BANGKOK – Thailand’s CP Group and Norway’s Telenor confirmed Monday that they had agreed to explore the creation of a joint telecom-tech company fusing their respective Thai telecom affiliates – True and DTAC – on an “equal ownership” basis, ending months of market rumors that a deal was afoot.
“The new company will be based on the principle of equal ownership,” said Sigve Brekke, president and CEO of Telenor Group and the former CEO of Total Access Communication Plc (DTAC), 65% owned by Telenor and one of three mobile phone services operating in Thailand for the past two decades.
The other two mobile phone service providers are Total Access Communication (AIS), currently owned by Thailand’s Gulf Energy Development Company, Singapore Telecommunications Ltd and Temasek Holding. True Corporation is 50% owned by the CP Group – Thailand’s largest agro-conglomerate with vast holdings in retail and other sectors – and 18% by China’s state-owned China Mobile.
If the US$8.6 billion True-DTAC merger materializes, it will leave Thailand with only two players in the strategically important sector for Thailand’s digital future and overall competitiveness on the world market.
The planned merger has also raised questions about “market dominance,” or near-monopolistic control over the fast-growing telecom service sector, which has gained in economic importance since the advent of Covid-19 with the resulting lockdowns, work-from-home mandates, home-schooling and take off in e-commerce.
“The merger of True and DTAC will definitely lead to increased market dominance by the new company,” said Pavida Pananond, professor of international business at Thammasat Business School in Bangkok. “The telecommunication market will become more concentrated with only two players instead of three,” she said.
To what extent the new joint venture between True and DTAC will dominate the future market is likely to be a hotly debated topic. Stock analysts note that True currently has 32 million mobile subscribers, DTAC has 19.3 million and AIS has 43.7 million.
That would leave the pending True-DTAC joint venture with about 54% of the market, compared with AIS’s 46%. But Telenor’s Brekke was quick to provide a different take on the market share issue.
“The companies’ combined will have a revenue market share of a low 40%, so something similar to what our Big Brother AIS has today,” Brekke said. “That’s when you are looking at the total revenue from mobile and fixed line businesses in Thailand,” he elucidated.
Of course, fixed line revenue has no future in Thailand, whereas mobile phone access to new technologies such as 5G, artificial intelligence (AI), Internet of Things (IoT) and Cloud technologies are the future.
Brekke was also quick to point out that AIS is considerably more profitable than either True or DTAC on the Thai market. “AIS is still our Big Brother when it comes to profitability and the way they are running their business,” he said.
AIS is expected to achieve a net profit of 26.6 billion baht ($80 million) in 2021, compared with DTAC’s 4.3 billion net profit and True’s 1.7 billion baht net loss, according to stock analysts, many of whom are generally upbeat about the merger.
“We see it as a win-win solution for both DTAC and True, as it will benefit the mobile service operators in the longer term via reduced pricing competition,” said a recent Bualuang Securities report. “DTAC will have convergence synergies from True and access to FBB (fixed broadband) and pay-TV/content businesses while True will gain higher market share indirectly,” said the report.
True has invested heavily in 5G technologies via bids on state auctions for concessions, but the popularity of its new upgraded mobile service remains largely untested. DTAC has been more conservative in its expansion, and thus more profitable.
“If the transaction proceeds, it will consist of a voluntary tender offer (VTO) subject to satisfaction of conditions for all outstanding shares of DTAC and True, followed by the amalgamation of DTAC and True creating a new company,” said the Telenor statement.
“The VTO price for DTAC will be 47.76 Thai baht, which represents a 25% premium to the one-month VWAP (volume-weighted average price) for True shares. And the VTO price for True will be 5.09 Thai baht, which represents a 25% premium to the one-month VWAP for True shares.”
The proposed merger will have to pass the regulatory sniff test first.
Brekke noted that the deal would undergo a due diligence process that would continue until 1Q22, after which they would consult the various regulators – Stock Exchange of Thailand (SET), the National Broadcasting and Telecommunications Commission (NBTC) and the Securities Exchange Commission (SEC).
They will not need to seek the approval of the Thailand Office of Trade Commission (OTCC), since telecoms do not fall under the anti-trust unit’s mandate, sources at the Bangkok-based Thailand Development Research Institute think tank said.
OTCC, set up to prevent monopolies and single companies from exerting “market dominance”, failed to impress observers with its handling of a similar case last year involving CP’s $10 billion acquisition of the UK-based Tesco hypermarket chain in Thailand.
On November 5, 2020, the OTCC ruled that the acquisition did not give CP Group undue “market dominance” over Thailand’s “hypermarket retail sector”, while critics say the decision overlooked the bigger picture of its overall dominance of the wholesale-retail sector via Makro cash-and-carry stores, more than 12,000 7-Eleven convenience stores plus the Tesco network.
“The OTCC should be more forward-looking in the changing nature of competition when industry dynamics are blurring the lines between market segments,” said Pavida of the Tesco ruling.
The same advice could be proffered to the NBTC, which will need to determine whether the pending True-DTAC tie-up will lead the way to its dominance over mobile service operations and, more importantly, the various digital services and products that depend on them.
“The new company will focus beyond the telco sphere,” said Suphachai Chearavanont, CEO of the CP Group. “We want to focus on AI, on the digital media platform, the Internet of Things, Cloud technology and what we would like to explore further is space technology.”
If that goal is fulfilled, the new company’s revenues will be coming from a lot more sources than just SIM cards, and tracking its market dominance in Thailand’s emerging digital economy will become a lot more difficult than it is now.