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Sunset of Mobile BTO regime gives rise to a new era of TowerCo opportunities in Thailand: TowerXchange
Feature contribution to TowerXchange Journal (September 2015)
By Managing Director, AEC Advisory

As Mobile Build Transfer Operate (BTO) agreements conclude, Thailand appears to be on the brink of resolving long standing tower ownership disputes through the formation of what is likely to be three groups of tower companies. TowerXchange connected with AEC Advisory Co-Founder and Managing Director, Dominic Arena, who has extensive experience of working with operators, investors and government stakeholders, to understand who owns what, and what the future could hold for Thailand’s telecom towers.

Read this article by independent industry analyst TowerXchange to learn:

  • How the concession / BTO regime has hampered the development of Thailand’s telecom and tower markets
  • What we know about the structure of the three towercos which are set to resolve ownership disputes
  • Factors affecting the valuation of Thai towers
  • Co-location to date, the impact of current and future spectrum availability on demand for towers
  • The availability of fibre and grid power in Thailand, including the opportunity for renewables
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The Renewable Energy Revolution
Socio-economic multipliers will bring greater national benefits

By  Jaap Kalkman, Adit Harinasuta

AEC Advisory and Arthur D Little have proudly formed a go-to-market partnership for the ASEAN Energy & Utilities sector, with our first thought leadership focused on the Renewable Energy revolution in the context of Thailand's Power Development Plan 2015.

As highlighted in our analysis, there are 6 critical socio-economic cost-benefit factors which must be addressed in the energy debate, with the majority of these unequivocally in favour of Renewable Energy to resolve key issues such as uneven income distribution, farmers’ NPLs, jobs growth, currency depreciation & national energy security.

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Over-the-top (OTT) TV – or industry speak for digital TV programming and movies delivered over broadband networks using 3rd party applications – is changing the TV landscape like we have never seen before, thanks to pioneers such as Netflix and Hulu. In its short 7 year life to date, OTT has pushed traditional media players in all segments of the value chain to significantly change their go to market strategies, competitive tactics and even their core business composition.  At the center of this shift has been accelerating access to and affordability of high speed broadband and consumer devices (ie. OTT set top boxes, USBs and Smart TVs) which are enabling the OTT ecosystem.  


All of this is bringing about a structural shift in the Media value chain which starkly resembles the disintermediation of the film processing industry from the 1990s to early 2000s, when digital technology ultimately brought about the decline of household-name giants in image processing and consumer devices such as Kodak, and replaced them with new players riding the wave of technology change and consumer driven shifts in consumption.  Whilst to date the impact of OTT has largely been in developed markets such as the USA and Australia, we now see the perfect storm on the horizon for its mass market explosion across Asia.  So is the next 5 years emerging as the ‘Kodak moment’ for traditional media value chain players on a global scale, including Asia?

In this whitepaper AEC Advisory explores the growth and implications of OTT TV in Asia, especially emerging Asia, with a focus on the key drivers of OTT, its likely adoption timeframe and its potential structural impacts on the traditional Media sector including content producers, satellite (DTH) operators, subscription TV providers (CAB/SAT MSOs) and free to air (FTA/FreeTV) terrestrial channel operators.  Furthermore, this whitepaper highlights the support being given to OTT TV by Telecom Operators/ISPs as an important emerging customer retention / churn reduction tool.

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The Digital Economy drive in Thailand has generated significant interest from the private sector, who are keen to identify what it means for the Thai economy itself, its potential socio-economic impacts from an ASEAN regional standpoint, and importantly how they can participate in emerging investment opportunities in the Kingdom. 
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AEC Advisory's latest Insight was recently published by leading English language broadsheet Bangkok Post on 19th January 2015.  

Our analysis focuses on the strategic opportunities, growth profile and relative ease of doing business for investors within the markets of the ASEAN+1 region (ASEAN plus Greater China) which boasts a population of around 2 billion and accounts for around one-quarter of the global economy. 

Analysis by AEC Advisory exposes the two-dimensional reality of the region with its "forerunner" and "frontier" markets and further assesses these in the context of the recent World Bank "Ease of Doing Business 2015" report which evaluated 189 economies across 10 areas of business regulations from starting a business to cleaning up insolvency.

In the Forerunner group we place Singapore, Hong Kong, Malaysia and Thailand, which are relatively more developed and mature as investment destinations. This leaves the Frontier markets of Vietnam, China, the Philippines, Brunei, Indonesia, Cambodia, Laos and Myanmar, which collectively remain somewhat more complex for foreign investors to navigate.
AEC Advisory's Managing Director was invited by the Pacific Telecommunications Council to join an expert panel session exploring the topic of "Emerging Markets in SE Asia, which ones to watch" on 2 October 2014 at the TOT Academy venue in Nonthaburi, Thailand.  The event was held live at the venue and also streamed internationally to several thousand registered viewers.

Panelists at the event included senior representatives from Equinix, TE Subcom, Global Cloud Exchange, TransIndonesia Networks, and Ezecom Cambodia.  The panels were moderated by industry veteran Mr John Hibbard, former Managing Director of Telstra Global Wholesale.
During the panels, key markets for increasing telecom infrastructure development opportunities were discussed and highlighted,with a key focus on Indonesia, Myanmar and Thailand for metro fiber, backhaul, IDC/Cloud and international submarine/gateway connectivity/capacity.
These markets were highlighted due to their levels of development, relative scale and massive increases in bandwidth and IDC/Cloud demand from mobile and fixed broadband adoption.
AEC Advisory has published a Whitepaper based on recent analysis of the Thai Mobile market, highlighting the hidden value for investors in the sector due to discrepancies between reported and actual (estimated) subscriber penetration, ARPU and Prepaid:Postpaid mix.

Hidden value in the Thai Mobile Market - The Mobile Multiplier Effect


5 September 2014

Thailand seems to have an ever increasing mobile penetration which by official reports is now somewhere around 97 million SIMs or 144% population penetration, with monthly mobile spending steady at around 200 baht (US$6.35).  Whilst these figures show a healthy mobile sector, they also describe a mature and fully saturated mobile market where ARPUs, while buoyant, are relatively low along with low Postpaid penetration.

The reality is starkly different, and in fact the reported figures mask the true nature and latent opportunities of the market in which the real number of unique mobile users is far lower at around 54 million (Unique Customer penetration of 80%), average monthly spending (ARPU) is estimated as nearly double at around 358 baht (US$11.35), and Postpaid penetration is 5%-points higher at around 18%. 

Figure 1 – Thai Reported and Actual Mobile Users
Figure 2 – Thai Reported and Actual Blended ARPU
So how is it that reported market figures can be so far from reality, and what is the impact of this for potential investors looking at the attractiveness of Thailand as a new entrant MVNO or infrastructure player?

In addressing the ‘how’, it should be noted that overstating the number and penetration of mobile users is not unique to Thailand, and the reported number of SIMs in any market should not be interpreted as the number of unique customers.  However in Thailand the situation is exacerbated due to some key factors.  In combination, the factors below contribute to a massive overstatement of Total SIMs versus Unique Customers in Thailand by around 43 million SIMs (representing a Mobile Multiplier of around 1.8 on average):

i) 2G Concessions – which have created an artificial and rapid mass migration of customers to new networks with new SIM cards, leaving ‘phantom’ SIMs on the register;

ii) A high number of transient and regular visitors (26.5 million workers and tourists in 2013) – these tend to have long visits of 10 days on average, return frequently and therefore purchase a local SIM card which most then discard (some retain for next visit);

iii) High Churn rates between operators of around 2.5% per month – meaning an annual Churn pool of up to 30 million SIMs of which most customers do not ‘port’ their existing numbers to the new operator but acquire a new (nice) number; and

iv) Multiple device usage – especially tablet PCs in which Thailand has been one of the top regional sales markets over the past 1.5 years and where a new 3G SIM is often purchased by a single customer for their new device.

The Mobile Multiplier described above, which effectively describes the ratio of Total SIMs to Unique Customers and also the ratio of actual average spending per Unique Customer versus the standard metric of ARPU, is critical to the second question of how the overstatement of mobile penetration impacts the attractiveness of Thailand as a market entry opportunity for new investors.

Figure 3 – Thai Reported and Actual Prepaid:Postpaid mix
The reason is that the Mobile Multiplier is not the same for Prepaid and Postpaid; in fact it is far higher for Prepaid estimated at around 1.9 versus Postpaid at around 1.3.  This fact causes the entire mix of the Thai mobile market in terms of Postpaid and Prepaid to be quite different to that calculated from gross SIM figures (ie. Postpaid 13% vs Prepaid 87%).  As a result of applying the difference in the Mobile Multiplier, the estimated mix per Unique Customer in the Thai mobile market is Postpaid 18% versus Prepaid  82% - ie. a relative increase in Postpaid of 5%-points.  Whilst this may sound high, in fact recent market surveys (conducted in regional capitals around the Kingdom) put the Postpaid figure even higher at over 30%.

Looking further into Postpaid and Prepaid ARPU impacts, we can also see that the Mobile Multiplier effect shows increased Unique Customer spending (ARPU) on Prepaid from 140 baht (US$4.45) to 266 baht (US$8.45), and Postpaid from 600 baht (US$19.05) to 780 baht (US$24.75) per month.  Note that Prepaid monthly spending per Unique Customer shows an increase much higher than Postpaid, due to the difference in the Mobile Multiplier.

Figure 4 – Thai Reported and Estimated Prepaid vs Postpaid ARPU
For investors evaluating whether there is still latent potential in the Thai market for new entry opportunities, either as MVNOs or as Spectrum/Infrastructure-based Operators, we believe that the analysis does indeed highlight three facts:

1.       The Thai mobile market still has some room to grow;

2.       There are segmentation opportunities given market maturity and dynamics; and

3.       Its Unique Customer spending capacity and mix is far more attractive than may previously have been seen.

With MVNO licensing and host options in place, local partnership opportunities opening up and new spectrum allocations coming in the coming 12-18 months, we firmly see significant continuing potential in the Thai market for new investors.

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AEC Advisory's Managing Director was invited to contribute to the inaugural story for the incoming Editor of the GSMA's MobileWorld Live Magazine.  The full (unedited) article can be found here:

Myanmar ready to leap into 3G era
GSMA MobileWorld Live Magazine, 18 August 2014
By Joseph Waring

Myanmar is poised to leapfrog into the 3G era and move up from the bottom of the mobile penetration charts (10 per cent) after Qatar-based Ooredoo was the first of two foreign firms to launch commercial 3G service last Friday.

Ooredoo’s UMTS900 service now reaches an estimated 7.8 million people in 68 cities and towns. Its 3G network went live in early August in the country’s three major cities — Yangon, Nay Pyi Taw and Mandalay.

Telenor is expected to announce its 3G launch in September but has not yet released its precise plans.

Dominic Arena, managing director of AEC Advisory (based in Bangkok), told Mobile World Livethat together with the recent signing of the joint operating agreement between Myanmar Posts and Telecommunications (MPT) and KDDI-Sumitomo, the country’s mobile market is going to see an unprecedented period of expansion.

Ovum predicts that mobile connections in the country will grow 29 per cent annually over the next five years to 32.3 million. The country’s mobile penetration rate could soon surpass its electrical power penetration — according to Ooredoo only about 35 per cent of the population has access to electricity.

The Qatar-based operator has its work cut out to hit its target of reaching 25 million people, or about 38 per cent of the population, by the end of the year. The company announced earlier in the year it would spend $1 billion in 2014 to roll out 800-1,000 3G base stations to cover 30-40 per cent of the country’s population of 65 million.

It also has committed to spending $15 billion over five years to provide coverage to 97 per cent of the population.

Given that the biggest city has just over five million people and 75 per cent of the population lives in rural areas, that is a huge undertaking.

Arena said that the operators and tower companies are finding it far more difficult than anticipated to deploy new sites, with some reports suggesting only a fraction of 5,000 planned sites for this year have actually been secured, erected and commissioned into service.

Reasons include slow rental negotiations in a booming market and the inability to secure legal tenancy given land ownership and documentation challenges in Myanmar.

The challenge of site access, he said, possibly puts MPT-KDDI in a stronger position than its rivals Ooredoo and Telenor given its existing base of around 2,000 sites, allowing it to defend its market share better than expected.

The rollout comes more than a year after the Myanmar government awarded two full-service telecom licences to Ooredoo and Telenor. Myanmar will end up with four tier-one telecom players – including MPT and Yatanarpon Teleport Public Company (YTP) – all with strategic investment from foreign operators.

The tender process for awarding the mobile licences was widely praised for being transparent and signaled the government’s openness to foreign investment.

The Asia Development Bank said the country’s GDP grew 7.5 per cent in the fiscal year ending March 31. The bank is expecting 7.8 per cent growth over the next two years.

For more on Myanmar, watch our feature video.
AEC Advisory's Managing Director was invited to contribute to the Cover Page story for the June 2014 edition of Telecom Asia Magazine.  The full (unedited) article can be found here:

The evolution of telecommunications and why we have to change
TelecomAsia Magazine, June 2014


Globally major shifts have occurred in the telecommunications industry, and the impact in Asia is being felt with no exceptions.  All telcos, global, regional and domestic are adapting their businesses to these changes recognizing it as the way to generate sustained higher earnings for shareholders above Utility rates of return.

Fundamentally, the basic reference to our ‘telecommunications’  industry is being replaced by a broader market definition which includes both emerging and converging sectors such as digital applications and ICT services, digital media and content, and access devices & distribution.  Much like the evolution of other mature industries like Oil & Gas and Electricity, the industry value chain of what we may call ‘Telco 3.0’ today is now firmly divided into three distinct or de-coupled parts:

Upstream [Digital Applications & Services] <-> Delivery [Ubiquitous, Lean and Intelligent Infrastructure / Platforms] <-> Downstream [Access Devices & Distribution]

Traditional Telecommunications has become a commodity, very much resembling a Utility, with the bulk of value creation and innovation occurring not in Delivery but in Upstream and Downstream phases.  Breaking it down we can foresee that Upstream and Downstream sectors of Telco 3.0 will see market revenues grow at up to 5 times faster than that of Delivery infrastructure over the coming years, with some Upstream sub-sector growth rates exceeding 25% compared with 5% for Delivery alone.

For examples of this look no further than at your own device(s) – virtually none of the applications you use today, apart from basic voice calling and internet/data carriage, are developed by your telco or earn incremental revenue for them.  If you are like most mobile users in Asia spending ~40% of your bill/credit on data, your device will be running Line, Facebook, Instagram, and several other OTT applications including music and video content – nearly all of which were not produced by telcos and for which expenditure on the app and in-app purchases is going to an ‘Upstream’ publisher, with the data carriage (the portion paid to the telco) being mostly provided at a flat rate.

The shift of value and de-coupling in the industry from ‘Delivery’ to ‘Upstream’ means traditional ‘telco-centric’ approaches to product development is no longer appropriate to generate competitive returns for shareholders, so tapping Upstream opportunities is needed.  Telcos are therefore adapting in three key ways as a means of remaining relevant, competitive and profitable:

1.       Restructuring the organisation and culture into a Customer Segment centric model supported by a lean, ubiquitous and intelligent Delivery network, with an Innovation Factory driving investments and strategic partnerships with developers and solution providers to offer ICT applications and services to target customer segments - leveraging benefits in innovation, sales, delivery and support (especially for Enterprise verticals).  Telcos also acknowledge the notion of ‘non-network customers’ for new digital applications / services of the telco (eg. mobile advertising, e-commerce portals).  Axiata for example has created new Chief Digital Services Officer roles and organisation in the Group and OpCos.

2.       Proactively managing the digital investment portfolio (Upstream), whereby strategic management focus is on new investments and (independently operated) Joint Ventures in Upstream opportunities which position the telco for maximum competitive advantage by providing access to innovative people, applications, services and technology on which to build ICT applications and solutions.  Examples of ‘Upstream’ Venture Capital-style models on a global level include Orange in Europe (JV with an experienced VC), Singtel (Innov8Sparks) and Ooredoo Group in Southeast Asia (Asia Internet Holding JV), and Intouch Group (INVENT and AIS The Startup) domestically in Thailand.  Some operators like Axiata and SK Telecom have formed a JV (elevenia) for e-commerce in Indonesia, and others have even focused on investing in specific high growth segments as spin-off companies such as Machine To Machine (M2M, growing at 25% CAGR) - with examples such as ‘Telenor Connexion’ in Europe and DiGi in Malaysia who partnered with MY Evolution to launch Malaysia’s first M2M MVNO.

3.       Innovation in Distribution and Affinity/Niche Segmentation (Downstream), meaning that the telco forms Joint Ventures with specialists in certain segments or sectors who can better operate the market facing business, possibly as a Mobile or Broadband Virtual Network Operator (MVNO or BVNO).  Examples of this include Celcom Axiata in Malaysia who invested in Merchantrade (MVNO hosted on Celcom) who targets a specific customer segment complementary to their own.  Telco ‘O2’ has done similar in the UK with Tesco Mobile becoming a hugely successful JV with over 4 million customers today and expanding to several countries.

Today, it is clear the telecommunications sector continues to have high growth potential by tapping Upstream and Downstream opportunities.  Innovative telcos are already adapting to share in this growth and remain relevant under the new Telco 3.0 reality.
 

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