Hope on the airwaves

Mobile operators are counting more and more on 3G to spur future growth now that the market for voice has peaked

SRISAMORN PHOOSUPHANUSORN

Thailand's super-competitive telecommunications industry is moving into the next phase of development with the launch of third-generation (3G) wireless services, the trend of the future in the years to come.

Telecom companies, the major two mobile operators Advanced Info Service and DTAC in particular, are racing to offer the next-generation mobile services in an effort to stimulate demand for higher-margin mobile broadband and push up their revenues.

The operators are pinning hopes on 3G to help spur their growth and profits after facing shrinking margins as a result of heavy price competition in the highly saturated market over the last two years.

The communications sector, capitalised at 452 billion baht, yielded a one-year total shareholder return (TSR) of 26.98%. It paid back 0.77% over three years, 28.31% over five years and 17.18% over 10 years.

Among the 24 firms in the sector, the handset distributor Bliss-Tel (BLISS) led with a one-year return of a 335.48%. On the other end of the scale, Jasmine Telecom Systems (JTS), a subsidiary of Jasmine International, was the poorest performer, with a -41.43% one-year TSR on market capitalisation of 1.067 billion baht.

Attavit Ektanitphong, the managing director of Bliss-Tel, said the company was looking to diversify more into new potential businesses after investing 100 million baht last year to build its own stock portfolio.

He said Bliss-Tel was looking at the wireless broadband WiMax service to cash in on the growing demand for always-on wireless communications.

"We are in talks with a few telecom companies in Singapore, South Korea and Taiwan for the possibility of a joint venture in the new business," said Mr Attavit.

Given the sluggish economy and political uncertainty, Mr Attavit said Bliss-Tel expected to maintain revenue at four billion baht this year, with sales of 800,000 handsets. Unit sales could reach one million if the mobile operators introduced 3G services in the fourth quarter of this year, he added.

Advanced Info Service (ADVANC), capitalised at 286 billion baht, made a head start in 3G with a very modest commercial launch in Chiang Mai in May, though a planned June launch in Bangkok may be put off for a month or two until it can obtain more hardware.

The country's largest mobile operator offered the seventh-highest one-year TSR, at 35.56% against 3.56% over three years and 30.34% over five years.

AIS expects 3G to be the highlight of the industry in 2009, with operators shifting focus to new service offerings from price-cutting.

Somchai Lertsuthiwong, senior executive vice-president of AIS, said the company expected the proportion of its non-voice revenue to increase from 10% to 20% of total revenue next year after it introduced 3G services.

Total spending by customers of all mobile operators is projected to rise 5% to 159 billion baht next year, up from an estimated 151 billion baht this year.

Mr Somchai said AIS projected revenue from GPRS and Edge networks to grow by 40% this year, driven mainly by surging mobile internet demand.

In contrast, he said, the voice-based market would grow by only 1% while data communications services would increase by 20% this year.

Mr Somchai also said that AIS was restructuring its organisation through trade marketing and product marketing approaches to prepare for 3G. It is also adopting belt-tightening measures to cope with the impact of rising fuel prices.

"We are moving toward a 'sustainable marketing' strategy, a combination of functional and emotional marketing approaches," he said.

A foreign broker said 3G was likely to excite the local mobile market and spur growth, particularly in Bangkok, where mobile penetration tops 150% as many people have more than one handset.

Thailand's mobile-phone penetration rate is expected to reach 100% this year with 64 million subscribers, up from 52.3 million at the end of 2007.

The analyst said AIS would likely gain a windfall from high farm prices pushing up farmers' incomes. Most of its prepaid customers are in the provinces.

In contrast, third-ranked True Move is expected to face a sharp reduction in its new users since most of its customers are young people living in Bangkok.

Industry analysts have forecast that AIS is expected to grow by 10-15% this year with a rebound in profit, thanks to eased price competition.

By comparison, DTAC is expected to grow by up to 50% this year, helped by interconnection charges and tax incentives for its listing on the Stock Exchange of Thailand last June. The company is listed on both the SET and Singapore Stock Exchange.

Analysts say the local mobile market would be fully saturated next year unless the NTC issued 3G licences.