Advanced Info Service (AIS) is expected to allocate 29.7 billion baht to acquire the 2100MHz band and a partial stake in the 2300MHz band from the auction scheduled for next month, while True Corporation is expected to spend 19.7 billion baht to acquire a partial stake in the 2300MHz band.
According to Pisut Ngamvijitvong, senior equity research analyst at Kasikorn Securities, the company's calculations indicate the winning bid prices for the 2100MHz and 2300MHz bands will be 33 million baht per MHz a year.
This represents a 10% premium over the reserve price of 30 million baht per MHz a year for the 2100MHz band, and a 90% premium over the reserve price of 17.3 million baht per MHz a year for the 2300MHz band.
Kasikorn Securities also estimated the net present value of spectrum cost savings at 5 baht a share for AIS and 2 baht a share for True.
These companies are the only two businesses to have submitted proposals to participate in the mobile spectrum licence auction.
The National Broadcasting and Telecommunications Commission (NBTC) plans to auction four spectrum bands on June 29: 850MHz, 1500MHz, 2100MHz and 2300MHz.
EFFECTS ON EBITDA
On Aug 3, National Telecom's (NT) spectrum licences granted by the NBTC on the 850MHz band (2x15MHz bandwidth), 2100MHz band (2x15MHz), and 2300MHz band (1x60MHz) will expire.
During the life of these licences, NT sublicensed the 850MHz band to True, the 2100MHz band to AIS, and the 2300MHz band to Total Access Communication or dtac, which amalgamated with True.
While the details of these arrangements vary by operator and have not been fully disclosed, the structure of all contracts can generally be divided into two commercial transactions.
The first is network rental contracts, in which NT rents dedicated passive and active radio access equipment from a entity set up to be 100% owned by private telcos.
The second is wholesale transactions, in which NT combines radio access facilities -- rented from private operators -- with its NBTC-granted bandwidth to wholesale network capacity to another entity set up to be 100% owned by private telcos.
Mr Pisut said the financial impact is straightforward in terms of cash flow but differs at the earnings before interest, taxes, depreciation and amortisation or Ebitda level.
On a cash basis, AIS has been paying NT 3.9 billion baht a year, while True has been paying 6.8 billion baht a year, both figures supporting stronger cash flow generation for AIS and True.
However, their accounting treatments differ: AIS applies finance lease accounting, whereas True treats it as operating lease accounting.
As a result, the expiration of NT arrangements will have no effect on AIS's Ebitda but will be fully absorbed at True's Ebitda level.
In terms of the implications of the expiration of NT's arrangement based on the brokerage's calculations, the impact of the expiration of NT's arrangement on AIS's Ebitda should be muted, though the Ebitda margin could rise from 53.4% to 55.4%.
AIS's net profit this year is expected to expand by 6.6%, with the net profit margin improving from 18.8% to 20.8%.
Meanwhile, True is likely to see a more substantial impact given its significantly higher roaming fee paid to NT.
Based on the brokerage's analysis, True's Ebitda and net profit will increase by 6.7% and 83.2%, respectively, driving the Ebitda margin expansion from 49.1% to 57.9% and net profit margin expansion from 3.2% to 6.4%.
Mr Pisut said Kasikorn Securities expects the final bid prices for the 2100MHz and 2300MHz bands will determine the extent of net spectrum cost savings for AIS and True.
These new spectrum acquisitions will not impact Ebitda for either company but will reduce AIS's quarterly net profit by 472 million baht and True's quarterly net profit by 379 million baht.