OREANDA-NEWS. Thai telecom operators will face increasing pressure as the rate of growth in data revenue is likely to slow in 2016 and 2017, says Fitch Ratings. The growth in data subscribers has started to decelerate in the last few quarters as smartphone penetration rises. In addition, the growth in data usage for existing data subscribers is not translating fully into higher revenue, given the fierce price competition in data. Thai mobile phone operators' data revenues might not grow sufficiently to offset the declines in legacy voice and SMS revenues, resulting in a drop in overall service revenue over the next two years.

Fitch believes that the growth in number of data subscribers will continue over the next two years, but the pace will be slower as Thai telcos penetrate deeper into the lower-tier segment. These subscribers are generally more reluctant to change to a smartphone, as they use the mobile phone service mainly for voice calls - and are less likely to benefit from the fast 3G and 4G data networks. Operators may need to offer more incentives, such as deep tariff cuts and handset subsidies, to accelerate the data service adoption. The number of smartphone users in Thailand remained moderate at end-1Q16, accounting for around 60% of the total mobile subscriber base.

Fitch expects the competition in the Thai mobile market to remain intense for the rest of 2016 and into 2017. Growth in data usage for existing data subscribers will be supported by the increasing popularity of video and music streaming, but an increase in revenue from this growth is likely to be minimal. This is mainly because the average revenue per user (ARPU) increase will be limited by the competitive pressure and the continued offerings of unlimited data or large data package.

In the medium term, non-voice revenue growth will be driven by subscriber growth. However, operators will need to monetise data better to achieve revenue growth in the longer term when data penetration approaches saturation. This will require the ability to adjust data pricing to move away from unlimited and large data allowance packages, to a strategy which charges subscribers according to their usage. In some other markets, telcos have struggled to migrate customers from 'all-you-can-eat', so-called 'buffet pricing' - used to stimulate demand for data - to a tiered pricing approach.

The latest results for Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable) and Total Access Communication Public Company Limited (DTAC; BBB/AA(tha)/Stable) - the two largest Thai mobile phone operators that account for around 80% of service revenue market share in 2015 - also highlight the challenge facing the industry. The growth in non-voice revenue for AIS in 1Q16 dropped to 21%, from 33% in 1Q15. The company reported a yoy flat service revenue, as non-voice revenue growth barely offset the drop in voice revenue. DTAC reported a 5% drop in service revenue, as its non-voice revenue growth of 10% was not enough to compensate for a 15% drop in its voice revenue.