Advanced Info Service Public Company Limited (ADVANC) Earnings Call Transcript & Summary

The next question from Navin, UBS.

I actually had 4 questions. So first of all, on the fixed broadband business. Obviously, we have seen pretty strong customer growth this year. Do you see any reason to believe that next year, the customer growth will slow down, I guess, as things normalize post-COVID? And does that then open opportunity potentially for ARPUs to increase, I guess, maybe given the strong growth this year, you're more focused on discounts, et cetera, to get customers. I just wanted to understand the fixed broadband strategy. Secondly, if I look at your CapEx number, 9-month CapEx appears to be running quite a bit below your THB 35 billion guidance. Is there a timing issue? Or are you looking at a huge jump in Q4? Or is there some pushover of CapEx into next year? And the third question was, if you could share with us the number of sites that you have, I know you pointed towards the fact that your network coverage is better than your peers on 5G. But I guess, overall, the number of towers on which your network sits, if you can throw some light on that, that will be helpful.

For the fixed broadband, currently, the penetration in terms of household is still less than 50%. So there is still a lot of opportunity for fixed broadband growth. So continuing for 2021, we do see continued growth, but maybe a slowest pace as we go higher on the penetration. On the pricing itself, I think the current pricing are already quite low at THB 299. So we do not expect pricing to go below that because there's a number of fixed costs involved, especially for fixed broadband, which is unlike mobile whereby every line, if there's a churn, you can still use the capacity, whether it's for fixed broadband, one part of the cost is actually the last mile. So if a customer churn and that last mile investment cannot be used by another customer. And so there's a certain level, I would say, below which it may not be feasible to compete. On the number of sites, currently, we have almost about 5,000 sites. So these that comprises both the macro as well as micro sites. So for next year, we still continue to plan for the rollout, especially when we will have the 700 spectrum next year. So it will be a combination of both the 2,600 as well as 700, which is important for us to increase the 5G coverage.

Yes. I think on CapEx, this year, we'll still plan to spend close to our guidance. Maybe it's the procedure for this year that make it a bit slower in the first 9 months. But I think all the orders and everything we plan already to invest close to the guidance number.

If I can -- sorry, just follow up. So by sites, I actually meant total sites, not just 5G but across, I guess, what is your total tower footprint? And I guess, I mean, the question I was trying to get to ultimately was, is there a potential for you to look to monetize your towers, given continued CapEx and obviously, a challenged revenue environment. Is that something that we would be looking at, I guess, similar to what True has done.

Yes. I think that the total number of tower -- because I think, lately, we have a lot of kind of, what we call, small sales and all that. But the [ taller ] tower, the big size is probably about 30-something thousand towers, which I think in terms of monetization, we have been looking at options for that. It's possible, but it won't be easy because most of the towers of the network of the 2G, 3G and 4G, all the [indiscernible] operators already invested. What's possible could be going forward to 5G, we can do some sharing and try sharing things like that could help reduce the investment required. However, I think we're still looking at options if there could be monetization on our own for the network we have or even looking at way to reduce the footprint and the cost ongoing on existing. However, I can tell you that the discussion has been going on, but it may not be that easy to realize.

Just to add that the numbers given at [ County ] 35 plus, that's including the 13,000 jobs to 13,000 TOT -- sites from towers from TOT. So on our own, it's about slightly more than 20,000. Regarding to sharing the towers just to add also that as what Khun Hui mentioned, the capacity on the towers depends on the slots that's available. So currently, most towers, you have 3 slots, 3 sectors. So majority have been used the first and second. So the third slot is always the lower one. So some of those may not be that feasible because you use a lower slot, then the coverage is not there. Previously, we have been looking at and exploring possibility. But because of the number of spectrum that we have, the number of equipment on the tower. So some of the tower space, the space for antenna may not be sufficient. Unless it's a complete revamp of the whole antenna architecture. If there's a single company that takes over all the towers and also do the active antenna sharing then it's a possibility to re-evaluate the capacity and the space on the towers.

The next question from Khun Weerapat, CLSA Securities.

I have 2 questions. The first question about device sale momentum. How do you expect device sale momentum in the fourth quarter when compared with the third quarter? And can you please provide [ MARPA ] number of how many models that will be introduced during the fourth quarter when compared with the third quarter? And my second question, do you have the target for 5G coverage in the long term in terms of nationwide population?

I think on the device sale momentum, in the fourth quarter, normally, every supplier and vendor, we will have their road map. But in the fourth quarter, with iPhone 12 are launched in the market, I think it's a big movement and weak momentum. So you can estimate on only the iPhone. For the other brand, it continue as normal as usual thing. So the increasing and dominant thing should be iPhone 12. On the target of 5G coverage, as I also mentioned on our investment, we invest the 5G this year, not only for the 5G itself. It also held out the 4G [indiscernible] by using the 2 band, 4G and 5G. However, when we launch the 5G in the market today, our position is very clear. We are a leader in 5G in the Thailand network. And also we announced -- deployed [ 77 ] province, that means we can cover everywhere, but only in the city, when we need to expand more and more, it depends on the customer demand and [ usage ], when we launched the 5G pad, if it take up, it have some [indiscernible] [ like ] [ ARR ] that we launched. It already pick up, we will expand based on our customer demand.

On the specific question of long-term coverage. Our current plan is that by 2024, 2025, our plan is to have a 75% population coverage. So this takes into account not just the 2600 spectrum. But more importantly, the 700 as well as the 2100. So the 1200 will allow us to have a wider coverage. And in a few years' time, there's also plans to migrate the 2100 to be used on the 5G. Because currently, the handsets available in the market can also support 2100. So our long-term plan is to refund the 2100 to 5G. So by 2024, 2025, we have both 700, 2100 as well to 2600 for 5G. Also not forgetting the 26 gigahertz, which will be more specific to certain areas of high density. So for example, like in city centers or in industrial estates or even within factory itself for private network.

Yes. Maybe I guess that the question here is trying to gauge how much more investment we have to make to complete the 5G coverage. It won't be as easy as when you project a 2G, 3G and 4G because here at 5G, we have many more spectrums. So for coverage alone, I think 700 as a new spectrum can give us a lot more coverage. So going forward, I think that the plan for us is we will leverage in the first, maybe short term, 700 can help us with the coverage. And then capacity, if you need capacity for 5G, we'll rely on 2600. However, once, if we can refarm 1800 or 2100 to be 5G then the investment could be minimal to get full coverage. Because right now, we have full coverage of more than 98% population based on 2100 and 1800 already. And to convert that into 5G, a big portion of those equipments don't need much investment. Maybe it could be a software upgrade, it could be new car to plug-in and things like that. So it will be a little bit difficult to give you a sense of how much more investment that we need to make. So I think that's why I'm trying to say that we will invest as per the demand of the usage. However, we have a few more technique to make sure that we get sufficient coverage over the next few years without having to invest a lot.

The next question from Ranjan, JPMorgan.

Two questions from me. Firstly, you have all seen the news on Huawei and the restrictions put by the Department of Commerce in the U.S. If there is no relief coming for Huawei, how does that impact your current network? And also what I understand is that your 5G investments are also based on partnerships with Huawei? How does that impact the network rollout and your first-mover advantage in 5G? The second question is, can you please comment whether it's your base case that you will be able to charge 5G at a premium to 4G over a period of time, that's in 2021 and 2022.

For the Huawei, I think we are really careful in this thing because based on our Board and [indiscernible], especially in the Risk Management Committee also for management to taking care and concern in this issue. However, when we roll out this kind of Huawei technology based on in the world today, I think every operator in Thailand also use Huawei as a main supplier. However, we're still open for the European supplier come to test and try to parallel. Actually, even today, we are working with Huawei or Risk Management Committee also ask management to protect our list in this thing in formality that everything that we implement, we have the backup like the [indiscernible] from Huawei all the term condition that they will compensate us in this kind of investment someday. And also, we saw all the road map of the Huawei and supply chain of the plan still set in this thing. However, this is a continuous and more important thing that we are less [indiscernible] because it's not only as the main operator to do this or already also use this thing also.

On whether we could -- 5G could charge a premium over 4G. It's not a like-for-like comparison. Because when you look at the 3G, 4G, it's more like a speed upgrade from 3G to 4G. Whereas for 5G, it's not just speed and [ load ]. So you have -- obviously, you have a higher speed, you can go from up to even [ 4G NPS ]. But the thing is better experience, lower latency and even to an extent for enterprise solution, you have network slicing. So there are different parameters that you can charge. And these different parameters will give different charging scheme. So it's not a straightforward comparison between 4G and 5G. So there are a lot more parameters in 5G, where you can charge a premium because certain features are necessary for certain applications. So it's not simply compared from 4G to 5G.

Got it. Can I just have one quick follow-up on Huawei. Is that your main vendor for 5G rollout? I mean to what extent are you using 5G based on Huawei?

I think broadly, we still keep a multiple vendor policy. So currently, the 5G is only in the very first phase. So we are open to both the Chinese and European vendor. I think that's all we can say.

The next question will be last question from online on Zoom platform. Arthur from Citi.

Three questions, please. Firstly, on broadband net add that seems to be slower versus prior periods. What's driving this? Is there a demand issue? Or was it a churn issue? Second question is on 5G, and I'm not sure if I've heard this right. You're targeting around 1,000,000 5G subs for 2021. Is that correct? So that's just around 2% of your total subs base. So why be aggressively on spectrum and raise CapEx on 5G if the adoption is only 2% target after 2 years? Would the incremental revenues compensate for the added costs? And third question is on the spectrum refarming. You've mentioned 2100 and 1800 refarming for 5G. Can this be done on the existing license terms? Or do you need to do this upon re-auction?

First question around the fixed broadband. It's a bit of both. The demand side also comes down from the peak during lockdown in the second quarter. And also, we've been churning customers in the third quarter as well because of some has been -- hasn't been churned yet during the lockdown because of the closure. The spectrum refarm, the last question first. No need to get for any upgrade approval because the license is technology neutral.

On 5G investment, I think initially, we feel that there's a differentiation that we can create with 5G network and also coverage. We don't feel that the way that we invest right now is too aggressive. As we mentioned, we invest in the main areas that we feel would benefit to consumers and also be our targeted market and partly because we also want to cover the enterprise segment, where we feel that's a real kind of use cases and usage that could be beneficial to the clients, and they will be able to pay more for the service. So if you just look at the 5G sub number that we put out, it roughly should look at as a percentage of postpaid in the beginning. And we feel that, that number is reasonable, not too aggressive. However, given the situation right now, if it gets better, then there could be an upside. I think we would be ready to capture more market share-based on 5G upside rather than be regret that we invest too slow and other people take that advantage.

The next question from Khun Thapana, TISCO Securities.

I have 3 short questions. You mentioned that you're hoping that postpaid ARPU will do a bit better. What has been the situation so far in October on the postpaid ARPU front? Secondly, we will have the, as you mentioned, iPhone 12 launch in November, late November or possibly early December. What would be the implication for ad spending in 4Q? Will we see a surge? Or will you be able to maintain the current low level of spending? Lastly, I know that there's been a lot of questions about 5G, but I have just one more on this. What exactly is the nature of the gap between your competitors' 5G network and your network. So you mentioned you have 5,000 base stations. What's kind of like the gap between you and them on the coverage? And I understand that even on the base sales cycle configuration, you have kind of a premium 5G-based station closer to MIMO. Does the competitor have the same configuration or kind of lower in terms of the standard? Just want to get a color on how far ahead you are competitive. And are they going to have to do a lot of work to catch up with you? Or is it just a matter of them spending a bit more and they can already be at your level?

Yes. First, on the postpaid ARPU, I think slightly different from the prepaid side where we see the low price plan coming in postpaid. We continue to observe better increase in the price remain to stay. So that's one of a positive sign we see. Secondly, it looks like the subsidy broadly in the market seems to slow down a little bit. So there is some positive sign on that. I think on top of that, 5G definitely will be the key driver that we look to improve ARPU. As 5G begin with THB 699 upward and offer a lot larger data from the 4G and with the new handsets coming in, we expect customers who are with the good spending power to be able to upgrade their phones and leverage upon the higher data usage of the 5G in order to uplift the level of ARPU.

Maybe I think -- I know that people worry about a few things here. One is 5G investment, how we get return. Second is on the trend of the pricing postpaid and prepaid. I just want to say that given the situation, I think short term, we'll have headwinds for sure from the closedown of the economy because of COVID. So I think short term, we may still face headwind on the ARPU. However, I think longer term, the trend is that we -- all 3 operators would like to push out the ARPU. And because of the potential new services are going to come, there's more opportunities for us to be able to service the consumer more. And then hopefully, they'll pay more for those additional services or better experience. I just want to highlight you one thing that on the flip side, we, as industry or a, in particular here, we don't see the increase in bad debt doing this very difficult past 6, 7 months. And that's something that we see as a positive sign. Even though you may feel it's kind of at a defensive play. But to us, we feel that if the normal services that we give to the consumer now becomes something that even in the hardship period, they still want to use it, they still want to pay for it, even though they may have to cut down some of the spending during this time. However, because we have more opportunity to service them in the future with additional services with some relevant services we can deliver through the mobile platform or the mobile channel. So hopefully, there will be more room or more business to do with the consumer in the future once the situation goes back to normal, which we know it will at some point in time. So hopefully, that could be something that can comfort investors that our business still very sound and very solid. On the iPhone launch for later this month or next month, ad spending, for sure, will increase a bit, but we will not do something that irrational. However, it's -- normally it's a peak season, the iPhone, the segment that people interested are still having good purchasing power, even though we have been a hardship for the last 2, 3 quarters, but those people still have money to spend. And with the tax benefit from the government, and the upgrade of iPhone to 5G, we do feel that this could be one of the opportunity that we don't want to miss. So for sure, we'll work very hard to make sure that consumers get to buy what they want to buy. And hopefully, we'll get more subscribers from other operators because of our better 5G network. In terms of the GAAP, it won't be easy to point to a few factors. Actually, it could mean many things because 5G, first of all, if you look at the spectrum alone, we and one of our peers have more or less the same spectrum, but we have a bit wider bandwidth versus the other one that rely on a different spectrum with different bandwidth. So I think that part could give a different experience in the beginning for sure because of the -- is like, do you have -- how wide is your road, right? Second, when you look at the way they set up the equipment or the [ RAM] part, which I believe that all [indiscernible] operators may not have the same setup. But I can't really comment on specific details because partly, I'm not a very technical guy. And we don't know the technical detail of the other party. But we feel that the way we set it up, is one of the best design that we could have. Then thirdly, you need to look at in the future, how we can sink different spectrums across the network to use for 5G. As I mentioned earlier, we're going to have 700 more onboard next year. The 900 that we have already how can we utilize the thousand 1800 and 2100 in the not so far future. So once we can utilize all those, then it's going to be a very different picture. And lastly, I think also the core network also make a very big difference. If you don't have a separate, what they call standalone 5G core network, then you won't be able to deliver the latency that 5G network can provide. A lot of time in the beginning, we start off with non standalone NSA. The latency will be based on -- still based on the 4G specification. So with 5G standalone, it costs a bit more. We'll see who have better design and who invest first and can have better coverage based on the standalone core network. I think with all those 4, 5 factors. And in the end, you'll see a difference in experience and the speed as the latency that the 5G eventually will provide. So it won't be an easy that we point to you that, okay, we have more of this and less of that so that we are better. I think it's not easy as that.

The last question will be from dial-in guest. [Operator Instructions] If no more questions, so we would like to conclude the call. Thank you for joining us for AIS Third Quarter 2020 Results announcement today.