Marathon auction for Thai licenses
YUKAKO ONO, Nikkei staff writer
BANGKOK -- As smartphone fever continues to grow in Thailand, local telecommunications companies are hungry for bandwidth. This was clear for all to see when the Nov. 11 auction for fourth generation service spectra turned out to be an all-night event lasting over 30 hours.
The heated competition went beyond the expectations of virtually everyone involved -- the authority, companies, market analysts, and local media. Spectrum price tags soared to nearly 40 billion baht ($1.11 billion), more than double their starting prices.
"We thought this would be over in a day," said an exhausted Settapong Malisuwan, vice chairman of the National Broadcasting and Telecommunications Commission, on the evening of Nov. 12 when it was all over.
Four companies battled over two blocks of the 1.8 gigahertz airwaves, each with a license term of 18 years, with industry leader Advanced Info Service and third-ranked True Corp. emerging as the winners. Thailand first introduced 4G mobile service in May 2013, but this marks a belated entry for AIS.
Having been delayed for over a year by the military government, there had been ample time for expectations to grow in the buildup to the auction. Excitement filled the NBTC headquarters on the morning of the auction day as the chief executives of the four bidders posed with the auction's mascots in front of hundreds of media representatives.
At 10 a.m. sharp, the first round of bids was placed at 15.912 billion baht. From then on, bids were placed every 20 minutes, gradually closing in on the 19.89 billion baht threshold, the spectrum value calculated by the International Telecommunication Union.
Had that estimate held true, the auction would have ended in a matter of hours. Prior to the auction, NBTC secretary-general Takorn Tantasith told the Nikkei Asian Review that the auction was expected to close at around 10-15% above the ITU estimate.
But at the NBTC media center, the bar graph showing the prices of the two airwave blocks continued to grow as the companies refused to stop bidding. Once the bid price reached the ITU spectrum value, bidders could only raise their prices at a fixed value of 398 million baht for each round, according to auction regulations, which resulted in the auction proceeding at a snail's pace.
It was clear that the telecom companies were determined to get what they had come for.
Smartphones are becoming increasingly popular in Thailand, with the prospect of high-speed 4G services set to add to the growing number of users.
As of October last year, 30% of Thais had smartphones, according to Aun Consulting, the third-highest figure in Southeast Asia after Singapore and Malaysia, and not far behind the roughly 56% in the U.S. and 55% in Japan.
Fueling demand is Thais' love for social media. In 2013, for example, when 3G mobile services came to the country, Bangkok's downtown mall Siam Paragon topped Times Square in New York and other prominent sites around the world as the No. 1 location for Instagram photos. Furthermore, only Japan has more users of the Line online chat app, and according to local research company Zocial, 51% of Thais use Facebook.
With a wider offering of 4G services, data traffic is expected to increase even more. Kasikorn Research Center predicts that the number of people using 3G and 4G services in Thailand could grow by as much as 15% year-on-year to reach 39.7 million people, or about 60% of the population by 2016.
Such expectations drove the telecom carriers to go to the lengths they did during the bidding.
Initially, the auction was scheduled to finish at 9 p.m., but the authority decided to keep going. As the clock ticked toward midnight, surpassing 12 hours from the start, the media center was a mix of excitement and anxiety as people geared up for an all-nighter. Reporters began greeting the announcement of each round of bidding by counting down out loud. By 4 a.m., only a few dozen were left and many were sleeping on their chairs or on the floor.
Company executives, meanwhile, were holed up inside the NBTC headquarters, placing bids throughout the night. Each carrier was provided with its own room to eliminate any chance of rigging. Staff members were prohibited from leaving their rooms or from contacting anyone outside, with their mobile phones also being confiscated.
Bidding continued into the next day with only a three-hour lunch break provided due to "health concerns." With no signs of the auction coming to a conclusion, NBTC executives suggested calling the session off for the day and letting everyone take a rest. Rooms with beds were to be provided for each company with police officers watching over them as the bidders were required to stay within the NBTC building until the process resumed the next day.
However, the proposal was rejected and the bidders opted to push through for a finish and go home to sleep in their own beds. "We are sure that the auction will be over in a few hours," a bidder was quoted as saying.
And it was. At 7 p.m., after 86 rounds of bidding, the marathon auction finally came to an end with AIS offering 40.986 billion baht and True paying 39.792 billion baht, respectively. Minutes later, executives were signing papers with the NBTC authorities looking exhausted yet happy and relieved.
It wasn't all good news, however. The following day, AIS share prices rebounded less than 1% while True remained unchanged after shedding nearly 8% and 10% respectively during the two days of auctioning.
"The market is panicking from the super high auction price. We have never seen this in Thai history," Songklod Wongchai, a telecom analyst at local brokerage Krungsri Securities said.
Winning not everything
The winners will be required to offer 4G services at lower rates than those for their current 3G services and may have difficulty making profits. Moreover, the expensive price tag could weigh heavily on the companies' finances. Winners of the auction are required to pay off half of their bids within 90 days.
According to company filings, AIS has 11.6 billion baht of cash and cash equivalent on hand while True has 11.4 billion baht. Both companies will have to bring in the extra cash from somewhere, such as more borrowing or possibly seeking funds from their foreign partners.
AIS, which was initially established by Thaksin Shinawatra, the exiled former prime minister, is now 23% held by Singapore Telecommunications. True is part of the conglomerate Charoen Pokphand Group, controlled by billionaire Dhanin Chearavanont, but sold 18% of its shares to China Mobile last year, mainly to pay off debts.
Furthermore, another auction is scheduled next month for the 900 megahertz spectrum, often dubbed the "platinum bandwidth" as it allows for the provision of higher speed and more stable connectivity. But with the winners having already invested so heavily, this platinum opportunity could fall into the hands of two rival bidders -- Total Access Communication (Dtac), the second-largest carrier, and newcomer Jasmine International.
Fitch Ratings warned on Nov. 16 that it "may consider negative rating action" if AIS acquires the 900MHz spectrum "at a significantly higher price" than they expect.
Still, some see that just getting hold of the spectra is what matters.
There are concerns that the next auction will be subject to another last-minute postponement by the military government, says Pornthep Benyaapikul, assistant professor at Thammasat University's economics faculty. It is, in fact, already a month overdue. "We never know what could happen in the current situation," he said, adding that such fear has helped drive up the auction prices.
The day after the first auction ended, Dtac and Jasmine, the two losers, saw stock prices nosedive 7.6% and 5.5% respectively. They have their fingers crossed for next month's auction, hoping that the junta leaders will not change their mind.
And for the NBTC, the auction organizer, they are readying for another fierce round of bidding. "We might not be able to change the auction system, but we will make improvements," an official said. "We will provide the bidders with a larger room equipped with beds."
Nikkei staff writer Hiroshi Kotani in Bangkok contributed to this article.