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With assortment of digital services, True poised to reap biggest gain from 3G
Mar 26, 2009 (Bangkok Post - McClatchy-Tribune Information Services via COMTEX) --
Among Thailand's corporate titans, few stand out as a better example of a firm that has staked its future behind a single dream than True Corp.
The telecom conglomerate is an ongoing experiment in the viability of the theory of convergence and the "quadruple-play", where content can be blended and channelled through broadband Internet, television, telephone and wireless services.
Yet for True's long-suffering shareholders, it remains an open question whether the company can deliver. Certainly among the three major mobile operators, True's balance sheet is in a far more precarious state than that of Advanced Info Service or DTAC.
But Thailand's telecom sector may now be on the cusp of a change that could offer deliverance to True's strategy. Telecom regulators hope to begin the auction of new third-generation mobile frequency licences within the next 12 months, a technological shift that could prove to be a saviour for True's future.
Certainly, while True may be the company with the weakest financial resources to make the jump to 3G, it possibly stands to gain the most, thanks to its growing library of multimedia applications and content that it wants to push to the public.
Noppadol Dej-Udom, the chief financial officer for True Corp, said there was little doubt that the convergence concept was proving successful in the market.
He pointed to the company's strong market success in offering service packages, such as offering special high-speed internet services through True Online customers for TrueVisions pay-TV subscribers, or the cross-selling of TrueVisions for True Move mobile users.
True posted a bottom-line net loss of 3.38 billion baht for 2008, sharply up from restated profits of 1.55 billion the year before, due largely to the impact the weaker baht had marked to market the company's foreign loans.
Operating profit fell to 7.34 billion baht, down 9.2 percent from the year before, while earnings before interest, taxes, depreciation, and amortisation (EBITDA) dropped 7.5 percent to 18.47 billion due largely to higher interconnection costs and network expenses for True Move.
But despite the softer financial results, the company points to the fact that 1.9 million households now use multiple True products, up 22 percent from the year before, as a sign that its strategy is now reaping gains. Fourth-quarter revenues and EBITDA also improved despite the tougher economic environment.
True also raised 6.4 billion baht last month in hellish market conditions in a rights issue that was only one-third subscribed by shareholders, primarily the CP Group.
Noppadol said 2.8 billion baht from the offering would be to finance network improvements by True Move, including an expansion of the 850Mhz 3G trials now underway, with the remaining 3.8 billion baht used as a short-term cash cushion in case economic conditions worsened.
The company was also looking to take advantage of low market interest rates to refinance and reschedule its debt. The company this month will float up to 7.75 billion baht in five-year debentures priced at 6.5 percent per year, an issue rated BBB by Tris Rating.
"We still have room to tap the market. In any case, we are still committed to deleveraging and reducing our debt burden," Noppadol said.
"In this environment, everyone wants to preserve cash. So we are building up a cash cushion. Right now, no one can really predict when the bottom [for the economy] will come."
Noppadol said True in any case must return to the market for more capital once the National Telecommunications Commission moved forward with the 2.1GHz frequency auction.
"If you look back, every several years there is an evolutionary tipping point for the industry. The first was the introduction of analog mobile phones, followed by second-generation digital technology and then the introduction of interconnection charges. Now we will have 3G," he said.
But True, as well as AIS and DTAC, will face a similar question with their 3G strategy -- whether to continue expanding the 850 MHz system available now or bid for the right to build an entirely new network based on 2.1GHz.
Expanding 850 MHz offers lower capital expenditure and the ability to leverage existing infrastructure, albeit with the disadvantage of having to remain within existing concession agreements, including the need to split revenues with state-owned CAT Telecom.
Noppadol said he hoped that the NTC, which has yet to detail how the auction will be handled, consider carefully the experience of other countries, where high auction costs ultimately led to a financial backlash for operators and a slow rollout of services for consumers.
"We should consider what Thailand really needs. A fast, quick rollout of services. Fair value for the consumer. And a process that helps stimulate the economy through new investment," he said.
"But for True, the chance to gain independence [from its concession agreement], to gain freedom from regulatory constraints. ... We are willing to pay the price."
The economic slowdown and increased saturation in the market was having only a modest impact on sales, Noppadol said.
In the mobile market, True Move would see its interconnection charges move to a neutral position in 2009, following painful lessons learned last year when the company was a net payer of almost one billion baht to other operators.
"It was a painful lesson. The other operators have experience with other markets about interconnection, but we have learned our lesson, and we believe we now know how to manage the issue" Noppadol said.
TrueMove's position remained concentrated on "value-seekers", a group that Noppadol said included teenagers, students and "first-jobbers" that were relatively sensitive to price.
"We need to continue to emphasise best value. On the postpaid subscriber side, the strategy is to continue to push convergence and value-added services," Noppadol said.
Meanwhile True Online, its internet service unit, continued to enjoy strong growth in broadband subscriptions in 2008, although new additions slowed sharply in the second half. WiFi subscribers more than tripled last year, and now covers some 150,000 paid users in addition to tens of thousands of free users under a programme with the Bangkok Metropolitan Administration.
TrueVisions, its cable TV arm, saw its subscription base reach 1.47 million at the end of 2008, up 41 percent from the year before.
"Convergence means bringing TrueVisions into the home. We are leveraging our mobile-phone subscribers to boost our pay-TV services," Noppadol said.
For a decade, TrueVisions catered only to the very top of the market, with a subscriber base that remained stagnant at 400,000.
Noppadol said the company understood that it needed to prepare for the liberalisation of the cable market and competition with provincial operators, and thus was focusing now on building up its market with new channel offerings and cross-sales with True's broader client base.
"We have changed the business model from pure subscription. We are trying to turn competitors into content providers, where they can rent our channels to reach the audience," he said.
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