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Edited Transcript of ADVANC.BK earnings conference call or presentation 27-Apr-17 11:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Advanced Info Service PCL Earnings Call

Phayathai May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Advanced Info Service PCL earnings conference call or presentation Thursday, April 27, 2017 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Nattiya Poapongsakorn

Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance

* Somchai Lertsutiwong

Advanced Info Service Public Company Limited - CEO, CMO and Director

* Sunitaya Shinawatra

Advanced Info Service Public Company Limited - CFO

* Weng Cheong Hui

Advanced Info Service Public Company Limited - President and COO

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Conference Call Participants

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* Arthur Pineda

Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research

* Colin McCallum

Crédit Suisse AG, Research Division - MD

* Fraser Smith

JP Morgan Chase & Co, Research Division - Analyst

* Gabor Sitanyi

Charlemagne Capital (IOM) Limited - Fund Manager

* Gopakumar Pullaikodi

Nomura Securities Co. Ltd., Research Division - Regional Head of Telecommunications Research

* June Supapannachart

Goldman Sachs Group Inc., Research Division - Research Analyst

* Narudon Rusme

* Pisut Ngamvijitvong

CIMB Research - Analyst

* Prem Jearajasingam

Macquarie Research - Analyst

* Supachai Wattanavitheskul

* Thapana Phanich

Deutsche Bank AG, Research Division - Research Analyst

* Thitithep Nophaket

Phatra Securities Public Co. Ltd., Research Division - Telecom, Media, Beverage and Commerce Analyst

* Youssef El-Khouri Abboud

UBS Investment Bank, Research Division - Director and Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Advanced Info Service First Quarter 2017 Result Announcement Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 27 April 2017.

Now I would like to hand the conference over to your first speaker today, Ms. Nattiya, Head of Investor Relations. Thank you. Please go ahead.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [2]

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Thank you. Good evening, and welcome, everyone. First of all, let me introduce the management with us today. Our CEO, Khun Somchai.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [3]

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Good evening.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [4]

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Our President, Mr. Hui Weng Cheong.

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [5]

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Hello.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [6]

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And CFO, Khun Sunitaya.

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Sunitaya Shinawatra, Advanced Info Service Public Company Limited - CFO [7]

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Hi.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [8]

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Let me begin with some brief and then we will go to Q&A. First of all, on mobile, we continue to build on the leadership for mobile data, and we have continued to invest for better customer experience. Now our network is nationwide 4G, and we have deployed 2-CA and 3-CA technology in some key cities area.

In addition, the 4G handset penetration now has continued to increase and reach about 35% of the total base as the 4G device is pretty much a wide range from mid-tier to high end. While there are many handset campaigns offered to bundle with a fixed ARPU from THB 399 per month in this range up to about THB 899 per month for the high end.

Also, that has also drive the data consumption to now 4 gigabytes per sub per month. This has been also helped by [mobile] consumption through the OTT applications and also through our own platform.

Overall, on mobile, we have seen a reduction in subsidies on prepaid and continue to focus on the competitive postpaid subsidies and the price packet, including the new launch of the unlimited plans in this quarter for the high end and that's at the THB 899 per month.

Meanwhile, the market competition has remained fairly active with subsidies and pricing. So that's on mobile.

On fixed broadband, midterm, we continue to focus to be a significant player in the market. And we now have coverage in 28 cities and will continue to increase the utilization within the existing area that we already have.

This year, the focus rather will be focused a lot more on quality subscriptions with less deep discount pricing as we offered last year. So without that special discount, we actually have seen a net adds of 72,000 subscriptions within this quarter and also an ARPU improvement of 6% Q-on-Q and now we have a reported fixed broadband ARPU of THB 541 per month.

On digital content, as you have heard, during the quarter, we've launched several new exciting contents on -- for both mobile and fixed platform such as the HBO, Warner, FOX, NBA and the newest one Vie, which is the Korea series.

Overall, in terms of our results, the service revenue grew about 4% year-on-year and this is in line with our full year guidance of 4% to 5% top line growth. Within this 4%, the mobile has grew about 2.6%. So the rest is from fixed broadband. Cost of service has been fairly stable Q-on-Q. This quarter, same as last quarter, it already fully reflects cost of TOT partnership. And the key one would be on SG&A, which you should see a significant decline, both Q-on-Q and year-on-year. That dropped about 30%, mainly from lower handset subsidies. And that has helped improve our EBITDA, both Q-on-Q and year-on-year, and also our NPAT as well.

The EBITDA margin landed about 44.6%. That's in the high-end range of our guidance of 42% to 44%. So for the full year, we still remain the same guidance. The main factor that will drive the margin, we believe, will be the market competition.

NPAT is up 19% Q-on-Q but still down 4.6% year-on-year. Overall CapEx, we have spent around THB 11.5 billion within the first quarter, and this is also in line with the guidance full year of THB 40 billion to THB 45 billion.

Additionally, some key issues to highlight is that the new NBTC Act has been approved by the National Legislative Assembly already, but this is still awaiting the official publication in the Royal Gazette. This will basically kick-start the selection process of the new NBTC, which is important to the future spectrum master plan. The existing spectrum master plan is expiring and the new spectrum master plan, which will work for the next 5 years, will be the key task for the new NBTC.

Second thing is on the 2.3 gigahertz, which TOT opens up for proposal. Currently, TOT is in the evaluation process, and potentially, we could see further development, hopefully, within the next 1 to 2 months' time.

So that's all for the brief. We like to now open the line for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Gopakumar from Nomura.

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Gopakumar Pullaikodi, Nomura Securities Co. Ltd., Research Division - Regional Head of Telecommunications Research [2]

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Two questions. Firstly, why is the postpaid ARPU down so much? Can you talk a little bit on the competition and the pricing pressure here? In prepaid also, you've seen some subscriber losses. How much of that is due to competition? So are you [specifically] seeing true aggressive in the rural areas on the 900 megahertz spectrum? So is that one reason why you have no subscribers there? And thirdly, a related question to the competition, given these unlimited price plans in the market, is there a risk of capacity constraint in terms of your network spectrum? So is that the reason why you have applied to -- for the TOT's 2.3 gig? Lastly, on the cost side, would you be willing to spend more on content to gain market share? If so, are there any areas where you can save some costs and maintain your margins or achieve the guidance?

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [3]

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First question on postpaid ARPU down, we do see a higher pickup on postpaid. So net-net, we do see a drop in the ARPU as we are (inaudible) into the mid end of the postpaid. (inaudible) this quarter, as you know, we have not been very aggressive in handset subsidy for the prepaid segment, resulting in less customers. And there's [also] the inactive customers arising from our Big C promotion in the last quarter. So both of this contributed to the lower customer -- sorry, to the higher [churn]. And last, but not least, it's also because of the previous postpaid [migration] to (inaudible) resulting in less prepaid customers for us. On the unlimited postpaid plans, in terms of the situation, some [improvement], we do not see any impending capacity constraints yet because we do have insufficient capacity that we built up in the last quarter and in this quarter. We do see it this year. But we are closely monitoring the capacity issue and if there's a need, we will be actually increasing the capacity of the network. On content cost, yes, we'll be looking at other content which may result in increase in costs. But at the same time, the organization is also embarking on the cost transformation and efficiency program. The objective is to see where we can reduce waste and what area can improve the efficiency of processes. So these activities will result in a positive impact on our cost structure.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [4]

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Let me add on. As you know, today, we compete on the network quality and also the pricing. [AIS] had another angle that's really strong into [other service] like cost center or our [shops]. Now we try to differentiate our sales to get away from that type of pricing competition and also handset subsidy by differentiate our sales in the content. Now we have the HBO on hand and also some Korean TV that's (inaudible) in Thailand. I think maybe in the next 2 quarters, this type of differentiation on our side will be made up more stronger in the another angle [for the chart] also.

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Operator [5]

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The next question comes from Youssef Abboud from UBS.

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Youssef El-Khouri Abboud, UBS Investment Bank, Research Division - Director and Research Analyst [6]

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Actually, my question was similar to the previous question. I just want to understand, just follow up quickly. Going forward, would the handset subsidy strategy remain in place? Are we seeing the saving cost from lower handset subsidy have peaked in Q1? That's it. That's my question. What's your tolerance for -- what's your tolerance -- I mean, what's your tolerance for the [share] rate in your prepaid customers to continue? At what level you will come back and start to give more handset subsidy? That's my question.

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [7]

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Well, of course, we are monitoring the market. Currently, what we have been focusing on for handset subsidy is on the prepaid segment for the high end and mid end. First quarter, we have refrained from handset subsidy for the prepaid, but we do some subsidies for upgrading existing 2G to 3G handset customer. But those are lastly for the high ARPU customers. For the normal 2G handsets, we are -- we have stopped upgrading them. Regarding the situation, we will continue to monitor, and if the market continues to be aggressive, we may need to adjust our approach.

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Youssef El-Khouri Abboud, UBS Investment Bank, Research Division - Director and Research Analyst [8]

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Okay. And regarding the pricing, unlimited data pricing, I mean, I know you just announced it recently. What's the initial impact? Are you trying to -- I mean, are you -- how is the impact so far on your market share? And were you able to bring customers, attract customers from your competitors, especially DTAC?

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [9]

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It's still too early, but we have seen positive effect, less of customers (inaudible). We also do see customers who are on the lower package price moving up into the THB 899. So in that sense, that's also a positive impact on our existing customers who are moving from a low-end package to a high-end package.

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Operator [10]

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Your next question comes from Colin McCallum from Crédit Suisse.

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Colin McCallum, Crédit Suisse AG, Research Division - MD [11]

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Just a quick one on the follow-up really, I suppose, on the unlimited plan. I always get a bit nervous when I see unlimited. Are there -- I realize it's a high price, so it's an ARPU uplift. But are there any kind of safety mechanisms in place to protect the network? For example, is there a fair usage after a certain number of gigabytes? Or what are your safety valves to make sure that the network is protected and that we don't end up encouraging everyone else to go onto unlimited as well?

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [12]

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We do not have specific amount of data for fair usage, but we do put a caveat that for such unlimited plans, you can use services like BitTorrent and others which are not in the normal way of usage.

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Colin McCallum, Crédit Suisse AG, Research Division - MD [13]

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Got it. And does everyone else -- do the other 2 also have some sort of unlimited plan in the market? In other words, you didn't want them to be able to claim the branding, if you like, of unlimited? Is that another reason for doing this?

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [14]

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It's more of a development in the market. So the market has moved on to unlimited plans, and we need to be competitive to compete.

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Operator [15]

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Your next question comes from Thitithep from Phatra.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Telecom, Media, Beverage and Commerce Analyst [16]

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I have 3 questions. The first one is that if you look at your net add, you had very high net adds in the fourth quarter when you did aggressive the handset campaign, and then it turned into net loss in the first quarter when you slowed down in the handset subsidy. Is it fair to say that the customer that you acquired through the handset subsidy, I mean, there's no stickiness? They can go to other network anytime they like. Is this fair to conclude that? That's my first question. Number two, you have done so much in terms of network expansion and then the content acquisition. But then when I look at your -- the growth in the [PO mobile], if you strip out the fixed broadband revenue, is decelerated from 4% in the fourth quarter to 2.6% this quarter. Is that below your target? And is that deceleration because of the competition? And then the last question is that, do you disclose the subsidy budget that is included in the marketing expense? I cannot find it in the MD&A.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [17]

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For the handset subsidy, last year, because of we had the one big project with Big C that (inaudible) handset fee that we've done with a partner, Big C. So at that time, we had not (inaudible) quality of the subscriber. I think normally, like our competitor (inaudible), this kind of [fee can also can churn it] out real easily. But for the normal handset subsidy on 2G to 3G, which we do by ourselves (inaudible) should be more tougher to select that quality customer on our hand. So the thing that happened in the fourth quarter, that's prepaid (inaudible). It [happened] only for the [Big C] campaign and that's more important thing. I think from now on, this kind of thing should not happen again because we don't have that type of big campaign because on the Big C, I think more than 1 million, 2 million handsets [throw out] in the market. That's (inaudible).

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Operator [18]

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And the next question...

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Sunitaya Shinawatra, Advanced Info Service Public Company Limited - CFO [19]

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Sorry.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [20]

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(inaudible) this time #2 and #3. Let me (inaudible) the question. I forgot it.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Telecom, Media, Beverage and Commerce Analyst [21]

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Should I remind the questions? I asked about the subsidy budget that included in the marketing expense in the first quarter and then the deceleration of the PO mobile service revenue. The growth decelerated from 4% in the fourth quarter to 2.6% in the first quarter. Is that in line with your target?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [22]

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I think overall because our service revenue is pretty much still in line with what we guided. So first quarter overall was 2% to 4%, and we're guiding 4% to 5%. So [with that] purpose overall was still looking in line with what we expected. And on the subsidy budget, we do not intend to announce the subsidy this year. But I think, rather, you may look at the overall marketing spending and some loss of the handsets that we announced. So that's included in those budgets. But overall, you see clearly that it has been significantly declined.

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Operator [23]

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The next question comes from Thapana Phanich from Deutsche Bank.

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Thapana Phanich, Deutsche Bank AG, Research Division - Research Analyst [24]

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I have 3 questions. I think at the last call, you mentioned that your new dividend payout policy is contingent on your cash flow and investment situation. Now your operating cash flow has improved quite a bit this quarter. Your net debt-EBITDA has also fallen. So at what point would you feel a bit more comfortable about potentially paying out more than the 70% minimum or perhaps you want to wait to see the outcome of the 2,300 partnership bidding first before making any reviews or changes to your dividend plans? The second question is, again, sorry, just to follow up a little bit more on the unlimited mobile Internet package. As you know, there could be a lot of spectrum release in the next 2 years 1 way or another, and if one of your competitor happens to land a large chunk of spectrum for themselves, would that imply that we're now -- these unlimited packages are going to be a fact of life for Thai telecom industry going forward and being offered at a much lower price point than today? And does that mean that going forward, is this is going to be a grab for more spectrum just to keep supporting these packages going forward? Lastly, one of your fixed broadband competitor could be on the verge of getting a whole lot of cash from the sale of asset through its infrastructure fund. And granted that while some of these proceeds could be returned to the shareholders as special dividend, but with the improved cash position of that particular competitor, how do you see this potentially impacting the fixed broadband market in Thailand in the next 1 or 2 years?

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Sunitaya Shinawatra, Advanced Info Service Public Company Limited - CFO [25]

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Let me answer on the first question, on the dividend. I think it's quite too early to seeing about a dividend here right now because we still need to consider our plans that we're going to have maybe new options in the future and also on the other kind of systems. So we need to see on kind of our investments to gain.

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [26]

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On the second question, we don't see that moving further. We expect a lot going forward. Currently, all 3 operators are very competitive and depends on the market situation moving forward. Having more spectrum is -- you (inaudible) spectrum but there's also the rollout costs associated with it. So I think the bottom line is all operators will, in the end, look at the viability of whether they can continue having this unlimited. Obviously, the unlimited is not the way to grow, within units, certain CapEx and investments to sustain that. Also, depending on the returns that you may get for such a venture. So I won't comment whether going forward will be a fact of life but it will be difficult for the operators to continue in this direction. And the last question, FBB, I think the competitor -- I think we are not in a position to comment, so it's best left to them on what they intend to do, and we also need to see what they intend to do with all the changes and we do on the infrastructure.

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Operator [27]

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Your next question comes from Pisut Ng, CIMB Thailand.

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Pisut Ngamvijitvong, CIMB Research - Analyst [28]

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I have 3 questions. The first one is on your fixed broadband. [At that] was slowed down from 100k to 72k this quarter. My question is, was that slowdown coming from, lower gross add or high [churn]? That's my first question. My second question is on the -- your contract with TOT, which is now still -- [it has MOU]. Do you have any update on the focus to make the contract with TOT for the long-term contract? And my last question is on THB 160 million loss from asset disposal in this quarter. It was pretty small but could you please explain the nature of this cost item and the trend going forward, what kind of asset that you have to dispose it out?

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [29]

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To answer the first question regarding the FBB net adds. As you know, for this year, our objective is to increase the utilization of our FBB network. So in this quarter, we have not expanded our coverage but our sales have been focused on the existing coverage areas. Last year, our utilization of the rollout was about 35%, and this year, we aim to hit about 55% to 60% by the end of the year. So the objective is to increase the use from the capital that we have invested and roll up. Second point, there's a slight increase in churn but this is manageable. So the first part, regarding the slow net add, the slow gross add, dealers need time to fix to adjust to growing in the existing coverage areas.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [30]

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TOT content, today, I'll answer in the sense that I used to answer to you because now, are in the process of the (inaudible). Last week, our team and also in the CEO of TOT come to talk together in sales to talk about this kind of thing. He set up the working team and tried to [conclude] and finish the contracts as soon as possible if it (inaudible) the government forces.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [31]

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Last question, I'm not sure which line you are referring to.

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Pisut Ngamvijitvong, CIMB Research - Analyst [32]

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That was -- if you look at the MD&A on Page 4, you will see that loss on disposal of PPE, which was THB 160 million. You have THB 23 million in fourth quarter last year, but the number explained -- it's below the EBITDA.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [33]

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Okay. So that's some equipment on fixed broadband.

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Pisut Ngamvijitvong, CIMB Research - Analyst [34]

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And what's the nature of that item? And what is the trend going forward?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [35]

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I think this comes on and off depending -- it's not intended as a recurring.

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Operator [36]

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Your next question comes from Prem, Macquarie.

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Prem Jearajasingam, Macquarie Research - Analyst [37]

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Just want to understand the competitive nature and why it is that you feel that you are doing well in the mobile segment versus the areas that you're willing to give up. Because it's quite clear that you seem to be happy to lose some in the prepaid segment and regain in the postpaid. Could you help us understand that thought process and how you see that panning out over the next year or 2? And finally, with regards to the broadband business. How much more meat is left in this segment for us to pursue a land grab situation?

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [38]

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Think on mobile, I think where we are doing well is we have increased the coverage of 4G network. I think today, we are in a very good position in -- for both the 3G service and 4G network. I think that will be big plus for us. In regards to whether we will be doing any of the handset subsidy. The focus now is achieve more to ensure that we get good quality customers. For prepaid, generally, that's the lower end. But as I mentioned earlier, we are also still focusing on our existing 2G handset customer, where we are upgrading them to 3G, but this is more for the high-end customers with high ARPU.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [39]

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For our fixed broadband business, I think, in Thailand, still have a lot of opportunity. As I update to you that today, it's not only the new customer that requires a fixed broadband but on the [exiting] customer from our competitor, they are used to old technologies. So they are willing to invest [from us] as we try to [lose] step and step and try to make the quality. Customers are in the fixed broadband [as much as we can]. So I think a lot of potential on this are (inaudible).

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Operator [40]

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Your next question comes from June Supa, Goldman Sachs.

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June Supapannachart, Goldman Sachs Group Inc., Research Division - Research Analyst [41]

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A few questions here. Firstly, on the fixed broadband. So last quarter, during the conference call, you say that you expect to achieve the target run rate per month of around 30k to 35k net add. But if we look at the number this quarter, it's around like 24k, so maybe can you give some color on why is that so. And what do you expect to be the target we should expect for in 2017? And also, for the -- [I] actually missed out for the postpaid ARPU. Can you give me more color on that again? I’m sorry for that.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [42]

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Okay, for the fixed broadband, we have the (inaudible) app we used to communicate to you. However, we are really (inaudible) on the quality of our customers. After we modify at that (inaudible), there are some not perhaps good quality in the customer that subscribe and may -- cannot pay the [fee], that kind of thing. That's why we slowed down. Our (inaudible) to look more in [detail] how we can protect that kind of [high] quality customer. I think we will try to readjust after we can try the new [process]. Also, selection of good customer, the (inaudible) will be back because in the past, when we set up the fixed broadband, the important is our installation team that have to set up. Now our installation team that's [outsourced] is ready but we have to find a good way to find a good customer. On the [pocket] we see, [don't change]. That means we can [roll it up] and [increase] our subsidies in the -- [mid] quarter and the next quarter.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [43]

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In addition to that, we also stopped the special discount that we offer throughout last year. Last year, because it was an initial year, so we intended to do a lot of special discounts to attract more customer for fixed broadband. We had decided to stop all those special discounts. On your second question, postpaid ARPU, we have said that with the postpaid subsidy ongoing now, there's both mid-tier and high-end segments. So a lot of in the mid-tier, we believe it's crossing over from prepaid into postpaid. So we have [a quite] downward into the mid-tier segment. So as we continue to do this, you will see a dilution in the postpaid ARPU.

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June Supapannachart, Goldman Sachs Group Inc., Research Division - Research Analyst [44]

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Actually, can you also give some comment on the prepaid ARPU (inaudible)?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [45]

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The prepaid ARPU, the prepaid always have a general falling number because now there's a lot of migration. So the fact of the migration is that there's more active data users in the prepaid segment, which generally carries higher ARPU, will gradually move to postpaid.

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Operator [46]

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Your next question comes from Arthur Pineda from Citigroup.

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Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [47]

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Three questions, please. Firstly, on the unlimited plan, you mentioned earlier that some subs are upgrading their plans and that implies some accretion. Are you also not seeing higher ARPU subs downgrading from their premium plans? Just wondering if this is overall good or bad in revenues. Second question I had is with regard to prepaid subsidies and, of course, the reduction in prepaid subs. And it's admirable that you are fiscally disciplined on prepaid subsidies, but are there any trigger points that you have to watch before you feel a need to react? Is there a market share limit that you're willing to work with? Last question I had is on prepaid to postpaid migration. If we can get any color on what percentage of your postpaid adds are actually coming from your prepaid base.

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [48]

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In the first question, unlimited plans, yes, we do see customers moving up from the lower end -- lower tech to upper tech. You are also right that we also see a small number of customers moving from the higher tech to lower tech. Our net-net so far for the first month, we do see positive results net-net. We also have customers moving, [by popping in], taking up the unlimited data plans and also for (inaudible) customers from pre to post, those are also very attractive to them. So far, no negative impact yet on the unlimited data plan. On the prepaid subsidy, unfortunately, that's something that we will be monitoring, and we are not ready to divulge where it's at this point (inaudible)

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Sunitaya Shinawatra, Advanced Info Service Public Company Limited - CFO [49]

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Pre to post, sorry, we don't -- we do not disclose the percentage.

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Operator [50]

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Your next question comes from [Hussein Staris] from Citigroup.

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Unidentified Analyst, [51]

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All my questions are answered. Thank you.

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Operator [52]

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Next question comes from [Fraser] Smith from JPMorgan.

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Fraser Smith, JP Morgan Chase & Co, Research Division - Analyst [53]

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Three questions for me. Firstly, on the loss in prepaid customers, can you share the portion of customers -- customer losses attributable to the cleanup of SIMs? And then the second question on marketing costs. Do you expect the...

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [54]

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Can you speak up? We cannot hear you clearly.

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Fraser Smith, JP Morgan Chase & Co, Research Division - Analyst [55]

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Sorry, I'll repeat my first question. On the loss on prepaid customers, can you share the portion of losses there is due to the cleanup of SIMs? On my second question, on marketing costs, do you expect the 1Q '17 level to be the run rate for the rest of the year? Or is there risk to marketing cost increasing from further 2G to 3G prepaid migration subsidies? And lastly, can you expand on what you think the impact of the new provisions from the NBTC Act will be?

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [56]

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Do you understand number one?

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [57]

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Sorry, on your first question, you are asking operating of -- loss of prepaid due to cleanup. Unfortunately, we do not divulge those numbers.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [58]

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On marketing costs, it's difficult to say because, as we mentioned, we're monitoring the situation in the market. And now in the marketing spending, it's always composed of the normal advertising that we run plus the handset subsidy. Normal marketing spending, usually first quarter and fourth quarter are the high season, except that we have -- if we were to launch some big campaigns or any special events, then that can come high. But generally speaking, the high seasons are the first quarter and fourth quarter. The handset subsidy, that one is really hard to guide. It depends on the market situation.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [59]

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For the NBTC issue, I think it should not have any impact to us. If perhaps some, (inaudible) coming up if you (inaudible).

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Fraser Smith, JP Morgan Chase & Co, Research Division - Analyst [60]

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Can I just have one follow-up question? I mean, are there still a significant amount of 2G subs that you need to migrate to 3G? And what has been the migration in the first quarter?

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Sunitaya Shinawatra, Advanced Info Service Public Company Limited - CFO [61]

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End of last year, we had around 4.6 million, 4.7 million 2G. Now we have roughly about 4 million 2G subscribers left on our network. And we continue to do the targeted migration for this group.

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Operator [62]

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Your next question comes from Supachai from Maybank.

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Supachai Wattanavitheskul, [63]

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I just got only one question on the 5 (inaudible) costs. I noticed that you have -- there is (inaudible) that your depreciation doesn't increase significantly, in case very slow Q-on-Q. Also, the network (inaudible) and this is very surprising to me. Can you elaborate on this one, please? And also, on the admin cost, that I think you tried to do the cost control, right, to cut that. So can you elaborate more, please?

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [64]

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I think it should be normal. Okay. Let the CFO participate, okay?

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Sunitaya Shinawatra, Advanced Info Service Public Company Limited - CFO [65]

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Actually, the network cost is quite above during this quarter. But actually, we still continue on the -- part of that is the TOT operation concept that we also continue to pay from last quarter. But on the admin cost, I think there's no special item that we have in this quarter, kind of normal operations.

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Operator [66]

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You have a follow-up question from Youssef Abboud from UBS.

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Youssef El-Khouri Abboud, UBS Investment Bank, Research Division - Director and Research Analyst [67]

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Khun Somchai, the quality -- since you're focused on the quality of the customers and high ARPU, which is good, hence, higher margin, does it mean will you be willing to give up your 50% market share target?

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [68]

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Our KPI and my duties will be on that KPI. However, we are a public (inaudible), we try to monitor this kind of thing. [At this stage], we're still below, we're still below. But we think we can [attract] the market every time. Like last quarter, when we pushed a lot of handset subsidy, we can increase our market share but the quality to do it is not good that is why we slowed down. The target [still] be there but we still (inaudible) what is the maximum benefit for AIS and what level? Let's say, [much of the fact], that's still not changed yet.

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Youssef El-Khouri Abboud, UBS Investment Bank, Research Division - Director and Research Analyst [69]

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Okay. So the target has not changed but also I understand, between the line, what you're saying. You're willing to give up a little bit on this number just to maintain good quality customer, good margin, good return?

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [70]

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Yes, that's right.

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Operator [71]

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(Operator Instructions) Your next question comes from Narudon Rusme, Asia Wealth Securities.

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Narudon Rusme, [72]

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I have seen the network OpEx, the spend is lower. But [there] is more base station that has been installed. How this can happen because more base station but lower OpEx?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [73]

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No, our network operating expense is flat Q-on-Q.

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Narudon Rusme, [74]

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Yes, yes, yes, but more base station has -- had been installed?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [75]

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When we talk about more base station, it might not directly linked with immediately in the -- within the same quarter. The nature of the network OpEx by itself and a larger site increase is not a new site, it's adding on the same site. When we do carrier aggregation, adding -- it's -- carrier aggregation doesn't act on [one] site basically. So you'll see the number -- it's not the actual number of physical sites.

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Narudon Rusme, [76]

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So it should be more flat, right?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [77]

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Year-on-year, we're still looking at an increased rate. We continue to expand the network.

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Operator [78]

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Your next question comes from Gabor Sitanyi, CCL.

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Gabor Sitanyi, Charlemagne Capital (IOM) Limited - Fund Manager [79]

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Just wanted to clarify on the EBITDA margin, that what you achieved in the first quarter, is that comparable with your full your target? Or as you expect further payments to kick in later on in the year, that's why you're not upgrading your full year target and you're leaving it at 42% to 44%?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [80]

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It's on -- the EBITDA margin this quarter, 44.6%, that's on the high range of our guidance. We keep the same guidance mainly because we're monitoring the market situation because the (inaudible) factor will be the marketing spending.

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Gabor Sitanyi, Charlemagne Capital (IOM) Limited - Fund Manager [81]

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So that means that this first quarter margin was in fact comparable with the full year? You don't expect any further payments to kick in, in subsequent quarters to TOT specifically?

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [82]

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If we -- it's in line with our guidance. So we're not changing the guidance.

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Gabor Sitanyi, Charlemagne Capital (IOM) Limited - Fund Manager [83]

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But there shouldn't be any new payments? You already paid in the first quarter the proportional amount to TOT.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [84]

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We expected [no] payment at this point.

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Operator [85]

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(Operator Instructions) There's no further questions at this time. I would like to hand the conference back to the presenters. Please proceed.

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Nattiya Poapongsakorn, Advanced Info Service Public Company Limited - Head of Compliance and VP of IR & Compliance [86]

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Thank you, everyone, and see you again next quarter.

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Somchai Lertsutiwong, Advanced Info Service Public Company Limited - CEO, CMO and Director [87]

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Thank you. Goodbye.

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Sunitaya Shinawatra, Advanced Info Service Public Company Limited - CFO [88]

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Thank you.

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Weng Cheong Hui, Advanced Info Service Public Company Limited - President and COO [89]

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Thank you. Bye.

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Operator [90]

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That does conclude our conference for today. Thank you for participating. You may now all disconnect.