Fitch Ratings has given Total Access Communication Plc (DTAC) a BBB/AA rating with a stable outlook after the country's third-largest mobile operator secured 900-megahertz spectrum.
Fitch Ratings said the 900MHz spectrum won by DTAC fills the gap in its spectrum portfolio that had constrained its competitiveness.
Winning the auction strengthened the mobile operator's market position because it will help enhance DTAC's network quality in rural areas.
In addition, as a condition of the 900MHz auction, DTAC will be allowed to use the 850MHz spectrum, a part of its 2G concession that expired in September 2018, for 3G services. This should prevent network deterioration and assist with subscriber retention.
DTAC has been losing market share over the past few years, partly because of its inferior spectrum holding and network quality in rural areas. The mobile operator has wide spectrum bandwidth, but only in high-frequency bands, including 1800-, 2100- and 2300MHz, which are suitable for serving metropolitan and city areas.
The acquisition cost for the 900MHz spectrum and the elevated capital expenditure is expected to affect DTAC's cash flow and financial leverage.
However, Fitch believes DTAC's relatively low financial leverage should give it the flexibility to support additional investment over the medium term.
DTAC's funds from operations-adjusted (FFO) net leverage is forecast to remain below 2.5 times during 2019–2020, in line with its current ratings. For the last quarter of 2018, the FFO-adjusted net leverage is 1.4 times.
Fitch affirms DTAC's FFO to deteriorate in 2018 and 2019 compared with 2017, when it was 29 billion baht a year, but to remain strong at 25-27 billion baht a year.
DTAC's earnings before interest, taxes, depreciation and amortisation margin is down to 34-36% from 38% in 2017. This is partly because of additional payments to TOT Plc for use of the 2300MHz spectrum and the rental of concession equipment from CAT Telecom Plc.
Fitch believes the benefits from the acquisition outweigh the high 900MHz spectrum acquisition cost. The company's market position and competitiveness are likely to improve after securing the spectrum, addressing its falling service revenue.
DTAC announced on Oct 29 its wholly owned subsidiary DTAC TriNet Co won one 5MHz block of 900MHz spectrum with a bid of 38.1 billion baht.