4G auction costs spook investors

4G auction costs spook investors

The high bids for two licences on the 1800-megahertz spectrum in the country's first fourth-generation (4G) licence auction is expected to inflate each winner's cost by at least 3 billion baht a year, say analysts.

The four bidders are Advanced Info Service Plc (ADVANC) subsidiary Advanced Wireless Network; DTAC Trinet, a subsidiary of Total Access Communication Plc (DTAC); True Move H Universal Communications, a unit of True Move which is a subsidiary of True Corporation; and JAS Mobile Broadband, a subsidiary of Jasmine International.

The bidding finished at 7pm last night after almost 30 hours of bidding, with the first licence attracting a bid of 39.89 billion baht won by True, while the second soared to 40.98 billion won by AIS, well above the reserve price of 15.9 billion and analyst estimates of 22 billion.

The overpriced bidding has stoked investors' worries the licence cost will erode winners' earnings, sending bidders' share prices into a tailspin for the second day. ADVANC plunged 6.64% or 15 baht to 211 baht yesterday, extending a two-day loss to 7.86%; DTAC lost 8.2% or five baht to 56 baht, a two-day drop of 10.8%; TRUE tumbled 8% or 80 satang to 9.20 baht, a two-day loss of 9.8%; and JAS was steady at 5.50 baht after almost a 6% drop on Wednesday.

Mayuree Chowvikran, executive vice-president of Maybank Kim Eng Securities (Thailand), said Jasmine's shares saw the smallest drop as investors expected it to lose the bidding. However, Jasmine's costs will be high if it wins a licence, as huge investment will be needed for network installation and attracting customers.

Country Group Securities (CGS) estimates the winners will see their annual costs rise by 3.69 billion baht each, assuming the licence is priced at 35 billion for each block and interest to fund the licence stands at 5%. Some 1.94 billion will be amortised expenses and 1.75 billion interest costs.

If AIS wins, the licence will shave 5% and 10% off its net revenue and profit before interest, tax, depreciation and amortisation (ebitda), respectively, the lowest among the group, CGS said. If TRUE wins, the broker said the cost would hit its profit and ebitda by 48% and 18%. For DTAC, the cost would dent earnings and ebitda by 58% and 13%.

But CGS recommends investors snap up ADVANC shares if it wins, as 4G will have a positive long-term effect on the company.

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