THE COMPANY: Advanced Info Service (ADVANC) was established in 1989 and is the largest mobile operator in Thailand, with a 46% subscriber market share and more than 97% nationwide coverage. ADVANC has been a publicly listed company on the Stock Exchange of Thailand (SET) since 1991. As of March 2012 the company’s market capitalisation of approximately BT532bn ($16.97bn) put it among the top-three listed companies on the SET. The company’s major shareholders are InTouch, which has a 40.45% stake, and SingTel Strategic Investments with 23.32%. The remaining 36% is a free-float owned by institutional and retail investors.
ADVANC operates on the 900 MHz GSM network, currently with GPRS and EDGE capability. It operates under a 25-year build-transfer-operate (BTO) contract issued by TOT Corporation (TOT) from 1990 until 2015. Under the BTO agreement, ADVANC is required to build and raise capital for mobile network investment and to transfer the network ownership to TOT. The firm shares its service revenue with TOT at 30% of post-paid revenues and 20% of prepaid. ADVANC also operates on the 1800-MHz GSM network through its subsidiary, Digital Phone (DPC). DPC operates under a 16-year BTO contract issued by CAT Telecom (CAT) from 1997 until 2013. The revenue sharing paid to CAT is set at 25% of the total. In addition to its mobile network service, ADVANC has many subsidiaries engaged in related telecommunications businesses, such as handset sales distribution and international phone services.
DEVELOPMENT STRATEGY: ADVANC’s investments to expand its coverage upcountry over the past few years have started to bear fruit as demand for wireless service has been rising significantly in the provinces. This, together with higher demand for non-voice services and rising adoption of smartphones, should push ADVANC’s service revenues growth by a strong 8% in 2012. Its revenue mar ket share also improved to 54%, from 53% in 2011.
In response to rising data demand, ADVANC has allocated 5 MHz of its 900-MHz spectrum to deploy 3G technology. The company has also joined forces with Jasmine International to provide Wi-Fi services. 3G penetration was 4% as of 2011.
As for 2.1-GHz 3G licensing, the regulating body, the National Broadcasting and Telecommunication Commission (NBTC), has made very good progress on the bidding process so far. The NBTC approved the 3G framework in June 2012 and an auction of the licences is expected to take place in October 2012. ADVANC is looking to bid for a 2.1-GHz licence, and it is quite confident that the auction will take place according to the NBTC’s schedule. Obtaining a 3G licence will not only lower ADVANC’s regulatory costs but will also provide it an exit from its current concession. ADVANC is well positioned for 3G investment, given its abundant cash flows and its strong market position.
Growing upcountry contribution and rising data penetration following a successful 3G service launch in July 2011 have turned around ADVANC’s revenue growth profile from just flat in 2009 to 5% in 2010 and 12% in 2011. The momentum has continued into 2012, with 3G non-voice revenues contributing in full. The government’s populist policies should also further spur upcountry usage. At the same time, operational leverage is greater due to its larger scale, with lower 2G amortisation costs as its 2G concession will expire in 2015. Together with corporate tax being cut by 7% in 2012 and 3% in 2013, ADVANC’s earnings could jump by 32% in 2012 and 10% in 2013.
The expected issuance of a 2.1-GHz 3G licence in October 2012 will unlock capacity constraints and may boost non-messaging service revenues to 32% of total service revenues after 2014. Regulatory cost savings would mitigate the rising investment burden, and therefore, an earnings hiccough is unlikely. The company is committed to maintaining its dividend payout policy, even during the 3G investment cycle.
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