The clock is ticking on the 1800-megahertz spectrum auction, but industry veterans are still speculating about which companies will take part in the Aug 4 bidding.
Total Access Communication (DTAC) may be the only operator joining the 1800MHz auction as the company needs additional bandwidth to serve its existing 2 million 2G customers and to retain a competitive 4G network coverage.
True Move officially exited the process, announcing last week it will not join the auction because it already has enough bandwidth spectrum to provide efficient services.
Mobile leader Advanced Info Service (AIS) initially agreed with the National Broadcasting and Telecommunications Commission (NBTC) to join the auction in a secret negotiation, according to an industry source, but the company has not made any conclusive official statements.
If DTAC does not participate in the auction, the expiration of its 850MHz and 1800MHz 2G concessions on Sept 30 will shut down its 2G services, and negatively affect its 3G and 4G services, which rely on the 2100MHz spectrum.
DTAC announced it would roll out 4G services on TOT's s 2300MHz band this year under a partnership deal. The service, however, is deemed too slow by telecom analysts.
More importantly, DTAC's failure to secure an 1800MHz spectrum licence would further sink its brand, a year after it was overtaken as No.2 in the market by True Move.
"If DTAC fails to secure a licence in the coming 1800MHz auction, it would suggest its parent company Norway's Telenor is thinking about exiting the Thai market," said an analyst from Kasikorn Securities.
DTAC's dilemma is reflected in its recent top management shake-up.
DTAC chief executive Lars Norling and its chief of corporate affairs and business development Rajiv Bawa met Takorn Tantasith, secretary-general of the NBTC, on Monday morning.
Mr Norling told the Bangkok Post the conversation was a "general meeting" between regulator and operator. Mr Norling and Mr Rajiv declined to elaborate.
However, an industry source said the DTAC chief came to assess possible auction outcomes in the discussion with Mr Takorn, especially if no bidders join the auction, which would put DTAC into a remedy period, allowing the company to utilise the 850MHz and 1800MHz bandwidth as well as other essential network facilities in order to prevent any service disruption.
Under the existing NBTC regulations, if a remedy period is determined, mobile operators whose concessions have expired have to continue providing service for remaining users on the concession's network. That operator cannot benefit from the remedy period, but has to transfer all remaining revenue to the NBTC after operating expenses.
DTAC holds 90MHz of bandwidth (upload and download) on the 1800MHz spectrum and also 10MHz of bandwidth on the 850MHz spectrum under CAT Telecom's concession, which will expire on Sept 30.
The company has the right to use only 50MHz bandwidth on the 1800MHz spectrum as the concession states DTAC must use the first 25MHz of bandwidth entirely before using the rest of the spectrum.
DTAC also holds 30MHz of bandwidth on the 2100MHz spectrum under the licence system.
NBTC plans to auction three licences on the 1800MHz spectrum on Aug 4, each containing 30MHz of bandwidth.
Mr Norling met Mr Takorn after True Move announced on May 18 it would not participate in the 1800MHz spectrum auction, while AIS has yet to finalise its decision.
The industry source said DTAC is speculating if there is no bidder on Aug 4, the company could continue using its existing 90MHz of bandwidth on the 1800MHz spectrum during the remedy period to serve its 2G users, despite no additional revenue.
"However, it's too risky for DTAC to speculate that no other bidders will join the auction. If AIS joins the auction, DTAC would be at risk of losing its remaining 2 million 2G users on the 1800MHz network because there would be no remedy period," said the source.
No choice but to grab
An analyst from Kasikorn Securities (KS) said there are at least four reasons why DTAC must secure a licence in the coming auction.
First, DTAC generated 2.8 billion baht in revenue in first quarter this year from the use of the concessionary spectra (850MHz and 1800MHz).
Second, it is too risky for DTAC to lose the 850MHz and 1800MHz bandwidth and base stations at the same time upon expiry.
Third, the 2300MHz bandwidth coupled with 2.3GHz network coverage and capacity rollouts would not be fast or large enough to make up for losses from the 850MHz and 1800MHz spectra, both in service coverage and customer device compatibility.
Fourth, if DTAC fails to secure an 1800MHz spectrum licence it would inevitably damage its brand.
More importantly, the KS analyst said its calculations show DTAC's spectrum holding cost remains the most competitive even after acquiring an additional 15MHz on the 1800MHz licence for 37.6 billion baht (37.45-billion-baht reserve price plus one bid iteration to win).
"We believe an 1800MHz spectrum licence in addition to its huge bandwidth of 2.3GHz would strengthen DTAC's 4G service position in the market," said the analyst.
DTAC recently announced its roll-out plan for 4G on TOT's 2300MHz spectrum with 10 base stations in Bangkok, which are being used for an internal trial before a full commercial launch in June.
DTAC targets rolling out some 4,000 base stations on the 2300MHz network for providing 4G service to cover 37 provinces by the end of this year, with nationwide coverage by 2019.
The move followed a partnership agreement recently signed by DTAC and TOT that lasts through 2025, with DTAC TriNet agreeing to lease telecommunication equipment and domestic roaming service for the launch of a 4G LTE-TDD network on the 60MHz bandwidth of TOT's 2300MHz spectrum.
The KS analyst said if DTAC's roll-out plan is slower than expected, the company would face difficulties in handling service for existing subscribers without the 1800MHz spectrum licence.
DTAC has 10,000 2G base stations and 6,000 4G base stations operating on its 1800MHz spectrum under the concession, which will expire in September.
It also has 20,000 3G base stations and 20,000 4G base stations operating on the 2100MHz spectrum.
"I wonder how DTAC can maintain service quality if the 2G concession ends and the company fails to get a 1800MHz licence because its roll-out plan for the 2300MHz this year has only 4,000 base stations," said the analyst.
Refusing to participate in the upcoming auction would certainly result in deteriorated 3G and 4G services, which rely solely on the 2100MHz spectrum, said the analyst.
On the other hand, should DTAC win the 1800MHz licence, concerns over a shortage of spectrum would be quashed and the company would strengthen its competitiveness in the mid to long term.
According to KS's calculations, DTAC's spectrum holding cost would remain the most competitive of the mobile operators even after it acquires an additional 30MHz of bandwidth on the 1800MHz licence at 37.6 billion baht.
The KS analyst believes an 1800MHz spectrum licence, in addition to its huge bandwidth of 2.3GHz, would strengthen DTAC's 4G service position in the market.
The cost of the 1800MHz licence would be 50% cheaper than the 2300MHz spectrum for which TOT recently granted a licence to DTAC for its 4G services.
Cheaper deal
Mr Takorn said each 1800MHz licence has a set reserve price of 37.45 billion baht and the licence lasts for 15 years. The price is based on the winning price of the previous auction of 1800MHz licences in 2015.
At the reserve price, the cost of an 1800MHz licence would be only 2.5 billion baht per year through the 15-year term.
Technically, the 1800MHz spectrum has no limitation for providing voice services through basic networks, and is supported by many handset models.
The 2300MHz deal between DTAC and TOT lasts through 2025.
Holding more spectrum bandwidth can increase service capacity for mobile operators.
The KS analyst said AIS won an 1800MHz licence for 40.9 billion baht in the 2015 auction, which means if AIS joins the coming auction and grabs one more licence it has to ensure better returns on investment.
"It is not easy to gain significant additional market share or increase service revenue while having to pay another almost 40 billion for a new licence," the analyst said.
AIS controls 48% of revenue in the overall market, followed by True Move at 29% and DTAC with 23%.
True Move's announcement it would not participate in the 1800MHz spectrum auction is expected to translate into a positive impact on TRUE's share price on the Stock Exchange of Thailand, said the KS analyst.
DTAC is expected to be a prospective bidder in the coming 1800MHz auction and get a licence, while AIS may join the auction only to ensure DTAC does not enjoy continued service through the remedy period for the 90MHz of bandwidth (a licence contains only 30MHz), said the analyst.
Assuming DTAC wins a licence on the 1800MHz spectrum, future auctions should be freely designed, not based on previous auctions, because each of the big three operators will already have a licence on the 1800MHz, said the analyst.
