telecom services. But the current scope of AIS's data analytics is not sophisticated enough to cope with the digitally driven trends of the near future.
"If we understand our customers better through accurate information, we can offer specific services at the right time to the right group of consumers," Mr Somchai says.
He says AIS plans to partner with more local content providers and businesses in other industries to jointly develop new digital services.
AIS in 2017 plans to maintain spending at more than 40 billion baht for network expansion. Its 4G network covered 98% of the population at the end of 2016.
Continuing network capacity expansion is part of AIS's policy to become a digital service provider by 2019.
AIS is undergoing a transformation and management overhaul to deal with the more dynamic and complex business environment, fundamentally changing the company's operational form.
New business models
To deal with challenges, telecom and cable operators have to join forces to compete with OTT players by offering triple-play services: internet, telephone and TV provided through a single service.
Thailand is in the process of drafting new laws to promote a more digital economy, a shift that will trigger further demand for advanced telecom equipment and infrastructure, as well as related services.
This indicates a positive future outlook for the industry in the year ahead.
The broadband era: 2017
Thailand is set to enter the "full broadband era" in 2017, thanks to almost complete coverage of 3G and 4G networks and high penetration of smartphones and the arrival of the Internet of Things.
This sea change has contributed to a shift towards a more digital lifestyle among Thai residents and has prompted increasing demand of quality data and telecom service, especially in urban areas with dense data usage.
Telecom operators will continue competing to offer better services to woo consumers in 2017.