TowerXchange’s guide to the telecom tower market of Thailand

For those looking in from the outside, the Thai telecoms industry is crying out for infrastructure sharing. Alongside Vietnam, Thailand remains the only large ASEAN market to have yet been penetrated by the towerco model, which for a nation of over 70 million people and 129.6 million sim registrations represents a missed opportunity for Asia’s towercos.

With rumours swirling of a significant 20,000 tower infrastructure sale on the horizon, there is optimism that this is about to change. But how likely is it that an independent towerco would be able to survive, let alone thrive in the complicated Thai market? TowerXchange presents our guide to the telecom tower market of Thailand to help illuminate some of the opportunities and pitfalls that infrastructure providers should be aware of.

This question is not as simple to answer as it would be for other markets. Tower ownership in Thailand has been disputed for some time.

This all started in the 1990’s with the concession/ build operate transfer (BOT) regime. Whilst at the time it probably seemed like a reasonable approach, offering private, efficient companies the chance to build important infrastructure using the spectrum rights and licences of the inexperienced and inefficient State Owned Enterprises – it is fair to say that the development of the mobile market in recent years has actually been hampered by this concession / BOT regime as they entered their sunset years.

Under the regime, 25-year concessions to build and operate nationwide 2G networks were given to three mobile operators – True (now owned by CP Group and China Mobile), AIS (now Temasek/Intouch and SingTel) and DTAC (Telenor plus local investors).

In return for the concessions, the operators entered into a 20-30% top line revenue share agreement with the state-owned concessioners – CAT Telecom (for the 850 and 1,800MHz bands) and TOT (for the 900MHz band) and committed to return the ownership of their ‘networks’ to the state agencies.

However, as these concessions expired between 2015-2018, the suboptimal design of the BOT concept became apparent.

Between the 1990s and the mid-2010s, the long-term value of network assets, especially towers and transmission, became far more apparent which led to the operators not wanting to give ownership (and operational management) of their network back to CAT and TOT.

The 2G active equipment itself had little value, but the towers and other passive assets still have considerable retained value. Since all the customers remain with the private operators (who have all now purchased licensed spectrum and also built some of their own towers outside of the concession regime) they wanted to own and operate those assets, and argued that passive assets such as the towers did not constitute ‘network equipment’ to be returned under the BOT.

The initial response of both the operators and the state owned entities (SOEs) was enter into a legal dispute processes to resolve the ownership issues, however given Thailand’s ambiguous BOT contracts, complex legal processes and many layers of telecommunications related laws there was little chance of any agreements being reached for several years, leaving the entire industry in limbo with billions of dollars in stranded assets and billions more in duplicate investment being planned and deployed.

In 2015, a consensus was reached that a commercial solution rather than a legal solution was the only way to resolve the ownership disputes.

As a result, all operators, private and SOE, were negotiating and putting in place agreements to release their tower assets into joint ventures in order to avoid stranding those valuable assets and wasting more capital, while at the same time providing a means for the nearly bankrupt SOEs to enjoy some sustainable long-term revenues to cover large employee welfare entitlements.

It’s fair to say that there was optimism in 2015 that three towerco-adjacent entities would be established, but this never came to fruition.

The only non-MNO or SEO entity to own Thailand’s towers is the Digital Infrastructure Fund (DIF), which was listed on the Thai stock exchange by True in December 2013. Between the IPO and 2015, TRUE and its subsidiaries AWS and BFKT transferred ownership and the rights to revenue from 11,845 towers into DIF, alongside over 1 million km of fibre optic cable and transmission.

Two joint-venture towercos were also proposed. DTAC were negotiating with an agreement with CAT for their 11,000 towers under concession in return for the cancellation of all ownership disputes, while DTAC were in similar negotiations with TOT for their 12,000 towers under concession.

The Joint Ventures only included 2G towers built under the concession regime, and did not include the 800 3G towers built outside of the regime at the time by DTAC, nor the 10,000 built by AIS.

2015 saw True transfer the rights to revenue of a further 338 towers to DIF, to give the fund a total of 12,183 towers. As such the predicted tower ownership landscape of Thailand at the time was as shown in figure 1:

Unfortunately, neither of these JVs were established, and legal proceedings between CAT, TOT and the MNOs dragged on until the turn of the decade.

In August 2020 CAT separately reached settlements with TRUE and AIS in the same week, which involved a sale and leaseback transaction between CAT and AIS for 155 mobile towers. The deal was dated back to July 1st and runs until September 2025, with AIS providing maintenance and services on the assets over the course of that time.

AIS also settled its disputes with TOT in September 2019, when the two parties agreed to a usage fee covering space rental and maintenance service at 13,198 towers with TOT securing rental income from the sites.

DTAC and CAT reached their agreement even earlier in January 2019, with the Telenor backed MNO paying THB9.51 billion ($296 million) to essential end the disputes.

The results of the settlements meant that the TOT and CAT, who merged in early 2021 to form National Telecom (NT).

During this time, TRUE transferred a further 499, 2,589 and 788 towers in 2017, 2018 and 2019 respectively to DIF, which has brought the fund to its total today of 16,059.

Outside of the BOT regime, it is estimated that AIS have built and now own approximately 22,000 towers, DTAC own 10,000 towers and TRUE own around 4,000 towers that they have not transferred to DIF. Which brings us to the estimated tower ownership in Thailand today:

Wow. That was confusing. And long. So what’s the current state of play today?

I promise this will actually be brief. Currently, AIS has the largest subscriber base in Thailand with 46 million mobile subscribers and 6.8 million of these paying for a 5G package. AIS claim in their 2022 annual report that they cover 85% of the population. Singtel directly own a 23% stake in AIS and are themselves a shareholder of AIS’s largest shareholder and holding company Intouch Holdings. Intouch own a 40% stake in the MNO.

TRUE report 33.8 million subscribers, putting them in second place and DTAC are currently third with 21.2 million. However, things could be about to change due to a proposed merger between DTAC and TRUE essentially creating a duopoly in the market. Currently, TRUE covers 80% of the market with its network, while DTAC lags behind at just 40%.

DTAC is a subsidiary of Telenor, while TRUE’s largest shareholders are CP Group (49%) and China Mobile International Holdings (18%). Telenor has recently exited its Myanmar investment, and is planning a merger in Pakistan, so appears to be winding down its Asia presence.

Infrastructure sharing (or lack thereof) in Thailand.

Parallel infrastructure in Thailand is significant, and it is not uncommon to see three towers right next to one another, each with a single tenant. Across the country, it is anticipated that the tenancy ratio is probably close to 1.01x.

DIF has signed an agreement with DTAC to rent space on the towers they own on behalf of TRUE, but DTAC are currently only present on 2-3% of sites. The remainder of the portfolio is solely occupied by TRUE.

Market observers believe there are a few reasons for this. Firstly, infrastructure sharing in Thailand in general has been limited due to the exclusive access rights that were included in the BTO regime. DIF is considered non-telco by regulator National Broadcasting and Telecommunications Commission of Thailand (NBTC) and while it has the right to lease up the towers owned by TRUE, a lack of a culture of sharing, and a lack of trust brought about by the BTO regime has led to less than lukewarm success.

Furthermore, compelling market conditions for AIS to co-locate on DIF towers are non-existent. AIS have the strongest network in the country and already have coverage in the vast majority of locations where they would be able to co-locate. Having built their network entirely independently and the good fortune to have a strong balance sheet they do not have a reason to work with DIF. Market observers believe that AIS consider building their own towers to be a more economic alternative to paying rent to DIF.

Thirdly, the initial 30,000 or so 2G towers that were built under the BTO regime and are now owned by National Telecom were all in key locations that operators wanted to monetise immediately. The vast majority are high value sites in high traffic areas, which partly explains MNOs unwillingness to relinquish them. But a side effect of this is the residual build from TRUE that formed the DIF are in less appealing locations, so demand for co-locations is lower.

The Thai market has been quiet from an M&A perspective outside of settlements made between CAT, TOT and the MNOs or TRUE’s transfer of towers to DIF between 2015-2019.

But 2023 could be the year that is about to change. There are reasonably compelling arguments that we could see a change in ownership of all three MNOs towers in the coming years. But don’t get too excited yet APAC towercos!

Firstly, rumours have been swirling in the market that AIS has held talks with potential advisers for a strategic review of its assets, which could fetch the MNO between US$2-3bn.

In August 2021, head of investor relations Nattiya Paopongsakorn, said AIS was studying the prospect of raising funds by spinning off its telecom towers and other assets. This would fall in line with shareholder Singtel’s review of its infrastructure assets across its portfolio as it seeks to take an “asset-light approach.”

There has reportedly been interest from international infrastructure providers in the towers, but analysts TowerXchange has spoken to consider it is more likely that a DIF adjacent listed infrastructure fund would be created to manage the assets.

As mentioned, AIS has a strong balance sheet and the strongest network in the country. With this advantage, but fiercer competition than ever before with the proposed DTAC/TRUE merger it has strongly opposed in Thai courts, some seem sceptical that now is the right time to carve out assets and make them available for co-location to the new entity.

In a healthy financial position, others have questioned why AIS would need to raise the cash. They are too large to acquire one of the other networks domestically and ventures into fixed broadband were relatively cheap. It is unlikely that AIS would be able to expand overseas either.

However, local power company Gulf Energy Development took a hefty 23% stake in parent company Intouch in 2021, and could see a tower sale as a potential opportunity to recoup their investment.

The tower assets are considered to be undervalued sitting within AIS compared to the dividends, trading multiples and rental yields of DIF. Coupled with Singtel’s experience selling towers in easier markets such as Australia and Indonesia, and the increased valuation of towers driven by hungry private equity backers and we could start to be seeing a clearer picture.

AIS have declined to comment on recent news.

A further sale could also be coming from TRUE, but this one would be more expected and less ground-breaking.

No towers have been sold by TRUE to PIF since the start of the pandemic in early 2020. Due to the operational complexities that was added due to that time, it was easier for TRUE to sell units in DIF rather than sell towers to them to raise the cash they needed. Since merger talks became with DTAC there has also been a pause in tower transfers.

If the merger is to proceed, it is expected that around 5,000 towers will be decommissioned, due to crossover in the two MNOs existing networks, and no towers will be sold until one year following the completion of the merger.

Ture have been building between 1,000-1,500 sites a year since 2019, which takes them to the 4,000 or so they now own. These towers will in time no doubt be sold to DIF, perhaps at a higher price as the merger outline dictates both the TRUE and DTAC networks must be run separately, which would lead to the assets sold to DIF having a higher tenancy ratios that the 1x ratio on previously sold towers.

Post-merger it also seems likely that DTAC could sell their 10,000 or so tower assets to DIF as well.

While DIF and National Telecom own around half of the towers in the country, all operations and maintenance duties remain with the Thai MNOs. Fortunately, Thailand is a relatively straightforward market to operate towers.

The main challenges tower builders face are administrative. Under the current legislation, new tower building requires an environmental assessment by government officials, and on the ground, MNOs need to have close relationships with local administrations or else outsource this task to local private agencies to cope with the permitting requirements and nuances across municipalities.

Thailand’s grid is strong with the vast majority of tower sites drawing primary power from the grid.

Thailand’s MNO’s have all subscribed to the GSMA’s targets of net-zero by 2050 and as such onsite renewable power generation projects have begun, although the vast majority of these are confined to AIS, who have either deployed or plan to deploy solar panels at between 3-4,000 sites.

TRUE and DTAC are waiting until their merger is completed to review which sites they will keep before investing the capex in any new systems.

Thai MNOs are far more likely to partner with local firms on construction, energy equipment and other related products to support the operation of their towers, but TowerXchange is aware of a handful of international vendors who have customers in the market.

In early 2020, EDOTCO signed an agreement with CAT and a network infrastructure provider to collaborate in the development of shared network infrastructure for 5G rollout, although there has been little news on the Malaysian-based towercos activities since.

American Tower also expressed Thailand as a target for its expansion beyond India, but again little is to come from their ambitions.

Local firm ALT Telecom attempted to pioneer a tower sharing model in Thailand, signing a deal with a petrol station owner to build sites on their land. However the initiative was met with contempt from the countries MNOs, who preferred to build their own towers on adjacent land rather than rent existing towers.

As previously mentioned, it seems more likely that AIS would follow the DIF’s model of creating a listed infrastructure fund, rather than selling to a towerco. While AIS would likely get a better price selling to an international tower company, there would be a financial burden in terms of securing a licence from the regulator, and would likely be forced to pay dues that the DIF is excluded from due to its non-telco status. There are also restrictions on foreign investors in Thailand which would further increase the cost of ownership. Tax benefits on the rentals paid to DIF are also present, as the structure of the fund excludes this.

There are signs that this process is in motion. AIS has already acquired a fibreco named Jasmin and have bought a 19% stake in an infraco called JASIF. In theory, AIS would be able to transfer their towers into Jasmine and sell them to JASIF, which is well leveraged and has little debt.

If participating in a sale and leaseback is off the cards (although this is not for certain) then towercos could find a way to still reap the benefits of the highly promising Thai market.

Considering the coverage of the main operators and their success in signing up 5G customers in major urban hubs, 5G capex is likely to taper off going forward with a fresh capex focus on network densification to serve ongoing growth of data consumption demand in density areas.

Tower fiberisation has been well established in Thailand given that most fiber is aerial rather than underground. FTTX coverage is about 12-15mn homes out of 20-22mn total households.

Local demand for data centres has also been quite strong on the back of the corporate data transformation trend, in which the local demand is well captured by telcos and mid-sized system integration providers.

The new demand is clearly coming from the hyperscaler data centers, considering their supply relocation from Singapore. Also, private network demand is gaining traction with all three MNOs setting up a new department to focus on this new business. MNOs are keen to partner with third parties to help them capitalise on the demand that is being driven by Thailand’s manufacturing and industrial sectors, which are experiencing a rapid technological transformation.

The MNOs are working with real-estate developers who are building and leasing ready-made plug and play industrial estates to the nations industry. Under this concept all utilities and infrastructure are provided by the developer, and Thailand’s MNOs have seen an opportunity to partner with these organizations to provide network connectivity services.

Similarly, private networks are being built for consumers in Thailand’s domestic real-estate market. New high-end condos in Bangkok are finding fast reliable internet connections to be a strong selling point for their new developments, and are keen to partner with MNOs to increase the value of their properties.

Supporting these ambitions could be a more logical and likely route into Thailand than a large-scale tower transaction.

In summary, the Thai markets representation of being rather opaque and complex is well deserved. But despite setbacks in the past, infrastructure sharing could be about to take off. To what extent Asia’s towercos are involved in the journey is yet to be seen.