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Edited Transcript of TRUE.BK earnings conference call or presentation 18-Nov-19 10:59am GMT

Q3 2019 True Corporation PCL Earnings Presentation

Bangkok Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of True Corporation PCL earnings conference call or presentation Monday, November 18, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kittinut Tikawan

* Vichaow Rakphongphairoj

True Corporation Public Company Limited - Director

* William E. Harris

True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo

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Presentation

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [1]

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Good afternoon, everyone. Welcome to the Third Quarter 2019 Analyst Conference for True Corporation. I'm Will Harris, Co-Group CFO of True. And with me are Khun Vichaow and Dr. Kittinut, as you've seen in past conferences.

Let me turn things over to Dr. Kittinut to go through the presentation, and then we'll open the floor for Q&A.

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Kittinut Tikawan, [2]

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Okay. Thank you very much, Will. Good afternoon, and welcome to analyst conference for the third quarter of 2019. Let's start with the highlight. True Corporate saw net profit grow to THB 2.9 billion in third quarter, detail to be discussed in a moment, driving profit for the first 9 months to THB 5.4 billion. TrueMove H led the industry subscriber growth, especially the postpaid market, while seasonality and prepaid competition pressured Q-on-Q performance.

The broadband segment showed stronger revenue and subscriber growth despite competition with discounts by other operator as we add value with fiber and Gigatex campaign. The EPL broadcasting rights on our platform drove growth through content subscriber sublicensing and sponsorship as well as strengthen the group value proposition across key business units.

Our digital platform TrueID continued to increase active users to more than 22 million while TrueYou expand partnership over 40,000. The digital solution unit developed solution for various industry, increasing the IoT connect device on our platform to more than 200,000.

Last but not least, we once again received the highest score in the world telecom industry of DJSI for our second consecutive years.

Next, please. Now moving on to the financial performance. Consolidated service revenue grew 1.6% Q-on-Q and 3.4% year-on-year, excluding World Cup to THB 26.6 billion while core operating expense, including news DIF [lenders] was up 0.6% Q-on-Q and 0.5% year-on-year. This, together with the gain from asset sales to DIF in our cash drove EBITDA up to THB 10.3 billion. Including DIF gain, EBITDA grew slightly Q-on-Q but decline year-on-year, driving by TFRS15 adoption.

Net profits increased to THB 2.9 billion. And as you are aware, extra item in Q3 were mainly asset sale to DIF and impairment. This net impact was over THB 3 billion. Although only 1.5 (inaudible) in Q4, we continue to see improved revenue growth trend and more positive contribution from our micro level strategies.

The asset impairment, we have softened the D&A increase. We are working very hard on other cost-saving initiative and expect to see more progress and update in the coming quarters.

Next, moving to the cellular segment. TrueMove H gained 271,000 net adds in the third quarter, bringing the total subscriber base to 30.1 million. This was mainly drive by solid growth in the postpaid segment whose subscriber base grew to 215,000 subscribers, driving postpaid revenue up at a lower digit rate year-on-year. We are closing the postpaid gap with the #1 player rapidly. TrueMove H combined revenues for voice and data service increased 2% year-on-year and 1% Q-on-Q. The cellular service revenue, however, was pressured by a low seasons of international roaming as well as prepaid competition.

So far, in the fourth quarter, we see good progress from our bundling and targeted campaign ramping up both prepaid and postpaid growth. Our analytics teams also help a lot in terms of acquisition, retention and monetization.

For the broadband internet segment, Gigatex campaign and fiber bundle with TrueID TV have distribute to all stronger performance in the third quarter. Our retention measure through Up Your Happiness campaign also greatly improved customer satisfaction and (inaudible). This drove our broadband net add of 94,000 and revenue increased 5.2% from the previous quarter. ARPU also grew allow 3% from the previous quarter. We will continue forecast on quality subscriber acquisition, innovative device to further expand forward as proved in the past 2 quarters.

Let's move on to the True Digital Group. TrueID continue to receive strong market response with growing revenue from content subscriber. Its monthly active users or MAU increased 15% from the previous quarter to 22.2 million. At the same time, the numbers of TrueID TV user increased to 130,000 as of September and close to 4x higher than Q2 level and growing to more than 200,000 as of today. And there have been over 400,000 purchase on TrueID content so far.

TrueID is also digital gateway to group Privilege Program with TrueYou and TruePoint redemption, whose partner expand to over 40,000. This strengthens our convergence play and increase subscription to True Group multiple products, further boosting revenues per household as well.

As for the digital solution, our IoT unit has continue develop enterprise solution that respond to customer need in wireless vertical industry. This include retail, agriculture, manufacturing, supply chain, consumer health care and property. By the end of the third quarter, the Connect IoT device on our platform grew 6% from the previous quarter to 205,000.

The last part is on this year group guidance. Although we expect a big improvement in the fourth quarter with better monetization progress in several areas, we revised our service revenue growth guidance to be in the range of 3% to 5% to reflect performance in the first 9 months of this year. We still maintain profit and CapEx guidance.

And now, let's open for the Q&A.

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Questions and Answers

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [1]

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Okay. We'll start with some questions here in the room, and then we'll go to some questions that were submitted earlier online.

Does anyone here in the room have any questions to ask us? Really? Okay. We'll go online first. Oh, in the back. There we go.

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Unidentified Analyst, [2]

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(foreign language)

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [3]

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(foreign language)

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Unidentified Analyst, [4]

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(foreign language)

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [5]

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(foreign language)

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [6]

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Could I ask you to repeat some of those answers in English because we've got a bunch of people overseas listening in online.

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [7]

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I think that the question was that there is a question about a dispute between MCOT and NBTC about the compensation that NBTC is supposed to pay for the refunding. And based on the information from NBTC, it seems like it used to be MCOT is asking for THB 50 billion, plus/minus, in the beginning and then revised down to about THB 10 billion, THB 15 billion. So NBTC's take is this is that whatever the court decides, NBTC will need to pay. And with the option, they're probably able to cover that.

Now again, it's not our call. It's NBTC's call. So if that one come up to higher uncertainty, then maybe NBTC will delay. I don't know. I'm just relaying the information for NBTC.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [8]

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Okay. Any more? Over here on the left.

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Unidentified Analyst, [9]

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Okay. I have one question about mobile business. Management mentioned that the fourth quarter revenue growth momentum remained healthy with focus on the micro segment. Can you elaborate on this segment? Why do you think that it is important? And why it can grow service revenue for the company?

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Kittinut Tikawan, [10]

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Okay. As we realized in the third quarter that we quite a big drop in mobile revenues, actually, mainly is from the prepaid market. We did very well in the postpaid market. And we did very well as well in the broadband business as under highly competition, but we have some campaign and a technology advancement offer for -- to the consumer with the focus on the customer experience. That is our advantage to the market.

In the prepaid market, actually, we much more focus on the total industry value. So in the third quarter, we make some mistakes on not stay competitive in the pricing for the prepaid proposition as we unwind unlimited out of the market. But some softer competitor, also they start offering big volume as you -- maybe you can notice that it's going to be about 200 gig, is talking about 10 megabit unlimited, full speed. This is the market. The competitors still pay some -- we might not call this unlimited, but it's almost worse than unlimited because this is a high-volume with the full speed is worse than unlimited package. And we try to remain -- unwind unlimited for a while until we have to move -- change our strategy to stay competitive again. And when we change our approach to stay competitive, we resumed our growth as we already saw some improvement and ramping up of our growth momentum in the first part of the fourth quarter. And together with the fourth quarter, we come up with many campaigns. In terms of the mobile business, you can realize that many of the high-end smartphone launching in this period. And we can -- very high momentum in bundling with the high ARPU price plan.

And also together with our exclusive device for the high-tier market, the mid- to high-tier market. For example, iPhone, they went with the new price. This is exclusive to True Group as that we can gain much more high ARPU for the mid- to high market as well. Those high -- those activity will push up the revenue momentum and resume the growth momentum in our Q4 performance.

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Unidentified Analyst, [11]

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So can we say that the competition in the fourth quarter will come from the usage offering, not the price offering?

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Kittinut Tikawan, [12]

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Actually, it's the same. It's the same issue. When we offer very high data, it means it's quite hard to monetize and gain the upside of the revenues because you encourage the consumer to consume huge amounts of the data rather than again benefit from the growth of the revenue together with the data consumption. So actually, it's the same issue.

But from our mistake that we try to take care the whole industry revenue maybe too much and must stay competitive that our -- that impact to our growth momentum in the third quarter. And when they resume competitive and offer again on the competitor, we can rapidly resume and ramp up our growth momentum again. And this is our lesson learned that we're going to maintain competitiveness and continue growth as we did in the past many, many quarters before.

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Unidentified Analyst, [13]

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I have 2 questions on Slide #7. The first one is what is the average ARPU for the IoT customer? And the second question is that what would be the growth potential on this segment?

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Kittinut Tikawan, [14]

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Actually, the ARPU on the IoT is not that high. But in terms of the number of connectivity in the near future is very high potentials that you're talking about the connectivities of the machine to machine, human to machine. And we are talking about to penetrate the IoT device into many several vertical segment. We're talking about the farming, agriculture, retailing, supply chain, transportation, public health, manufacturing. This means we can develop the IoT solution and create a connectivity. So in terms of the ARPU of the IoT, the charging is not solely the connectivity fee but also together with the solution. And on top with the solution, we can talk about analytics, how the business segment, how the consumer is going to use the data and leverage the data asset analytic. This is altogether is talking about the solution.

So not just only the IoT connectivity. But together with the analytics, together with the AI, big data, altogether is come as a solution that will push up the future revenue.

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Unidentified Analyst, [15]

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May I touch on the English Premier League, the content that you've got? I believe you still not published or you may not publish the costs you take. But what I confuse a bit is, is it -- it's quite different on the last time that you've got the World Cup that we saw the significant rise in both ARPU and subscription in both online and also the TrueVisions as well on events. So I'm not seeing this much this quarter. So can you touch a bit on strategy? Or can we expect some kind of that rise in terms of both online and TrueVisions from EPL?

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Kittinut Tikawan, [16]

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Actually, the EPL, this time is totally different from the last time. Last time, our EPL, we are as a sub licensee. With this time, we own the broadcasting rights in our platform of the EPL. So we're going to leverage -- we leverage the EPL in many, many ways, not just only direct impact to the service revenues, but also both -- broadcasting, mobile, online, sub-licensings, sponsorship and also together with -- to groom up the IoT -- the OTT platform, the TrueID subscriber and TrueID TV box. So we leverage EPL in many, many ways and not realize direct to just only the service revenue.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [17]

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Okay. We'll have some more in-house before we go online.

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Unidentified Analyst, [18]

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One more question on the prepaid strategy. I think you mentioned that in the third quarter (inaudible) competitive. And now you want to stay competitive. So my question is what is it (inaudible) that we have to be aggressive on the pricing on prepaid? As you look at the year-on-year growth on the revenue that you see the competitors trying that you -- they're more aggressive.

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Kittinut Tikawan, [19]

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Yes. Actually, the growth momentum is very important for us, and we monitor closely about our growth momentum, acquisition and also the ARPU of the subscriber. And when we foresee that in -- when we continue to grow -- and outgrow the market in many, many quarters. But when we make some -- a big change to maintain in terms of the forecast on to boost up the industrial revenue rather than stay competitive. So we can see the drop and the decline of the growth of our prepaid momentum. That's why we identify what a key factor. And we found that many areas I've mentioned, even we unwind unlimited in the market still offering a big volume in the market, still offering the full speed or even the fixed speed, but highly fixed speed is about 10 meg fixed speed. That's even worse than the unlimited package. And we try to maintain and maintain the momentum of our proposition until we can see the declines of the growth momentum, then we have to resume and to stay competitive again. And then, therefore, the first result that I foresee for the first part of the fourth quarter, we already resume the growth momentum already.

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [20]

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I think maybe I'll add a little bit to what (inaudible) was talking about is that if you look at our subscriber base, comparing AIS and True on the postpaid side, the gap is actually quite narrow. I believe they probably have about 9 million plus/minus. I think we have about, what, 8.1 million, 8.2 million. Plus. There's still a gap. But however, on the postpaid -- on the prepaid side, the difference between AIS and True, there's about 10 million, more than 10 million. So we have to readily admit we make a mistake. We did make a mistake in maybe late Q2 and Q3.

We will try to be a boy scout. That means when the industry is saying that we should not go crazy like that. We did, being boy scout. And our competitors, they use other means, and it's actually, in a way, Khun was actually very diplomatic. In a way, that is probably even worse than unlimited. How the hell can you have a 200-gig offering for THB 200? How many gig can you use a month? It's even worse than unlimited package. So we just have to remain competitive. We just have to remain competitive.

And then if you look at our history, if we are competitive, we always grow, in the last 4 years, as long as we're competitive. So we will remain competitive and the momentum will resume. I think this is the message I wanted to tell you guys.

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Unidentified Analyst, [21]

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Just a few more questions on the prepaid front, like how late were you in the third quarter when it comes to the offering of the THB 200 and 200 gigs plan? Because my understanding is that everyone almost offer at the same time in the third quarter. As you say, you learned your lesson that you were quite late. I want to know like how late were you. And second question regarding the prepaid is that how did you gain the highest amount of prepaid subscribers in the third quarter when you were late into introducing the [exclusive] plans, but you were still gaining subs? And the last question is about the fourth quarter because you say that you matched the offering of the competitors and more instantly, in the fourth quarter after learning the lesson and the revenue should improve. But I see that pricing actually dropped in the fourth quarter from THB 200 to THB 150. Shouldn't that have some negative impact on the top line?

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Kittinut Tikawan, [22]

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Okay. Actually, we -- delay is about the adjusted proposition 1 to 2 months. Yes, 1 to 2 months to match -- actually, it's just only as everyone demand that we want to take care the overall industry so we try to stand still with our offering against the competitive in the market for almost 1 to 2 months. That is the delay time.

And actually thinking that some more compensation in terms of the privilege, some -- in terms of the content offering would help to offset the competitiveness in the market. But actually, it's not -- this won't work for the prepaid market. So that's why we're going to resume.

And after we resumed competitive to the offering in the market, but it's not just solely to resume competitive in terms of the proposition, we also have other value-add to offering to the customer as well. As you may see is about our offering in terms of the content in terms of the -- our partnership with YouTube for the special price plan for the YouTube campaign, for the EPLs, for the -- our postpaid and prepaid customer, privileged campaigned, the points redemption campaign to all the postpaid and prepaid base. This is a value-add service that we also given to our customer to make sure that we can resume the growth momentum.

And for the big volumes offering in the market, even they're talking about THB 200 per month is still have a big gap from our (inaudible) both on prepaid. So given our [EBIT churn] an opportunity to improve our EBIT ARPU in the prepaid segment as well.

So our EBIT ARPU in prepaid is about THB 100-something. So even in the market, talking about THB 150, THB 200 per month, that is still a big room for -- to move us to leverage the growth momentum in the market.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [23]

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Let me just add a little bit on the -- you asked about the prepaid subscribers, where we had net additions to our prepaid subs and the other guys declined, despite the fact that we had a pretty awful quarter on the prepaid side. And I know you look at these numbers a lot over the last many years. And you know that we outperform in terms of subscriber adds and prepaid pretty much every quarter and usually by a lot. So this is not as big a gap as usual. We did continue to add, and that's largely because, as Khun Vichaow said, we're very underrepresented in prepaid. Our market share in prepaid is much lower than our market share in postpaid, and our network quality and perception of our network is far ahead of our market share, particularly in certain areas like the Northeast. So we are continuing to improve in some areas, including subscribers, in Q3, but not in revenue. And obviously, the revenue is more important than the subscribers. We did not do what we needed to do in Q3, but we did change course, and we're pretty comfortable with where we are now. Frankly, we're far better when we're fighting than when we're trying to act more like an incumbent. That's not our skill set. So I'm pretty comfortable where we are.

Okay. Why don't we go to the questions that are online, and then we can come back to -- in the room, if there's any further questions because I know there's a lot of questions that have been submitted online.

Okay. The first one is about True Group. Given True's decelerating revenue growth, how much OpEx can we cut in order to ensure positive core profits in 2020, especially if True will have to amortize 5G spectrum and network investments?

First, let me clarify, any 5G spectrum and network investments are most certainly will not be in effect until the fourth quarter of next year when the spectrum is actually available and can be turned on. So the amount that's going to hit next year is relatively small both for depreciation of assets and for the spectrum amortization. So that for 2020 isn't a big deal, but obviously, in 2021 and later it might be higher.

So the real story for True is what we've been discussing for many quarters. We are very focused on growing the profits. We're not at all happy with our core profit in Q3, which was a loss. We are not giving any formal guidance for 2020 yet. It's early. We haven't even gone to our Board with the 2020 numbers yet. But we are comfortable that it's going to be core profits, again, higher than this year. We are expecting significant growth. The revenue growth will be measurably higher than our revised guidance, which is 3% to 5% for this year, even if we're 2.1% through 3 quarters, but our guidance is 3% to 5% for this year. Next year, again, we're not giving guidance today, but we certainly expect it to be measurably higher than that. That's the way we grow our core profits.

Obviously, cutting expenses is important. And you saw in the presentation that our OpEx was basically flat. That's not bad, but we would like it to be negative. But there are certain costs that are just rising. TrueYou points are being redeemed at much larger numbers. That costs money. People have gotten a raise this year compared to last year, and we were renting more of our network from DIF because of the transaction, the big transaction last year and a new one this August. So some things have to go up but on net, we're pretty much flat on OpEx. And we'll continue to push down very, very, very hard.

On CapEx, yes, there will be 5G CapEx coming. I'm sure this will be a question at some point. We don't know how much yet. We're still working with our engineers in China Mobile and consultants to figure out exactly how we'll roll this out. But the great likelihood is that, at first, it will be rolled out where we are currently rolling out additional 4G capacity. So we will be cutting 4G CapEx and replacing it with 5G CapEx and not that big an incremental in the earlier period. Eventually, we'll expand to cover all urban areas. But right now, there's a very small embedded base of handsets, so there's not a lot of need. But because of the -- all of the issues we've discussed so far about the mobile business, then the amount of gig per sub per month continues to rise. And we would be foolish to assume that that's going to reverse. It's not likely to reverse. And at the same time, we generally are adding more customers than the other guys. So those 2 combined, we do have a capacity issue, and we need to add base stations, a localized capacity issue. We have enough spectrum, but in a certain area, base stations can become congested. So that has been the bulk of our mobile CapEx for the last year, 1.5 years at least, nearly all of it. And that's all 4G. Once we have 5G spectrum, doesn't really make a lot of sense to keep putting in 4G base stations. We'll start putting in 5G base stations. So we're not expecting a big incremental on the CapEx. In terms of cash CapEx, ignoring 5G next year would be the peak and then the cash CapEx will decline.

I think we've discussed many times, we're on 5-year payment plans with our major vendors. So we're pretty much at the peak now. Next year should be similar and then declining moderately and then rapidly after that. 5G will obviously change that, but we still are hopeful to keep next year as the peak year for cash CapEx and come down after that. 5G will not be rolled out the way 3G and 4G were to be 100% population or 98% population coverage in a very short time. That's -- I don't imagine anybody is going to be doing that, certainly not here.

Okay. Next question.

True's 9-month year-to-date CapEx, which -- this person is defining as the addition to fixed assets in the balance sheet, is -- remains higher than peers. Can you give a breakdown in guidance for 2020?

Well, the short answer is no, not yet, but I can talk about it a little bit. Yes, it's higher than our peers. One of our peers has dramatically underinvested in their mobile business, but is starting to catch up some, but still measurably behind. The other is not in as many businesses as we are. And their broadband also doesn't have the footprint that ours does. So that's why our CapEx is higher than theirs. Obviously, that -- we would like that to result in higher revenue growth for us. And in the third quarter, it did not. So that's something we need to work on obviously and that's been most of the questions that we've had so far. But the guidance for 2020 will come next time once we have completed the fourth quarter and finished our business plan with our Board.

Regardless of -- next question is regardless of the new CapEx on 5G, when will your D&A expense get to a peak? And how much per year will it be? And when?

I think I already answered that. So let's just go to the next one.

Regardless of the new CapEx on 5G, when will your interest-bearing debt peak? And how much will it be and when?

Well, obviously, it peaks when the free cash flow turns positive, barring things like asset sales to DIF or sales of DIF shares or things -- other things that can finance the company besides debt, so those are always possibilities. But we are still not giving guidance. We need to see exactly what the spectrum is going to cost and what the CapEx is going to cost. And then hopefully, we can give guidance on when we'll be free cash flow positive. But you guys know our cash flow well. It's improving. Particularly, the operating cash flow is improving a lot. It's almost THB 6 billion in Q3, operating cash flow before interest and taxes. And it was just 3 years ago, we were negative. And so it's quite moving in the right direction, actually faster than the net income is. And I think everyone here who's an analyst, which is nearly everybody here, understands that stock prices follow free cash flow far more than they follow net income. In the long run, that's what really drives stock prices. So we are very focused on improving our cash flows when we're -- it's definitely not yet to the point where we are mature.

Okay. Next question. This is about TrueMove H. We understand that dtac's 4G network is improving a lot from the rollout of 2.3 gig and 900 megahertz, which hasn't happened yet, but they're getting ready to do that. And that enables dtac to offer big quota data packages. Does True need to invest more in 4G capacity in order to compete with dtac?

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [24]

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I just want to clarify a little bit. The 900 meg for dtac is basically for coverage. I believe that dtac got a [5-meg] frequency slot from NBTC. And I believe that at this very moment, they still have not sought out the interference [situation]. So with that in mind, I'm not quite sure that -- how to answer this question. So I don't believe that they have sort out the issue yet. Base effect. The question should not be post to us, should post to NBTC. I don't think they have sort out the issue yet.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [25]

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Okay. Let's go to the next question, also on TrueMove H. True's market position improved from the first-mover advantage in 3G and 4G. How can we repeat that in 5G?

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [26]

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I think we just go through all 3 them, and then maybe I'll just addressing in general and then if there's any other questions.

As Will said, the first bullet is True's market position improved from the first-mover advantage in 3G and 4G. And how can we repeat in 5G? The second bullet is will your 5G first-mover advantage strategy lead to heavy 5G network CapEx cycle to start off in 2020? The third was under your 5G rollout, when, how much will you require to expand your cell towers [slots being taken from the air]?

I just want to give a general picture first. This time around, NBTC is doing a multiband auction. Is actually 4 bands being auctioned simultaneously. It's the 700, 1,800, 2,600 and 26,000 meg or the 26 gig. So there's actually 4 bands being auctioned. The band that's most applicable in our discussion is the 2.6 gig or the 2,600 meg band. And that band has about 190 meg of spectrum. And NBTC tried to break that into about 19 licenses, 10 meg each. And giving 5G, if you only auction -- if you only get for 10 meg or 20 meg, that basically made no difference to 4G. And the optimal frequency slot for 5G is [100 meg]. But the one that really make a useful maybe you be -- most likely be more than 40 meg. 40 meg, 50 meg or 60 meg will make it meaningful for 5G.

So with that in mind, True obviously has to position ourselves to get a substantial slot, maybe 60 or higher just to the average, 60 or higher.

And now the -- since the band we sell didn't come up together, so the first-mover advantage, if ever given the same opportunity, the first-mover advantage may not be there as it is today. That's one of the reasons that if you look at 5G, 5G will be basically more for the corporate market and the government market. That's why you listen to Dr. Kittinut's discussion about IoT. We talked about vertical industries. And we give examples about 6 or 7 in vertical industries. There are actually practically hundreds and thousands of vertical industries, automotive being one, manufacturing being one, health care, public security. You can list hundreds of vertical industries. So basically is that whoever, as an operator, able to gain knowledge and know-how on any particular industry and not just provide connectivity but provide end-to-end solutions, you own the vertical industry. So we've been doing this ahead of time try to kind of build the foundations as we have done for the other value-added services.

For example, our TrueMoney; for example, our TrueID; for example, our True4U. All those activities, it takes quite a number of years to build up those foundation. So with those in mind and our ability to provide convergent services, I think we have the potential advantage but may not as obvious as when we do 3G and 4G at that time.

We also have tremendous assistance from China Mobile. Just to give you an example, China Mobile itself has 900 million subscribers as an operator, which is bigger than the largest in the U.S., the largest in Europe and the largest in Japan combined. And they are the first mover in 5G, so we can align of our traction, we can align on knowledge from them and a lot of other things. Hopefully, we can leverage that somehow.

In terms of 5G rollout. People might not know that 5G is not by itself. 5G is actually, you look at 5G and 4G. 4G and 5G will coexist for a number of years to come, 7 years, 8 years, even more than 10 years. And in the early stage of 5G, we should actually leverage the 5G spectrums for 4G use. So the benefit is mutual.

And indeed, you also mentioned briefly about when we do 5G, you're going to show about the 4G part as well. In the beginning, we could just leverage our current infrastructures to turn on 5G. But we turned on both 5G and 4G. And we use the 5G investment, primarily to assist 4G as well while gaining 5G benefits. So hopefully, the whole thing will turn out okay.

We're still in study with a lot of help from China Mobile as well. They actually have sent quite a number of engineers currently working in our premise now. We also -- our own engineering organization, also our consultants to help about the approach.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [27]

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Okay. Let's go to the next question. Still on TrueMove H. In the early stages of 5G, what markets will we be focusing on the most between B2C and B2B? I think Khun Vichaow kind of answered that.

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [28]

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Maybe I'll just add a little bit more. Even I mentioned about 5G for B2B, the secular part can be used for B2C. In the area that's highly congested, for example, you support the consumer market. The consumer market, there's also a substantial segment on the gaming area and also in the new area like AR and VR. That means virtual reality and augmented reality. Those will be the niche market, might not be big but in the niche market also serve the consumer market, which is the B2C part.

And we talk about the China Mobile, mobile. And the third bullet about, do you plan to roll out 5G in standalone at China Mobile or that standalone first?

We -- in technical terms, they use SA, which is standalone. And NSA as nonstandalone. We're definitely going to go with nonstandalone first because we're going to leverage and then combine with our 4G network first.

China Mobile also start out with NSA. That's standing out with SA. But their transition from NSA to SA probably a lot faster than expected. But today, China Mobile is NSA not SA, just to correct the question.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [29]

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Okay. Next page, please. More on TrueMove H. How much is the minimum bandwidth that 1 operator needs in order to launch 5G eMBB? And are we concerned about potential new entrants other than TOT and CAT?

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [30]

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Right. On the first bullet, I probably answer already about if you only bid for 10 or 20 meg then no different with 4G. So kind of like a moot point. I mentioned about maybe 40 or 50 meg minimum to start, maybe 40. So to answer the question.

In terms of TOT and CAT, I think we'll have to leave that to the government to decide. We are not in a position to -- I should give you some observation with this. If CAT or TOT, once you come out with the only 5G network, as a greenfield operator, I'm not looking down on people, but good luck to them, for a brand-new entrant, and then you have to be on network is quite difficult. But there's nothing wrong with trying.

However, given the opportunity to participate in the auction to get 5G license, if we get a certain block of frequencies, we already have the frequency, and there's no point to rent more frequency from a state enterprise. So obviously, the less player, the better, but then it is really not an issue that we should be concerned too much.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [31]

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And then just to follow-up on that. The question also asked about other new entrants besides TOT and CAT, and I'm sure that's referring to what happened in the auctions 4 years ago for 1,800 and 900 megahertz spectrum, when there was a new entrant bidding and actually winning 1 slot in the 900, they were unable to get financing because there's just no way that a new entrant can enter the market in 4G is -- without an existing customer base or -- in 2G and 3G service. It's way worse in 5G. It's going to be much more challenging for a new entrant to come in, in 5G. So a greenfield operator, I can't imagine how they could possibly get financing. There's really not a business model there.

Okay. Next questions. How do we deal with the big jump in data? And have we changed our focus towards revenue share versus profits? How much are we willing to give up? Can I take the second one first? And then you can deal with the big jump in data.

Our focus remains on profits. It has been on profits for many years, even back when we didn't have them, when we were unprofitable. Revenue and revenue share is just a ratio, but revenue is the way we get the profits. Obviously, we made a big investment in spectrum years ago, back in, as I was mentioning, the 900 and 1,800 spectrum. The -- and that's going to hit our P&L. And it gets amortized, and then the CapEx has to come after it to make the spectrum actually have any value. That's a big increase in depreciation and amortization. The only way to make that pay is to grow your revenue. And we were able to jump from having, not embarrassed to say, clearly, the worst 2G network in the market to having clearly the best 4G network in the market and 3G as well, because we had a 2-year head start on 3G. That's why our revenue way more than doubled over the last 6 years while AIS grew about 10% and dtac shrank. And so yes, we gained a lot of share. But the point of gaining the share is not so we can say we have x percent revenue share, is to turn profits and eventually reach free cash flow positive. So that focus is not changing at all. We remain focused on cash flow and profits and revenue growth is the primary tool to achieve them. Obviously, cost control and CapEx control is extremely important as well. But you're not going to shrink your expenses enough to fund the spectrum payments. That's just not realistic. You need to make them pay off by gaining revenue.

Okay. And then the other question is how do we deal with the big jump in data.

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Kittinut Tikawan, [32]

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Okay. So as I mentioned, first of all, we have to stay competitive to the market. Two point, already as long as we stay competitive, we continue with the growth momentum.

Secondly, I think the combined offering to the consumer benefit in wireless area, much more on the lifestyle side and the content as well. As we offering TrueID, the content, the privilege, campaign, altogether with the proposition, this is the way that we focus.

And last one, as you realize about the big volume pricings, as I mentioned, is still talking about THB 150, THB 200 is still a big gap from our current EBIT prepaid ARPU that's mean a big opportunity for -- to move us to the upsize of the EBIT ARPU in the prepaid market. And as long as if the competitor lower the price again, it's going to hurt their revenues more than the impact to TrueMove H since we are as quite a bit at the lower base than our competitor.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [33]

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Okay. Next questions. Shifting to TrueOnline. Was the competition in fixed broadband getting tougher or easier in the third quarter compared with the earlier part of the year?

And then let me ask the second question, too, because you can probably discuss them both together. What were the reasons such as gross adds or ARPU or churn behind our fixed broadband revenue growth in Q3 after the negative growth in the previous 3 quarters?

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Kittinut Tikawan, [34]

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Okay. My answer is -- I combined the 2 questions together. As the competition is very high and we face things about the price cutting from our competitor in the past, in the second quarter and the third quarter, we realized that there are some price cutting in the market. Our competitors start discount of -- 50% of our competitors start remove the entrance fee for the broadband customer. And also the deposit that's all together with the entrance fee. So this is a destroyed market, the industrial market value in the broadband competition. So -- but for the TrueOnline, we must more forecast on the customer experience, the quality and the technology as one means. As you might notice, we're going to upgrade our broadband infrastructure. We upgrade our service to offering 1 gigabit service nationwide, together with the modern technologies of the 1 gigabit modem that combine together in the package. So the customer, no need to pay any additional to enjoy the 1 gigabit experience compared to our competitor is still using the [audit] equipment they cannot compile their 1 gigabit. They have to require the customer to pay more THB 4,000, THB 5,000 for additional equipment to enjoy the 1 gigabit. So this is our focus to provide a good experience, good quality and (inaudible) our technology. And together with the launching and bundling with the OTT platform TrueID TV Box together. So not just only the customer can gain best experience and benefit and all together with they can stream and consume the premium content that go together with our package in the TrueID TV Box together and all together with the world-class content, such as the EPL.

So this is a way that we compete in the broadband competition in the market. And I think in the late -- of the third quarter and up to the first quarter, we say -- I mean we see the good momentum and with our acquisition, monthly acquisition is going to be new high. Last month, as well and still continue the growth momentum in the whole of the fourth quarter.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [35]

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Okay. Thank you. Next question. More on TrueOnline. What customer segments are True and competitors focusing on? And what's our view of competition in Q4?

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Kittinut Tikawan, [36]

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Customer segment for broadband for True. And I'm not sure, this is a combined question to a competitor. But I reply in general, definitely, we have the customer segment in terms of consumer segment and enterprise and SME segment.

For the Consumer segment, we're talking about horizontal and vertical area. In vertical, we're talking about the building project that we provide fiber to [loom], the upgrade of fiber and provide the fiber to loom and the fiber to home. This is for the consumer market that we forecast. And also for the enterprise solution and SME, we provide a dedicated link for the enterprise use and SME use, together with the solution. That is the way we [predicate] market segments for the broadband for consumer and enterprise.

And as I mentioned in the fourth quarter, we are in the good growth momentum since we launched the gigabit service nationwide and also combined with the benefit all together with the digital platform, content and privilege into the same package provide to the end consumer.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [37]

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Another question for True Group. Are there any discussions on putting fiber underground in the Bangkok area?

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [38]

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It's definitely, based on our observation, the BMA's intention to start moving cable underground. Just like any project initiated by government, it seems to have tendencies to delay quite a bit. So this time, it seems like quite now a bit, but we still believe that there will be an underground project going on. And whenever that requirement comes, we'll comply. Because all operating companies, all operators have to comply, and they will comply.

In fact, you put the cable on the ground, it actually make it safer. And also, the reliability will be better. So we are ready for that. That's all we can say.

But based on the observation is that the initial announcement on -- within 2 years, they will come out with like 2,000 or 3,000 kilometers of cable wires to underground. At the moment, it seems like that they're reworking on the schedule. So I think that part is going to delay a bit.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [39]

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Okay. Next questions. This is about TrueVisions. Is it possible that True will be losing content from Disney after the launch of Disney+? And I guess, if so, what would be the possible negative impacts?

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Kittinut Tikawan, [40]

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The launch of the Disney+ is still in -- that's only in the U.S. market and not yet rolling to other regional -- no other -- not going to other countries. I think maybe in the next 1 or 2 years is still stick in the U.S. market. So no impact from now to the next 1 to 2 years from now.

And -- but anyway, for the Disney and Fox partnership with True is we have a long-term partnership, and we can develop another business model as a partnership or (inaudible) some ways [after discussing] in terms of the (inaudible) and digital platform. That's going to be discussed further in the near future.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [41]

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Okay. Next question is what is your budget for original content production this year versus last year?

It is proprietary, and we don't disclose it. So we'll skip that question and go to the next one, which is what will your original content production and monetization strategy be next year?

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Kittinut Tikawan, [42]

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I think our original content, clearly, we just launched the TV drama in voice and True CJ production, the joint venture company. And today, we've just released a new episode of (foreign language), the second episode today.

And also, we also resell our original content, as I mentioned, to international platforms, such as the Netflix as well. That can -- that's the way we monetize or we monetize in both way. We supply into other international platform and also using as an internal, our platform that provide to customers as well.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [43]

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Thank you. And while we're on TrueVisions, I just want to emphasize something that Dr. Kittinut mentioned in the presentation. We didn't talk about TrueID TV, the OTT box, which is doing extremely well. We only started marketing it aggressively a few months ago, and there was a small chart on Page 6 that showed that we had 0 users at the end of 2018. By second quarter, we had 35,000 monthly active users; by third quarter, 130,000. Today in November, over 200,000. This is growing very, very fast, and we are monetizing it both through advertising and through content -- pay-per-use content or subscription content, mostly Premier League, but other things as well. That's going to be generating quite a lot of revenue in coming years and obviously is more in line with the modern way of consuming video content than the traditional pay-TV subscription, high-priced 200 channels and you watched the programs when the channel owner wants you to. This is all streaming. So 400,000 purchases already in just 3 or 4 months for content is terrific, and that number should be tripling or quadrupling within 6 months. So that's really great for us, and we're very happy about that and don't talk about it as much as we should.

That's the last question from online. Are there any further questions in the room?

Microphone's coming.

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Unidentified Analyst, [44]

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A few more questions about 5G auction. Let's assume that you win some bandwidth under the 2,600 megahertz spectrum. Are you going to roll out 4G or 5G first?

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [45]

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If for us, we still have to do the study, and then we have to give the information to the Board and China Mobile being a major shareholder of True, they also help us make that decision as well.

If at the end, they would decide to participate with a particular guideline that we have to work under. When we do grow out either -- I will probably going to grow out in very selected area first. It will be both from day 1. Has to be both.

The current technology allows for dynamic spectrum sharing. That means if you have 10 meg, you can actually allocate 8 for 5G or you can allocate 8 for 4G. So we can actually -- in the area that is highly congested, we can even allocate most of them to 4G and some for 5G. So it's actually quite flexible. So it has to be both. It do not need to be mutually exclusive.

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Unidentified Analyst, [46]

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Second question is about the payment term of the upcoming auction. Because it seems quite generous, but there's a condition about 5G rollout in the EEC area. It says that you have to roll out and cover 5G and EEC to qualify for the 3-year grace period during year 2 to year 4. Are you concerned about this particular condition?

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [47]

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For us, it's actually quite natural. For True, if you look at our market share, we have a huge market share in Bangkok metropolitan area. We're actually more or less in par with AIS. We also have a huge market share in the East Coast, you know, Chon Buri, Pattaya, those areas of the EEC side. So those are -- these 2 areas are highly dense and the purchasing power is very high. So it's actually quite natural for -- if it was mandate to be put on the 3 provinces in the deep south then we probably have some concerns.

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Unidentified Analyst, [48]

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What's your financing plan for 5G implementation, both for license payments and CapEx? And do you consider any plan for equity injection given the current leverage level of the company?

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [49]

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The plan for financing it is basically the same as for 4G. The spectrum payments, as you know, are spread out over a longer time than the original payments were for 4G. So that's very helpful. So they're not particularly burdensome in any 1 year, unlike the 900 megahertz where we have a very large payment coming next year even after the deferral. So that's a lot easier to deal with.

Our CapEx, we have had on 5-year payment plans for quite a long time. So any CapEx we're doing next year probably we will pay 15% or less of it next year and then spread out over the 5 years following. So the same idea. And then that's kind of when we pay for it, but how do we get the money to pay for it, I think, is really your question.

We'll continue with our current strategy. We've accessed the Thai baht debenture market several times already this year very successfully and are about to do it again. And it looks like it will, again, be very successful. That's a very liquid market for us, and the rates are reasonable. We have access to a lot of other debt markets, but they're more expensive. So right now, we're focusing there.

We have done asset sales to DIF. We can do them again. We're not in any hurry to do so, but that's certainly plausible. We also own shares of DIF that we could plausibly sell if we needed to, but equity is far more expensive than any other way we could possibly raise capital. So until we've exhausted everything else, then we're certainly not thinking about equity and not in the foreseeable and hopefully, not in the long-term future either. There's just no reason to be going that way.

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Vichaow Rakphongphairoj, True Corporation Public Company Limited - Director [50]

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Just to back up what Will has tell you, as a Board member of True as well, no, we have no intention of increased equity.

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William E. Harris, True Visions Public Company Limited - Group CFO, Executive Director of International Business Development and Senior Assistant To Ceo [51]

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Okay. If there are no further questions, thank you very much for coming to our third quarter results conference, and we'll see you hopefully in between now and then. But at the very least, we'll see you when we release fourth quarter at the end of February. Thank you.