Digital Telecommunications Infrastructure Fund 2015 Annual Report From 1 January 2015 to 31 December 2015

Digital Telecommunications Infrastructure Fund 2015 Annual Report From 1 January 2015 to 31 December 2015 2015 Annual Report - Digital Telecommunic...
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Digital Telecommunications Infrastructure Fund 2015 Annual Report From 1 January 2015 to 31 December 2015

2015 Annual Report - Digital Telecommunications Infrastructure Fund

Letter from the Asset Management Company April 11, 2016 To Unitholders, SCB Asset Management Co. Ltd. would like to submit the 2015 annual report of the Digital Telecommunications Infrastructure Fund (“The Fund”) for the period between 1 January 2015 and 31 December 2015 to unitholders. The Fund was registered on December 23, 2013 with Net Asset Value as of December 31, 2015 of THB 71,578.71 million or a net value of THB 12.3241 per unit. During the period between 1 January 2015 and 31 December 2015, the Fund’s total incomes and expenses were THB 5,900.73 million and THB 852.39 million, respectively, resulting in the net operating income in the period of THB 5,048.34 million. Regarding the overall economic and industrial outlook, the SCB Economic Intelligence Center (EIC), in its 2015 economic summary, stated that the Thai economy recovered at a sluggish pace in 2015. Thailand’s GDP grew by 2.8% in 2015, up from 2014 pace, when political instability dragged growth down to only 0.9%. Tourism and fiscal spending on economic stimulus measures were the main growth drivers in 2015. Nevertheless, the recovery was weak because of the strained global economic conditions, causing Thai exports to shrink, in turn depressing private investment. Drought conditions and the fall in prices for farm products eroded household purchasing power and spending. For the overall telecommunication industry in 2015, for the mobile service business, voice revenue and nonvoice revenue of the main three mobile operators including AIS, DTAC and True continued to grow. In 2015, total voice and non-voice revenue of these three operators grew at 4% compared to the prior year. The proportion of non-voice revenue to total revenue continues to grow as a result of changing consumer behavior which is geared toward much higher data consumption and lower voice minutes. For the overall landscape of the fixed broadband service business, there was a continued growth in the number of users and penetration rate. As of the end of 3rd quarter of 2015, total number of household users was at 6.18 million households or an increase of 3.1% compared to the prior quarter. The overall Thailand’s penetration rate also increased to 30.6% or an increase of 0.9% compared to the prior quarter. However, total revenue from the fixed broadband business was pressured by continuing decrease in the service rate (THB per kbps). In 2015, the Fund had some key developments including the investment in 1st additional telecommunications infrastructure business assets in March 2015 with a total investment value of THB 13,100 million. The 1 st additional telecommunications assets included (1) long-term leasehold and call option upon the expiration of the long-term leasehold contract and fulfillment of other conditions of fiber optic cables (FOC) for a distance

2015 Annual Report - Digital Telecommunications Infrastructure Fund of 303,453 core kilometers and (2) the right to receive net revenue including the ownership following the fulfillment of other conditions of 338 towers currently owned by True Group. This additional investment was fully funded by the credit facilities provided by a group of banks. In addition, in August 2015, the Fund had completed the name change process including its Thai and English name and the ticker of the Fund from TRUE Telecommunications Growth Infrastructure Fund (TRUEIF) to Digital Telecommunications Infrastructure Fund (DIF). The name change was aimed to make the name of the Fund consistent with its key strategy in terms of securing more third-party tenants and also investment in assets owned by other operators other than True Group and also to lessen investors and public’s confusion in terms of the Fund’s relationship with True Group and its independence. The SCB Economic Intelligence Center (EIC) forecasts that the Thai economy will grow at 2.5% in 2016. GDP is expected to continue recovering at a moderate pace, constrained both by weak exports, which will remain affected by China’s economic downturn, and by anemic consumer spending given the high level of household indebtedness and falling income in the agriculture sector. As a result, Thailand’s economic growth will depend on the effectiveness of fiscal measures at stimulating private investment. These include various tax measures, acceleration of the Public-Private Partnership (PPP) programs in infrastructure investment, and the Board of Investment’s enhancement of privileges and incentives for corporate investors. Early signs of progress became evident in late 2015, as many of the government’s large-scale projects moved forward to contract awards. The cabinet approved 20 transportation infrastructure projects, worth approximately THB 1.8 trillion. The advancement of these projects will push budget disbursement up to reach the target level set for fiscal 2016. Further, initiation of the projects will boost private-sector confidence and play a major role in stimulating the economy in 2016. In 2016, it is expected that the mobile service business will grow approximately 5% in line with the average growth in 2012-2014. The positive push will be from the 3G/4G network expansion, an increasing growth of data consumption, the conversion of traditional phone to smart phone. However, since the proportion of voice revenue continues to decline, the non-voice revenue is expected to be core revenue of all operators starting 2016. Regarding the fixed broadband service business, it is anticipated that True Group who is the anchor tenant of the Fund will continue to retain its number one position with higher market share. Regarding the fund management, DIF plans to seek higher profits from Thailand’s new and emerging trend in the telecommunication industry; namely, the infrastructure integration and sharing and the continuing search for additional investments in telecommunication infrastructure assets in order to fuel revenue and dividend growth to unitholders. The Fund has proposed this integration and sharing idea to all telecommunication service providers on the principle of shared slots. This infrastructure sharing is believed to have a strong expansion potential following the launch of the 4G license in Thailand that forces all operators to expand their

2015 Annual Report - Digital Telecommunications Infrastructure Fund 4G service to stay competitive as well as to satisfy consumer’s needs for faster wireless broadband internet service. Finally, SCB Asset Management Co Ltd wishes to express our gratitude to unitholders who have trusted us to manage your fund. We will manage this fund by taking into consideration your best interest under the principles of corporate governance for your satisfaction.

SCB Asset Management Company Limited

Sources: SCB Economic Intelligence Center (EIC)

2015 Annual Report - Digital Telecommunications Infrastructure Fund

Table of Contents 1

Fund Information ........................................................................................................................................... 1 1.1 Fund .......................................................................................................................................................................................1 1.2 Management Company .........................................................................................................................................................1 1.3 Fund Supervisor ....................................................................................................................................................................1

2

Policy and Overview of Industry and Implication on the Profit Seeking...................................................... 1 2.1 Vision, goal, target or strategy of the fund’s operation .........................................................................................................1 2.2 Major changes and milestones .............................................................................................................................................4 2.3 Relations with the asset management, or any of the major unitholders ...............................................................................6 2.4 Asset Information of the Fund ...............................................................................................................................................7 2.5 Seeking profit from the infrastructure business ..................................................................................................................11 2.6 Borrowing ............................................................................................................................................................................12

3

Overview of Industries Related to the Infrastructure Assets...................................................................... 14 3.1 Industry Overview................................................................................................................................................................14 3.2 Factors affecting the Fund’s future rent ..............................................................................................................................41 3.3 Marketing policy and competitions faced by the project ...................................................................................................43 3.4 Nature of products and services.........................................................................................................................................44

4

Risk Factors ................................................................................................................................................. 48 4.1 Risks Relating to the Fund ..................................................................................................................................................48 4.2 Risks Relating to the Telecom Infrastructure Business ......................................................................................................60 4.3 Risks Relating to True Group’s Telecommunications Business .........................................................................................68 4.4 Risks Relating to the Investment Units................................................................................................................................73

5

Legal disputes.............................................................................................................................................. 76

6

Other important information ........................................................................................................................ 77 6.1 Change of the Fund’s name ................................................................................................................................................77 6.2 The Fund Supervisor’s relocation .......................................................................................................................................77

2015 Annual Report - Digital Telecommunications Infrastructure Fund 6.3 Registrar’s relocation...........................................................................................................................................................78 6.4 Mutual Fund Supervisory Opinion .......................................................................................................................................79

7

Information of Investment Units of the Fund .............................................................................................. 81 7.1 Investment Units of the Fund ..............................................................................................................................................81 7.2 Unitholder Information .........................................................................................................................................................82 7.3 Total Payout Summary ........................................................................................................................................................83

8

Fund Management Structure ...................................................................................................................... 85 8.1 The Management Company................................................................................................................................................85 8.2 Telecom Asset Manager .....................................................................................................................................................96 8.3 The Fund Supervisor ...........................................................................................................................................................98 8.4 Investment Committee ......................................................................................................................................................100 8.5 Name, Address, and Office Number – Related Parties ....................................................................................................102 8.6 Historical Cases of Penalty and Fine ................................................................................................................................103

9

Supervision ................................................................................................................................................ 105 9.1 Supervision Policy .............................................................................................................................................................105 9.2 Sub-Committee..................................................................................................................................................................105 9.3 Supervision on the use of inside information ....................................................................................................................106 9.4 The Fund’s investment decision and management ..........................................................................................................106 9.5 Selection of the Asset Manager ........................................................................................................................................107 9.6 Supervision of the Asset Manager ....................................................................................................................................108 9.7 Monitoring the Fund’s interest ...........................................................................................................................................108 9.8 The Management Company’s fee .....................................................................................................................................109 9.9 Disclosure of information to unitholders............................................................................................................................109 9.10

Meeting and Voting Rights of Unitholders ...................................................................................................................110

9.11

Auditor’s fee .................................................................................................................................................................112

10 Social Responsibility.................................................................................................................................. 113 11 Internal control and risk management ...................................................................................................... 114

2015 Annual Report - Digital Telecommunications Infrastructure Fund 12 Connected Transaction ............................................................................................................................. 115 12.1

Transaction between the Fund vs. the Management Company and other related persons/Transaction relating to the

Management Company ...............................................................................................................................................................115 12.2

Transactions between the Fund vs. the Fund Supervisor and other persons relating to the Fund Supervisor .........115

12.3

Soft commission ...........................................................................................................................................................115

13 Key Financial Information.......................................................................................................................... 117 13.1

Financial Summary Tables ...........................................................................................................................................117

13.2

Financial Ratio ..............................................................................................................................................................121

14 Management Discussion and Analysis ..................................................................................................... 123 14.1

Analysis of past performance ......................................................................................................................................123

14.2

Forward looking statement ...........................................................................................................................................134

Section 1: Fund Operation of Digital Telecommunications Infrastructure Fund

2015 Annual Report - Digital Telecommunications Infrastructure Fund

1 Fund Information 1.1 Fund Name

Digital Telecommunications Infrastructure Fund

Ticker

DIF

1.2 Management Company Name

SCB Asset Management Company Limited

Address

7-8th Floor, SCB Park Plaza, Building 1 18 Ratchadapisek Rd., Chatuchak, Chatuchak, Bangkok 10900

Telephone

(66 2) 949 1500

Fax

(66 2) 949 1501

1.3 Fund Supervisor Name

KASIKORNBANK Public Company Limited

Address

33/4 The 9th Towers Grand Rama 9 (Tower A) Rama 9 Road, Huaykwang, Huaykwang, Bangkok 10310

Telephone

(66 2) 470 3201

Fax

(66 2) 470 1996 7

2 Policy and Overview of Industry and Implication on the Profit Seeking 2.1 Vision, goal, target or strategy of the fund’s operation The fund aims to be a leader to capitalize from the infrastructure integration and sharing in Thailand and to promote the use of telecommunication infrastructure offered by independent third party infrastructure providers on the principle of shared slots for the best interest of Thailand. This is a key concept actively Page 1

2015 Annual Report - Digital Telecommunications Infrastructure Fund promoted by the National Broadcasting and Telecommunications Commission (NBTC) to reduce redundant investments by mobile operators as an infrastructure construction is a capital-intensive business and thus tends to prevent the telecommunication business from being fully liberalized. The Management Company’s main goal in managing the Fund is to pay dividend to unitholders on a regular basis, to increase the Fund’s long-term Net Assets Value (NAV) and to seek an opportunity to additionally invest in an asset in order to increase investment return and the Fund’s NAV. Operating Strategy (a) To generate profit through operating leverage by achieving sales targets as anticipated which can be realized by maintaining good relationship with True Corporation Public Company Limited (“True”) and its subsidiaries and by seeking additional tenants and managing additional shared slots on the new 6,000 towers that True delivered to the Fund. The Fund’s strategy is to increasingly exploit the additional telecommunication towers and to increase investment returns where the Asset Manager is set to increase a number of tenants and to maximize the tenancy ratio on these additional towers to generate more revenues from the new towers. The Asset Manager will collaborate with planning and engineering network teams of other Thai mobile operators to seek new opportunities to use the Fund’s towers to respond to their network demands. By adding the number of tenants and by managing the shared slots to be rented by new customers, the Fund will be able to diversify its client base, increase its credit profile and maintain its long-term cash flow. New tenants and the management of the shared slots will materially improve the Fund’s operating margin since its incremental expenses from adding new tenants and managing new shared slots is minimal. These new telecommunication towers will be located at various sites nationwide and therefore will allow telecom operators to cover to the majority of population on 850 MHz, 900 MHz, 1800 MHz and 2100 MHz spectrums, making the new towers an interesting alternative for mobile operators to install the additional number of Node B compared to constructing their own towers. In addition, the Fund strives to maintain its relationship with True Group and its subsidiaries through a mutual agreement to expand the asset base which should mutually benefit both parties. Based on this strategy, the Fund will have additional slots to fuel its future growth while True Group will find this a costeffective way to expand its network.

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2015 Annual Report - Digital Telecommunications Infrastructure Fund (b) To expand the Fund’s telecommunication asset size by acquiring assets that can be shared from True Group or other telecom operators. The example includes the 1st additional telecommunications infrastructure business assets that the Fund invested in March 2015. At the end of December 2015, True had completed the delivery of the 6,000 Additional Telecommunications Towers and other related passive telecommunication assets to the Fund in accordance with the agreement. In addition, upon the expiration of the HSPA Network-Equipment Leasing Agreement, the Fund is entitled to not only own AWC’s telecommunication towers but also to purchase, through a call option, BFKT towers. Furthermore, the Fund is granted the right of first offer under the Asset and Revenue Sale and Transfer Agreement to buy additional asset or net revenue that True Group will choose to sell. Additional assets that the Fund purchases from True Group will be subleased, operated and managed by companies within True Group as anchor tenant/operator; or by new tenant/operator of shared slots under a long-term sub-lease, operation and management agreement in which an initial rent will be fixed with price adjustment factors being pre-determined. In addition, to continue increasing the Fund’s cash flow which will be positive for paying unitholders an investment return, the Fund will additionally seek new asset from True Group or someone else that contribute a strategic value for the sharing of infrastructure by several operators. With a plan to expand the Fund’s telecommunication infrastructure asset size on the basis of having an agreement executed in advance only, the Fund plans to ensure that assets additionally acquired by the Fund are able to generate incomes as soon as they are bought since this will reduce the execution risk while increasing cash flow and investment returns to unitholders by (1) reducing the Fund’s initial investment expense; and (2) by immediately generating a return in form of rent as soon as the cash is paid to acquire the additional asset. Regarding other future net asset or income that the Fund will receive from True Group, the Fund will have an independent asset appraisal produce an appraisal report to ensure that the transaction is carried on an arm’s length basis and for the best interest of unitholders. (c) To make an additional investment in the Fund’s existing assets to enhance its hosting capacity in order to respond to higher demands The Fund aims to make an additional investment in the Fund’s existing assets to enhance its hosting capacity. Such capacity enhancement shall be conducted by the tenant of the Fund in order to increase the number of lease slots; thus, increasing total capacity of existing towers. For FOC, the improvement in efficiency and bandwidth of the FOC and UBB system can also be done to enlarge the asset capacity or to keep pace with changing technology. Particularly, the future improvement may include (1) the retrofit of

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2015 Annual Report - Digital Telecommunications Infrastructure Fund some towers to add more lease slots and (2) the improvement in the transmission system equipment and network equipment. The Fund plans to make an additional investment on existing assets only if the tenant of the Fund agrees to lease those enhanced assets with pre-determined lease rate and such additional investment shall benefit the unitholders in a long run. (d) To efficiently manage the fund to support long-term growth and the long-term allocation of investment return to unitholders The Fund plans to manage its balance sheet with discipline. This includes an attempt to cap its debt to equity ratio to not exceed 3:1 as required by the securities law and the Fund Scheme. In addition, the Fund will maintain high liquidity so that it can pursue existing strategies for business expansion as well as distribute cash for unitholders in the long run. In addition, according to the debt covenants as specified in the Facility Agreement that the Fund signed with its credit facility providers, the Fund shall maintain its Interest-Bearing Debt to EBITDA not to exceed the maximum of 4.0 times. The Management Company believes that prudent capital management while keeping risk at the current low level will enable the Fund not only to access enough funding sources both in terms of equity and debt in the future depending on market condition at the time but also to expand and enhance the Fund’s telecommunication infrastructure assets.

2.2 Major changes and milestones 2.2.1 The Fund invested in the 1st additional telecommunications infrastructure business assets in March 2015 The Fund invested in the 1st additional telecommunications infrastructure business assets which included:(1) the right to receive net revenue derived from the lease of telecommunications infrastructure business assets of Asia Wireless Communication Co., Ltd. (“AWC”), which comprise telecommunications towers of approximately 338 towers and other relevant passive telecommunications infrastructure (if any) owned by AWC, comprising the net revenue to be generated from and including 1 March 2015 (or other date as agreed upon by the Fund and AWC) until the expiry date of the lease agreement of additional AWC telecommunications towers between AWC and BFKT (Thailand) Limited (“BFKT”), as amended, (“AWC Leasing Agreement”), including ownership in such telecommunications towers and other related passive telecommunications infrastructure (if any) owned by AWC, following the expiry date of the AWC Leasing Agreement and fulfillment of other conditions to be determined in the asset and revenue sale and transfer agreement. The Fund will enter into the asset and revenue sale and transfer agreement with AWC; and

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2015 Annual Report - Digital Telecommunications Infrastructure Fund (2) Long-term leasehold with a term of not exceeding 20 years of AWC’s telecommunications infrastructure business assets, which comprise fiber optic cables (FOC) for a distance of approximately 7,981 kilometres (or approximately 303,453 core kilometres), including call option of the FOC upon the expiration of the term of the long-term leasehold and fulfillment of other conditions to be determined in the long-term lease agreement with the exercise price for the purchase of the ownership in such assets being THB 500 million. The Fund will enter into the long-term lease agreement with AWC. 2.2.2 The Fund signed an Amendment and Restatement Agreement relating the Master Lease Agreement dated 1 Oct 2014 with DTAC TriNet Co., Ltd in January 2016 In January 2016, the Fund entered into an Amendment and Restatement Agreement relating the Master Lease Agreement dated 1 Oct 2014 with DTAC Trinet Co., Ltd (DTN), a subsidiary under Total Access Communication Co., Ltd (DTAC). In the newly-signed agreement, DTN shows its intention to lease more telecommunications towers from the Fund compared to the number of leased slots DTN agreed with the fund in the Master Lease Agreement dated 1 Oct 2014 at 115 slots. Nevertheless, as the Fund needs to follow the Confidential Clause per the agreements signed with DTN, the Fund cannot disclose more details of the agreements until the official press release from the Fund and DTN is publicly announced. The additional rental revenue from leasing towers to DTN will be gradually recognized in the income statement, causing the expected rental revenue in 2016 to increase compared to that of 2015. This cooperation can be considered as an important step for an efficient and successful infrastructure sharing in Thailand.

Key Events since Fund Inception (Milestone) Key Events between Dec 27, 2013 (Fund Inception) and Dec 31, 2014 Listing and commencement of trading of Investment Units on

XD for dividend (THB 0.2643)

27 December 2013

2 May 2014

Anchor tenant announced recapitalization

9 June 2014

XD for dividend (THB 0.1938) 6 August 2014

DIF’s announcement of colocation with DTAC

29 October 2014

XD for dividend (THB 0.2603) 5 November 2014

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2015 Annual Report - Digital Telecommunications Infrastructure Fund

Key Events for the year 2015 DIF’s announcement of the 1st additional asset acquisition 19 January 2015

XD for dividend (THB 0.2200)

Notification of Resolutions of the Unitholders' Meeting No. 1/2015

29 January 2015 27 February 2015

XD for dividend (THB 0.2350)

XD for dividend (THB 0.2365)

Change of the Fund name

XD for dividend (THB 0.2370)

8 May 2015

4 August 2015

31 August 2015

4 February 2015

2.3 Relations with the asset management, or any of the major unitholders a) Telecom Asset Management Company Limited (“TAM”), as the Telecom Asset Manager with duties to provide certain administrative and other services to the Fund, is a related person of the Fund according to the Notification of the Capital Market Supervisory Board No. Thor Nor. 1/2554 Re: Rules, Conditions and Procedures for Establishment and Management of Infrastructure Funds dated 10 January 2011 (as amended) (“TN. 1/2554 Notification”) because TRUE is the major shareholder of TAM (either directly or indirectly), while TRUE is a major unitholder of the Fund which holds more than 10 per cent of the total issued investment units of the Fund. b) Asia Wireless Communication Co., Ltd. (“AWC”), as the seller and the transferor of the right to receive revenue and assets, and the person leasing the telecommunications infrastructure business assets for additional investment no. 1 to the Fund, is a related person of the Fund according to TN. 1/2554 Notification because TRUE is the major shareholder of AWC (either directly or indirectly), while TRUE is the major unitholder of the Fund which holds more than 10 per cent of the total issued investment units of the Fund. c) BFKT (Thailand) Limited (“BFKT”), as the seller and the transferor of the right to receive revenue and assets, and the person leasing the telecommunications infrastructure business assets for additional investment no. 1 to the Fund, is a related person of the Fund according to TN. 1/2554 Notification because TRUE is the major shareholder of AWC (either directly or indirectly), while TRUE is the major unitholder of the Fund which holds more than 10 per cent of the total issued investment units of the Fund. Page 6

2015 Annual Report - Digital Telecommunications Infrastructure Fund d) True Universal Convergence Company Limited or TU is, as the lessee of telecommunications infrastructure business assets from the Fund, a related person of the Fund according to the definition thereof as prescribed in TN. 1/2554 Notification because TRUE is the major shareholder of TU (either directly or indirectly), while TRUE is a major unitholders of the Fund which holds more than 10 per cent of the total issued investment units of the Fund. e) True Move H Universal Communication Company Limited or TUC is, as the lessee of telecommunications infrastructure business assets from the Fund (new tower assets), a related person of the Fund according to the definition thereof as prescribed in TN. 1/2554 Notification because TRUE is the major shareholder of TUC (either directly or indirectly), while TRUE is a major unitholders of the Fund which holds more than 10 per cent of the total issued investment units of the Fund.

2.4 Asset Information of the Fund a) Overview of the existing telecommunications infrastructure business assets invested by the Fund The comparative overview of the initial telecommunications infrastructure business assets invested by the Fund and the telecommunications infrastructure business assets of the Fund following the investment in the Additional Telecom Infrastructure Assets is as set out below: Table 1: Telecommunications infrastructure business assets invested by the Fund at its inception: Form of investment

Right to receive net revenue and ownership in the assets upon fulfillment of conditions AWC BFKT

Entities entered to the transaction with the Fund Telecommunications 4,360 towers Towers Fiber optic cable (FOC) and transmission system equipment Upcountry broadband system

-

Ownership

Total amount of the assets

True

TU

1,485 towers

6,000 towers

-

11,845 towers

9,169 links and FOC of 47,250 kilometres (680,400 core kilometres) -

-

FOC of 5,112 kilometres (122,974 core kilometres)

-

1.2 million

9,169 links and FOC of 52,362 kilometres (803,374 core kilometres) 1.2 million ports

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2015 Annual Report - Digital Telecommunications Infrastructure Fund Form of investment

Right to receive net revenue and ownership in the assets upon fulfillment of conditions

Ownership

Total amount of the assets

ports and FOC of 6,114 kilometres (198,085 core kilometres)

and FOC of 6,114 kilometres (198,085 core kilometres)

Table 2: Telecommunications infrastructure business assets of the Fund following the investment in the Additional Telecom Infrastructure Assets: Form of investment

Entities entered to the transaction with the Fund Telecommunications Towers Fiber optic cable (FOC) and transmission system equipment

Upcountry broadband system

Right to receive net revenue and ownership in the assets upon fulfillment of conditions

AWC

BFKT

True

TU

Long-term leasehold + call option on assets upon fulfillment of conditions AWC

4,360 towers and 338 towers -

1,485 towers

6,000 towers

-

-

9,169 links and FOC of 47,250 kilometres (680,400 core kilometres)

-

FOC of FOC of 7,981 5,112 kilometres (or kilometres 303,453 core (122,974 kilometres) core kilometres)

-

-

1.2 million ports and FOC of 6,114 kilometres

-

Ownership

-

Total amount of the assets

12,183 towers 9,169 links and FOC of 60,343 kilometres (or 1,106,827 core kilometres) 1.2 million ports and FOC of 6,114 kilometres Page 8

2015 Annual Report - Digital Telecommunications Infrastructure Fund Form of investment

Right to receive net revenue and ownership in the assets upon fulfillment of conditions

Ownership

Long-term leasehold + call option on assets upon fulfillment of conditions

(198,085 core kilometres)

b) The details of asset as of December 31, 2015 as follows: Total Asset Fund (THB) Digital Telecommunications Infrastructure Fund

86,799,831,723.47

Total amount of the assets

(198,085 core kilometres)

Net Asset Value (THB)

Net Asset Value per unit (THB)

71,578,710,090.93

12.3241

Appraisal of the Initial Assets Company

BFKT (Thailand) Limited (“BFKT”)

Asia Wireless Communication Company Limited (“AWC”)

Type The right to the net revenues from telecommunications towers The right to the net revenues from fiber optic cable transmission grid

The right to the net revenues from telecommunications towers The ownership of 6,000 True Corporate telecommunications Public Company towers and other related Limited (“TRUE”) passive

Appraised Value Appraiser (THB million) Silom Advisory 4,003 Company Limited Silom Advisory 14,340 Company Limited Silom Advisory 12,787 Company Limited Silom Advisory 19,607 Company Limited

Valuation Date

Valuation Period

Appraisal Method

Income January 1, Approach 2015 – December according December 31, 2014 to the 31, 2027 with Fund’s terminal value structure

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2015 Annual Report - Digital Telecommunications Infrastructure Fund Type

Company

Appraised Value Appraiser (THB million)

Valuation Date

Valuation Period

Appraisal Method

telecommunications infrastructure for mobile telecommunications services The ownership of a core True Universal fiber optic cable grid and Convergence related transmission Company equipment and an Limited (“TU”) upcountry broadband system

20,814

Total

71,551

Silom Advisory Company Limited

Appraisal of the Telecom Infrastructure Assets for Additional Investment No. 1 Company Type Appraised Valuation Valuation Appraisal Value Appraiser Date Period Method (THB million) The right to the net Capital Plus revenues from Asia Wireless 15,797 Advisory telecommunications Communication Income 18,832 Company towers and long-term Company April 1, 2015 Approach Limited Limited (“AWC”) leasehold with a term of January 26, – December according not exceeding 20 years of 2015 31, 2046 with to the fiber optic cable (FOC), Silom terminal value Fund’s including call option of Advisory 16,903 – structure the FOC upon the Company 18,112 expiration of the term of Limited the long-term leasehold

c) Progress of the construction of uncompleted project Under the Asset Sale and Transfer Agreement between True Corporation Public Company Limited (“True”) and the Fund dated December 24, 2013, True will be obligated to deliver or procure the delivery of the new 3,000 towers due for the delivery by December 31, 2014 (“First Batch”) and the remaining Page 10

2015 Annual Report - Digital Telecommunications Infrastructure Fund 3,000 towers due for delivery by December 31, 2015 (“Second Batch”) (both related to as “Additional Telecommunications Towers”). At the end of December 2015, True completed the delivery of the 6,000 Additional Telecommunications Towers to the Fund in accordance with the agreement.

2.5 Seeking profit from the infrastructure business a) Agreements relating to the management or the seeking of profit from the infrastructure business The Fund signed an agreement in order to acquire telecommunication infrastructure asset as well as an agreement relating to the seeking of profit from such infrastructure. The list of the agreements is as follows: (1) Asset and Revenue Sale and Transfer Agreement I. II. III. IV. V. VI.

Asset and Revenue Sale and Transfer Agreement between BFKT and the Fund (“BFKT Asset and Revenue Sale and Transfer Agreement”) Asset and Revenue Sale and Transfer Agreement between AWC and the Fund (“AWC Asset and Revenue Sale and Transfer Agreement”) Asset Transfer Agreement between TU and the Fund (“TU Asset Transfer Agreement”) Asset Transfer Agreement between TRUE and the Fund (“TRUE Asset Transfer Agreement”) Asset and Revenue Sale and Transfer Agreement between the Fund and AWC in relation to investment in AWC Towers for Additional Investment No. 1 (“AWC Asset and Revenue Sale and Transfer Agreement for Additional Investment No. 1”)

(2) Sub-Lease, Operation and Management Agreement I. II. III.

IV.

V.

Sub-Lease, Operation and Management Agreement between TUC and the Fund (“TUC SubLease, Operation and Management Agreement”) Sub-Lease, Operation and Management Agreement between TU and the Fund (“TU SubLease, Operation, Maintenance and Management Agreement”) Lease agreement of AWC Towers additionally constructed for the lease of AWC Towers for Additional Investment No. 1 between BFKT and AWC, including any amendments thereto (“Additional AWC Leasing Agreement”) Long-term lease agreement to be entered into between the Fund and AWC in relation to investment of AWC FOC for Additional Investment No. 1 (“Long-Term Lease Agreement in Relation to FOC for Additional Investment No. 1”) Agreement to be entered into between the Fund and TUC concurrently with the execution of the Long-Term Lease Agreement in Relation to FOC for Additional Investment No. 1 in relation to the leasing, operation, maintenance and management of AWC FOC for Additional

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2015 Annual Report - Digital Telecommunications Infrastructure Fund Investment No. 1 by TUC, whether in whole or in part (“FOC Sub-Lease, Operation and Management Agreement for Additional Investment No. 1”) (3) Master Services Agreement -

Master Services Agreement between TAM and the Fund (“Master Services Agreement”)

(4) Letter of Undertaking between TUC BFKT and the Fund (5) Letter of Support by TUC to BFKT (6) Lock-up Agreement between True and the Fund (“Lock-up Agreement”) Remark: For further information, please see the Fund's prospectus. b) Management or seeking of profit from the infrastructure business in the future If, in the future, the Fund will sign, amend or terminate any agreement relating to the management or the seeking of profit from the telecommunication infrastructure asset, and such signing, amendment or termination of any agreement relating to the seeking of profit from the telecommunication infrastructure asset of which the contract value exceeds THB 100 million or 30% of the Fund’s total asset value or higher at the time that agreement is signed, amended or terminated, the Fund may do so only upon getting a unitholders’ resolution, unless it’s the signing, amendment or termination of any contract of which the contractual value exceeds THB 100 million but accounts for less than 30% of the Fund’s total asset value at the time the contract is signed, amended or terminated that has been approved by the Fund Supervisor or as stipulated in the Fund Scheme. The contractual value mentioned above will be calculated based on all contractual values during the six-month period.

2.6 Borrowing (A) Source of Fund On 5 March 2015, the Fund entered into a borrowing agreement with a group of 5 banks and financial institutions. The conditions of the credit facilities that the Fund agreed with the group of banks and financial institutions are quite similar to those of credit facilities offered to most creditworthy major borrowers of commercial banks in Thailand and are in accordance with the same commercial terms as those an ordinary person would agree with any unrelated counterparty under the similar circumstances (arm’s length terms) with the bullet repayment date which is 5 years from the drawdown date. The borrowing is denominated in Thai THB with total facility of THB 13,100.00 million which was used to invest in the 1st additional telecommunications infrastructure business assets investment on 6 March 2015. The borrowing carries two types of interest rate including (1) floating rate at THBFIX plus 3% (which accounts

Page 12

2015 Annual Report - Digital Telecommunications Infrastructure Fund for approximately 80% of total loan amount) and (2) fixed rate of 5.5% (which accounts for approximately 20% of total loan amount). The interest will be repayable on a semi-annual basis and the borrowings will be full repayable on the final maturity date. The final maturity date will be 5 years after the first utilisation date. Furthermore, to get rid of interest rate risks resulting from the floating rate loan, the Fund entered into the interest rate swap agreement with banks to convert the floating rate to fixed rate, causing the overall weighted-average cost of debt after swap cost is 5.46%. The amount that the Fund needs to pay the swap counterparties or the amount that the Fund receives from the swap counterparties shall be recognized either as interest expense or interest income along the swap contract term and also there will be an unrealized gain or loss from the swap contract resulted from the monthly mark-to-market process. In addition, upon the due date of the repayment of the loan at the 5th year from the drawdown date, the Fund will consider seeking the most appropriate source of funds for the repayment of such debts in order to arrange an appropriate investment structure for the Fund at the time. That is, the management company may consider a single or multiple sources of funds, such as, securing credit facilities from commercial banks, issuance of debt instruments (not yet permitted under the current securities law) or capital increase. In the case that the above sources of funds are insufficient for repayment of debts and/or that the Fund is unable to seek sources of funds for repayment of debts in full, the Management Company may use the cash flow derived from the operations to repay the loan, thereby it might adversely affect the dividend to be received by the unitholders during the period that the debts must be repaid. (B) Borrowing Status of Fund for the year ended 31 December 2015 THB At 31 December 2015 Current Non-current Total borrowings

12,935,855,853 12,935,855,853

The movement in long-term borrowings can be analysed as follows: At 1 January 2015 Additional borrowings - Principals - Debt issuance costs Amortisation of debt issuance costs At 31 December 2015

THB 13,100,000,000 (196,500,000) 32,355,853 12,935,855,853 Page 13

2015 Annual Report - Digital Telecommunications Infrastructure Fund

3 Overview of Industries Related to the Infrastructure Assets 3.1 Industry Overview 3.1.1

Thailand mobile service industry overview Telecommunication sector is very important to Thailand’s economic development both in terms of providing infrastructure services and offering job opportunities to the public. This industry involves a number of players both in the upstream and downstream. For mobile service business, there are currently 3 major players including AIS, DTAC and TRUE who control approximately 98% of the market. In 2015, total revenue from mobile services totaling more than THB 200 billion or 1.7% of GDP, growing by 4% from 2014. In 2015, there were two auctions: one for 1800 MHz licenses and the other for 900 MHz licenses. AIS and TRUE won the 1800 MHz licenses while TRUE and JAS won the 900 MHz licenses. However, since JAS could not deliver the bank guarantee of approximately THB 72 billion as required by the Office of the NBTC within the specified deadline on March 21, 2015, the Office of the NBTC plans to launch another auction round for 900 MHz license in this coming June, 2016. The 4G auctions in 2015 are the key economic drivers for Thailand in the next few years because it would drive a substantial amount of new investment from the private operators who need to expand and strengthen their 4G network to satisfy consumer’s demand for much faster data service compared to the level of service provided by 3G network. Telecommunication Sector Landscape

Source: Analysis by SCB Economic Intelligence Center (EIC) Page 14

2015 Annual Report - Digital Telecommunications Infrastructure Fund A) Overall Landscape of Mobile Service Industry (1) Total number of mobile phone users At the end of 3th quarter of 2015, there were 83,053,966 mobile phone numbers, decreasing from the prior quarter by 34,566 numbers or -0.042%. From the total active numbers, prepaid users accounted for 68,731,647 numbers or 82.8% of total while postpaid users accounted for 14,322,319 numbers or 17.2% of total. The ratio between total registered mobile phone numbers to total population was 124%. Note: In the 1st quarter of 2015, AIS changed its definition for “active subscribers” causing the number of users to decline significantly from the prior quarter.

Summary of mobile phone users (by # of numbers) and penetration rate

Source: The NBTC Academy and Data Center

(2) Thailand’s Mobile Service Competitive Landscape The operators in the business can be grouped into 2 categories including (1) Mobile Network Operators – MNOs and (2) Mobile Virtual Network Operators – MVNOs per details in the following table.

Page 15

2015 Annual Report - Digital Telecommunications Infrastructure Fund Summary of MNOs and MVNOs in Thailand Operator

AIS

DTAC

TRUE

CAT

TOT

Mobile Network Operator

Advanced Info Services PLC (AIS)

Total Access Communication PLC (DTAC)

True Move Ltd. (TRUEMOVE)

CAT Telecom PLC (CAT)

TOT PLC (TOT)

Digital Phone Ltd. (DPC)*

DTAC TriNet Ltd. (DTN)

True Move H Universal Communication Ltd.(TMH)

168 Communication Ltd.

Loxley PLC (I-Kool 3G)

Advanced Wireless Network (AWN) Mobile Virtual Network

Real Move Ltd. (Real Move)

Samart I-Mobile Ltd. (i-mobile 3G) IEC International Engineering PLC. (IEC 3G) M Corporation PLC. (MOJO 3G)

Source: The Office of the NBTC Note: * The concession contract ended since 30 September 2013 and became an operator under the NBTC’s accouncement re: temporary protection for mobile users

(3) Market Share As of the 4th quarter of 2015, AIS had 45.56% market share based on the number of users, or an increase of 0.05% compared to the prior quarter. DTAC had 29.56% market share, or a decrease of 0.35% compared to the prior quarter. TRUE had 22.14% market share or a decline of 0.08% vs. prior quarter. Market Share for Mobile Service Business by the Number of Users AIS

DTAC

TRUE

Others

2

2

2

1

1

1

1

1

2

2

2

3

25

25

25

25

24

24

24

24

23

22

23

22

30

31

30

30

30

30

29

29

30

31

31

30

43

42

43

44

45

45

46

46

45

45

44

46

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

Source: Analysis by EIC from data provided by the Office of the NBTC

Page 16

2015 Annual Report - Digital Telecommunications Infrastructure Fund (4) Degree of Competitiveness From market share data above, HHI1 for the mobile service business as of end of the 3rd quarter of 2015 was at 3,462, or a decrease of 18 points or 0.51% vs. prior quarter.

Q3-15

Q2-15

Q1-15

Q4-14

Q3-14

Q2-14

Q1-14

Q4-13

Q3-13

Q2-13

Q1-13

Q4-12

Q3-12

Q2-12

Q1-12

Herfindahl-Hirschman Index (HHI) of Mobile Service Industry

Note: Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market concentration for specific time interval. Source: Analysis by EIC from data provided by the Office of the NBTC

(5) Average Revenue per User (ARPU) In this context, ARPU is calculated by excluding interconnection charge which was still in a downward trend. At the end of 2015, mobile service ARPU was at THB 220, or an increase of THB 28 or 14.6% compared to prior year. For a deeper level analysis, it was found that the overall ARPU growth was driven by growth from prepaid segment as postpaid segment showed a decline. Prepaid segment’s ARPU was THB 158, increased by THB 22 or 16.2% compared to prior year while the postpaid segment’s ARPU was THB 521, decreased by THB 44 or -7.8% compared to prior year.

Page 17

2015 Annual Report - Digital Telecommunications Infrastructure Fund Historical ARPU Trend by Type of Services 1,400 Pre-paid

Post-paid

Blended

Baht/subscriber/month

1,200 1,000

800 600 400

200 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Analysis by EIC from data provided by the Office of the NBTC

AIS

DTAC

TRUE

(Pre-paid)

AIS

DTAC

TRUE

(Post-paid)

750 700 650 600 550 500 450 400 350 300 250 200 150 100 50

612 542 502

195 178 111

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

Baht/subscriber/month

Historical ARPU by Operator and by Type of Service

Source: Analysis by EIC from data from AIS, DTAC and TRUE

(6) Overall Mobile Service Revenue As of end of 2015, voice revenue accounted for 38.21% to total revenue, decreasing from the prior year by 7.79% while non-voice revenue accounted for 46.93%, increasing from the prior year by 7.93%. Other revenue accounted for 14.87%, slightly increasing from the last year proportion by 0.13%.

Page 18

2015 Annual Report - Digital Telecommunications Infrastructure Fund Proportion of Mobile Service Revenue Voice

Non-voice

Others

100% 14.87%

90% 80% 70%

46.93%

60% 50% 40% 30% 20%

38.21%

10% 4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

4Q10

3Q10

2Q10

1Q10

0%

Source: Analysis by EIC from data provided by the Office of the NBTC

In 2016, EIC forecasted that mobile servicers would grow approximately by 5%, in line with 20122014 CAGR. The positive factors are 3G/4G network expansion, continuing increase in data consumption, and the conversion to smart phone. However, the voice revenue would continue to decrease, causing the major revenue source to come from non-voice revenue. In a long run, voice revenue contribution would continue to decline while the data consumption growth would slow down. Besides, the mobile phone penetration rate will soon reach its saturation point. These factors would lower the growth prospect in 2017-2019 to 3-5% per year. Key factors that impact an industry trend -

Data consumption grows faster than expected causing the industry growth to be significantly higher than expected. Regulation on the service fee and price war may bring about negative effect on revenue Serious economic slowdown may impact voice revenue.

Page 19

2015 Annual Report - Digital Telecommunications Infrastructure Fund Voice and Non-Voice Revenue (AIS, DTAC, TRUE) Bn THB 240

228

220

205

200

188

180 160

208

216

169 152

140 120

100 16F

Source: Analysis by EIC as of 31 March 2016

Key drivers for declining voice revenue 1. Consumer behavior: More consumers have changed their consumption behavior toward more data consumption by choosing the package with data service which is more expensive that the voice-only package. This trend causes the operator’s revenue to increase. Also, EIC expected that the ratio between data revenue and voice revenue would reach 120-130% and trending to reach 200% in a long run. 2. Smart phone sales: More conversion to smart phone causes non-voice revenue to grow accordingly. In 2016, smart phone sales are expected to increase significantly while the feature phone sales are expected to contract substantially. In a medium term, smart phone sales growth is expected to slow down, thus causing the slower growth on data consumption. 3. Mobile penetration: Mobile penetration has a direct impact on the overall revenue. EIC forecasted that in 2016, growth rate for the number of mobile numbers will be at 3%, slower than 5-year CAGR at 8%. This could be a signal for saturation point which will impact the industry in a medium and long run. From the above factors, EIC expected that non-voice revenue would be a key revenue contributor for all operators. In 2016, EIC anticipated that the growth would be 20%, fueled by 4G service initiation and the user conversion to 3G/4G. However, data consumption is expected to reach saturation stage in a medium and long run (10-15% growth rate in 2017-2019). Voice revenue contribution would continue to decline by 10% over years as in a medium and long run, consumers

Page 20

2015 Annual Report - Digital Telecommunications Infrastructure Fund are likely to change their communication way toward data communication, causing voice revenue to decrease to the lowest point. Non-voice/voice ratio Unit: %

120-130% 99% 74% 50% 37% 21%

26%

2016F

18%

Source: EIC Analysis based on information from operators as of 31 March 2016

(7) Mobile Penetration Rate Mobile penetration rate is an important indicator for mobile business revenue especially under the low-ARPU environment. If the mobile penetration rate can grow at a healthy rate, the revenue is likely to grow accordingly. In 2016, EIC viewed that the penetration rate will hit its saturation point, or an annual increase of only 2-3%, well below the 5-year historical CAGR at 8%. With a low penetration growth, the operators’ total revenue is likely to grow at a slower rate compared to prior years. 4G expansion would be a driver for growth in a short run. However, if operators cannot change its strategy to convince customers to use more of data and other services, the saturated mobile penetration will fully and clearly hurt the revenue in a medium and long run.

Page 21

2015 Annual Report - Digital Telecommunications Infrastructure Fund Forecasted Mobile Penetration Rate in 2016-2018 3G/4G subscribers

2G subscribers

71

84

89

92

94

8

9

9

95 8

82

83

85

87

59

60 40

15

2018F

80

77

98

2017F

93

100

2016F

120

2015E

140

71

73

73

20 0

83

34 11

The impact from prepaid registration rule

Source: EIC Analysis based on information from BMI Research as of 31 March 2016

(8) Non–Voice Revenue The auction for license to operate on 1800 MHz and 900 MHz was a key factor that fuels the high growth in data consumption. Nevertheless, EIC predicted that the growth of data consumption will not be as high as the growth that happened during the 2G-to-3G conversion period because the technical difference between 3G and 4G is not as big as the difference between 2G and 3G and the number of data consumers is closer to the saturation point as evidenced from 1-3% expected growth for mobile penetration rate in 2016-2019. In 2016, it is expected that data consumption would grow at 20% while for 2017-2019, it would grow at 10-15% per annum.

Page 22

2015 Annual Report - Digital Telecommunications Infrastructure Fund Non-voice revenue trend in 2016 Unit: %

Unit: Bn THB 300

60%

Non-voice Revenue (LHS)

Non-voice Revenue Ratio (RHS)

57% 49.8%

42%

200

100

0

40%

17%

26

20%

35

50

68

88

107

130

0% 2016F

Source: EIC Analysis based on information from operators as of 31 March 2016

(9) Voice Revenue The consumer trend toward more 3G/4G data usage driven by new chat applications used for communication such as voice on internet and video call has caused the voice revenue, which used to be a main revenue contributor for operators to significantly decline. Saturated and even declining voice revenue will have a direct impact on ARPU. EIC predicted that voice revenue would decline by 10% in 2016 and would account for a smaller portion of total service revenue excluding interconnection charge (below 50%).

Page 23

2015 Annual Report - Digital Telecommunications Infrastructure Fund Voice Revenue Trend in 2016 Unit: %

Unit: Bn THB 400

100%

Voice Revenue (LHS)

83%

Voice revenue ratio (RHS)

300

75% 58%

50.2%

200

43%

100

50%

25% 125

134

138

136

120

108

95-98

0

0% 2016F

Source: EIC Analysis based on information from operators as of 31 March 2016

(10) Game Changer for Mobile Service Operators

Partnership between operator and OTT

Sizable Growth in M-commerce

 Currently, Over the Top (OTT) business which provides free communication service via internet such as Skype, Whatsapp, and Line has gained substantial adoption from consumers. This trend has a direct negative impact on mobile operators.

 Nowadays, the consumer behaviors have changed significantly toward M-commerce which was expected to grow at 47% yoy in 2016.

 Partnership between mobile operators and OTT will help differentiate brands and stimulates a continuing growth in data usage.  In foreign countries, some operators have partnership with OTT. For example, Whatsapp has a partnership with E-Plus (German operator), which allows its customers to use Whatsapp unlimitedly without charge for data consumption.

 Several new players including foreign players entered this M-Commerce business recently. For instance, Line introduced Line Shop/Line Pay while True launched iTrueMart to provide online shopping service.  Consequently, operators need to adjust their strategy and discover new business models to attract their customers to use their platforms for online shopping and thus stimulating data consumption growth.

B) Key Changes and Drivers for Mobile Service Business Growth 1.

Auction for 1800 MHz and 900 MHz licenses

Page 24

2015 Annual Report - Digital Telecommunications Infrastructure Fund AIS and True won the 1800 MHz licenses while only True won the 900 MHz license. These two new licenses enable True to have a widest spectrum on hand, thus strengthening its competitive advantages over other operators. Although JAS could not manage itself to be #4 private operator, the competitive landscape still looks more intense because of near-saturation penetration rate that causes each player to try its best to retain its customer base and revenue growth. 2.

Introduction of new technologies to stimulate non-voice revenue

Operators need to revise their business strategy by introducing new technologies to continuously stimulate data consumption. For instance, AIS partnered with HOOQ to provide video on mobile service to its customers. 3.

Telecom tower sharing

Operators started to share telecom towers. For example, AIS and DTAC announced its cooperation for the tower exchange for 3G/4G expansion especially for towers in upcountry area. DTAC Trinet (DTN) which is DTAC’s subsidiary agreed to lease towers from DIF. These trends would help reduce a resource redundancy and enable operators to expand their networks much faster with lower costs. C) Key risks and concerns for mobile service business 1.

Price war

When each operator reaches the point when each has a complete network, the price war in this business can be expected to steal customer base. This risk will have negative impact on all operators in this market. 2.

Thailand’s sluggish economy

Sluggish economic outlook might hurt GDP per capita and thus overall spending on mobile service especially spending on voice service among those customers with low ARPU. However, as mobile service is becoming non-discretionary consumption, such impact may not be substantial. D) Capital expenditure by operators The auction for 1800 MHz and 900 MHz licenses is the key driver for investment in mobile service network. The Office of the NBTC estimated that total investment for 4G network will not be less than the investment spent on the 2100 MHz spectrum (approximately THB 200 billion). In 2016, EIC predicted that total investments by all operators would be in a range of THB 80-90 billion. Most of the investment in 2015 would be on 4G network expansion to drive the coverage higher than 40% within Page 25

2015 Annual Report - Digital Telecommunications Infrastructure Fund 4 years per the Office of the NBTC’s timeline. In a medium term, the investment amount is estimated at THB 30-50 million and most of the amount would be spent on network improvement. Capital Expenditure by AIS, DTAC and TRUE Bn THB 100

90 80 70 60

Avg. (’10-’14): 38

0

19

10

12

20

30

59

30

72

40

68

50

Source: EIC Analysis based on information from operators

E) Comparison of mobile network spectrum used by each operator An operator with the large amount of spectrum is likely to provide better data service to customers as the wide amount of spectrum means faster data service. Comparison Summary Table for Spectrum Used by Each Operator in Thailand Spectrum

Total

Source: EIC Analysis based on information from operators as of 31 March 2016

Page 26

2015 Annual Report - Digital Telecommunications Infrastructure Fund Future auctions of licenses to replace the expiring licenses

Source: EIC Analysis based on information from the Office of the NBTC as of 31 March 2016

F) Estimated demand and supply for telecom towers in Thailand and key drivers for infrastructure sharing (1) Demand for telecommunication towers: After getting the 3G licenses on 2100 MHz spectrum and 4G licenses on 1800 MHz and 900 MHz spectrum, each operator including AIS, DTAC and True is to have enough BTS slots for its 3G and 4G platform to command the network coverage nationwide while provide fast network to compete with competitors. In the graphic below, the Fund Manager and Telecom Asset Management Co Ltd, as our Asset Manager, come up with BTS slot demands by AIS and DTAC on telecom towers based on public information and estimates which show that the two operators still look for a lot of telecom towers (AIS requires 4,500 more towers while DTAC is expected to require more than 11,500 towers) where they can choose between building their own towers or leasing them. (2) Supply of telecommunication towers: Thailand is estimated to have more than 65,000 telecommunication towers but unused slots in 80% of these towers are not marketed to seek additional tenants because (1) more than 33,500 telecommunication towers are currently under legal disputes over the tower ownership between original concession grantors; namely, TOT and CAT Telecom, vs. past concessionaires; namely, AIS, DTAC and True Group; (2) another 6,000 towers, although owned by True Group, can be exclusively leased by CAT Telecom; and (3) approximately 10,000 towers are new towers built by AIS and DTAC after getting a license mainly for their own use, not for leasing to others. As a result,

Page 27

2015 Annual Report - Digital Telecommunications Infrastructure Fund the Fund’s 6,000 telecommunication towers, TOT’s and CAT Telecom’s 7,500 telecommunication towers available for rent. These are the only supply being actively marketed to seek additional tenants on idle slots. (3) Key drivers for telecommunication tower sharing: In the past, Thailand’s mobile operators never shared telecommunication towers with one another since each of them usually built their own towers for their own use. However, as the country is entering the telecom liberalization period, the sharing of the towers among mobile operators is highly encouraged by the NBTC in order to reduce investment redundancy as investment in the building of new towers is capital-intensive and it consequently prevents new players from entering the business. The fact that the Fund is leasing telecommunication towers to any operator allows them to improve their service quality without wasting time to build new towers since the expansion of the 3G and 4G network requires each mobile operator to use far more towers due to its high frequency platform compared to the past when they operated on low frequency spectrum. In addition, the sharing of towers also reduces an environmental impact, lessens visual pollution and wastes fewer national resources. Without the sharing, each operator will unnecessarily have to build towers in close proximity aside from the fact that each tower fails dismayingly to be exploited to its maximum economic value. Forecasted demand and supply of telecommunication towers in Thailand

Page 28

2015 Annual Report - Digital Telecommunications Infrastructure Fund Thailand's fixed broadband telecommunications industry A) The number of registered fixed broadband service users At the end of the 3rd quarter of 2015, there were 6,175,167 registered fixed broadband service users in Thailand showing an increase of 183,869 users or 3.1% compared to the prior quarter. In terms of the penetration rate of fixed broadband service, the rate kept increasing continuously and reached 30.6% of household at the end of 3rd quarter of 2015, increasing by 0.9% vs. prior quarter. The number of registered fixed broadband service users and penetration rate

Q3-15

Q2-15

Q1-15

Q4-14

Q3-14

Q2-14

Q1-14

Q4-13

Q3-13

Q2-13

Q1-13

Q4-12

Q3-12

Q2-12

Q1-12

Penetration Rate

The number of users

Source: The NBTC Academy and Data Center

Q3-15

Q2-15

Q1-15

Q4-14

Q3-14

Q2-14

Q1-14

Q4-13

Q3-13

Q2-13

Q1-13

Q4-12

Q3-12

Q2-12

Proportion of High-Speed Internet Connection by Connection Type

Q1-12

3.1.2

Source: IDC Research (Thailand)

From information provided by IDC Research (Thailand), it is found that as of the end of 3rd quarter of 2015, xDSL is the major type of connection accounting for 50.3% of total connection, followed by FTTP which accounted for 24.7%, Internet leased line for 9.1%, cable modem for 7.1%, and FWA Page 29

2015 Annual Report - Digital Telecommunications Infrastructure Fund 6.4%. From the trending perspective, it is likely that xDSL will continue to decline while other types of connections continue to grow. B) Key players in the fixed broadband business There are three key players in the fixed broadband hi-speed internet business including True Internet (TRUE), TOT Public Company Limited (TOT) and Triple T Broadband Public Company Limited (3BB). C) Market share A the end of the 3rd quarter of 2015, TRUE had the largest market share at 37.6%, followed by 3BB with 31.6% market share and TOT with 21.1% market share. Other smaller operators had 9.8% market share. Considering the market share trend since 2012, it is evident that True, 3BB and other smaller operators has continued to gain market share while TOT has lost its market share gradually. Market share trend for hi-speed internet service

Source: The Office of the NBTC

D) Level of Competitiveness From the above market share picture, HHI for hi-speed internet service had a declining trend from the first quarter of 2012 to the 2nd quarter of 2015. However, HHI started to recover in the 3rd quarter of 2015 when HHI reached 2,950, slightly increasing from the prior quarter by 20 points or 0.7%.

Page 30

2015 Annual Report - Digital Telecommunications Infrastructure Fund HHI for Hi-Speed internet service based on the number of users

Source: The Office of the NBTC

Industry’s total revenue from hi-speed internet service

Source: The Office of the NBTC

In terms of overall revenue, it was evident that total revenue from operators had an upward trend. In the first quarter of 2015, total revenue reached THB 12.602 billion, increasing from the prior quarter by THB 503 million or 4.2%.

Page 31

2015 Annual Report - Digital Telecommunications Infrastructure Fund E) Service fee rate Hi-speed internet fee rate is measure in terms of THB per kbps. The rate has a continuous downward trend. From the latest data as of the 3rd quarter of 2015, the rate was at THB 0.07 per kbps, decreasing from the prior quarter by THB -0.01 or -13%. H-speed internet service fee (THB/kbps)

Source: The Office of the NBTC

3.1.3

Thailand's wireless broadband telecommunications industry A) The number of wireless broadband unique subscribers The number of wireless broadband unique subscribers has been increasing constantly. Based on GSMA information as of the end of the 3rd quarter of 2015, there was 32,700,370 unique users, increasing from the prior quarter by 414,028 users or +1.3%. The number of wireless broadband unique users

Page 32

2015 Annual Report - Digital Telecommunications Infrastructure Fund Source: GSMA Intelligence

The number of 2G users has been declining unceasingly. At the end of the 3rd quarter of 2015, there were 4,781,263 2G unique users, representing 14.6% of total wireless broadband users. This showed a decrease of 19,559 users or -0.4% compared to the prior quarter. On the other hand, the number of 3G and higher technology users has been increasing continuously. At the end of the 3rd quarter of 2015, there were 27,919,107 unique users or 85.4% of total wireless broadband users. This showed an increase of 433,587 users or +1.6% compared to the prior quarter. Regarding the wireless broadband penetration rate, it has been increasing. At the end of the 3rd quarter of 2015, the penetration rate was 48.5%, increasing from the prior quarter by 0.6%. The penetration rate for 2G service was 7.1%, unchanged from the prior quarter while the 3G and above penetration rate was 41.4%, increasing from the prior quarter by 0.6%. The number of wireless broadband unique users

Source: GSMA Intelligence

B) Market landscape The market landscape for wireless broadband industry is similar to the market landscape of mobile service industry because the mobile operators normally also offer wireless broadband service to customers.

Page 33

2015 Annual Report - Digital Telecommunications Infrastructure Fund Summary of Wireless Broadband Operators Mobile Service Operator

AIS

DTAC

TRUE

CAT

TOT

Mobile Network Operator

Advanced Info Services PLC (AIS)

Total Access Communication PLC (DTAC) DTAC TriNet Ltd. (DTN)

True Move Ltd. (TRUEMOVE)

CAT Telecom PLC (CAT)

TOT PLC (TOT)

168 Communication Ltd.

Loxley PLC (I-Kool 3G)

Digital Phone Ltd. (DPC)*

True Move H Universal Communication Ltd.(TMH)

Advanced Wireless Network (AWN) Mobile Virtual Network

Real Move Ltd. (Real Move)

Samart I-Mobile Ltd. (i-mobile 3G) IEC International Engineering PLC. (IEC 3G) M Corporation PLC. (MOJO 3G)

Source: The Office of the NBTC Note:* It provides service per the NBTC’s accouncement re: temporary protection for mobile users after the end of concession contract.

C) Service revenue The revenue generated from wireless broadband business has been increasing continuously. Nonvoice revenue for Q3/2015 earned by the main three operators including AIS, DTAC and TRUE was at THB 27.912 billion, increasing from the prior quarter by THB 1.163 billion or + 4.3%. Non-voice revenue earned by AIS, DTAC and TRUE

Source: The operators’ websites

Page 34

2015 Annual Report - Digital Telecommunications Infrastructure Fund D) Market share Regarding the market share for wireless broadband business calculated from the sharing of nonvoice revenue, at the end of Q3/2015, AIS had the largest market share at 50.6%, increasing from the prior quarter by 0.2%, followed by DTAC which controlled 27.9% market share, decreasing by 0.5% and TRUE who had 21.5% market share, increasing from the prior quarter by 0.4%. Wireless broadband market share based on non-voice revenue as of Q3/2015

Source: The Office of the NBTC

For the market share trending analysis, it can be seen that since 2012, AIS’s and DTAC’s market share has been trending slightly downward while True’s market share has been on the upward trend. Wireless broadband market share based on non-voice revenue Q1/2012 - Q3/2015

Source: The Office of the NBTC

Page 35

2015 Annual Report - Digital Telecommunications Infrastructure Fund E) Level of Competition From the market share data above, the HHI for wireless broadband business as of Q3/2015 was at 3,799, increasing from the prior quarter by 1 point or 0.03%. It is evident that between 2012-2013 HHI had a downward trend and afterwards the slight upward trend has come back. HHI for wireless broadband business

Source: The Office of the NBTC

F) Service fee Based on data compiled by The Office of the NBTC, it is found that as of Q3/2015, wireless broadband service fee for AIS, DTAC and TRUE was THB 0.17/MB, THB 0.18/MB, and THB 0.16/MB respectively. HHI for wireless broadband business

Source: The Office of the NBTC

Page 36

2015 Annual Report - Digital Telecommunications Infrastructure Fund Thailand's broadband internet access market A) Operators Nowadays, there are several operators offering various connection types of broadband services. There are 32 licensed operators including 21 operators who provide services via more than one network type and 11 operators who provide services via one network type. Summary of licensed operators in broadband internet access industry

Source: The Office of the NBTC Page 37

Submarine

Satellite

Frequency

TOT CAT Telecom TripleT Broadband True Universal Convergence Metropolitan Electricity Authority DTAC TriNet Provincial Electricity Authority Super Broadband Network TripleT Global Net CS Loxinfo Loxley Advanced Wireless Network Jastel Network Otaro World Corporation Symphony Communication Interlink Telecom Real Future Amnex United Information Highway KIRZ RTS 2003 (NEW) Information Highway Fiber To The Home (FTTH) Milcom System Super Hispeed Internet SIMAT TECHNOLOGIES Sync Technologies Platt Nera Sophon Broadband Network Digital Research and Consulting Otaro ELITE TECH TELECOM

WiFi

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Coaxial

Operator

Optic Fiber

No.

Copper

Network Type Power Line

3.1.4

2015 Annual Report - Digital Telecommunications Infrastructure Fund Summary of licensed operators and their types of licenses License Type No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

3rd Type of License

Operator TOT CAT Telecom TripleT Broadband True Universal Convergence Metropolitan Electricity Authority DTAC TriNet Provincial Electricity Authority Super Broadband Network TripleT Global Net CS Loxinfo Loxley Advanced Wireless Network Jastel Network Otaro World Corporation Symphony Communication Interlink Telecom Real Future Amnex United Information Highway KIRZ RTS 2003 (NEW) Information Highway Fiber To The Home (FTTH) Milcom System Super Hispeed Internet SIMAT TECHNOLOGIES Sync Technologies Platt Nera Sophon Broadband Network Digital Research and Consulting Otaro ELITE TECH TELECOM

nd Type of 3rd Type of 2 License Internet (Network License Ownership)

√ √ √ √ √ √ √ √



√ √



√ √ √ √



√ √



√ √ √ √



√ √ √ √ √ √ √ √ √ √ √ √

Source: The Office of the NBTC

From the table above, it is found that there are 5 licensees who have their own network and have more than one license. There are 18 licensees with the 3rd type of license and 6 licensees with the 3rd type of internet license. There are 5 licenses with only 2nd type of license.

B) Amount of broadband internet access usage Page 38

2015 Annual Report - Digital Telecommunications Infrastructure Fund Amount of broadband internet access usage has been increasing continuously. As of Q3/2015, the amount reached 4,925.97 Gbps, increasing from the prior quarter by 0.24%, from the same quarter in the prior year by 4.11%. Fiber optic technology represented the biggest share, followed by xDSL technology. Amount of broadband internet access usage by technology

Source: IDC Research (Thailand)

Amount of broadband internet access usage by technology

Page 39

2015 Annual Report - Digital Telecommunications Infrastructure Fund Source: IDC Research (Thailand)

For total revenue from broadband internet access service, it is trending upward. In Q3/2015, total revenue reached THB 19.757 billion, increasing from the prior quarter by 1.01%, from the same quarter in the prior year by 12.06%. Revenue generated from service sales to third parties accounted for 60% of total revenue. C) Trend for expanding networks by internet service provides (ISPs) (1) Market size for individual internet users Demand for internet service from individual users is trending upward causing several new players to enter the market. EIC anticipates that the number of ISPs in 2016 would increase by 10% compared to the prior year. Other than that, existing players such as True, JAS and AIS would invest more in building FTTx fiber optic network including the national broadband project led by the government which aims to provide internet access to all villages by the end of 2016. Such drivers will fuel the investment in internet network. In 2016, EIC views that the market size of internet business will increase by 26% compared to the prior year. In a medium term, the network expansion by ISPs will continue to grow approximately 26% compared to the prior year in accordance with higher demand for internet. Amount of broadband internet access usage by technology Unit: Bn THB Wireless

Cable

FTTx

xDSL +26%

92

74

+26%

58 +18%

24

2011

28

2012

32

2013

46 38

2014

2015E

2016F

2017F

2018F

Source: EIC analysis based on information provided by CAT

D) Key changes and drivers for internet broadband market National broadband initiative by the government Page 40

2015 Annual Report - Digital Telecommunications Infrastructure Fund The internet access network development to cover 79,000 villages in Thailand under THB 20 billion will be a key driver for this market this year. The Ministry of ICT started the project in March 2016 and this will have a positive impact on CAT, TOT and all network installation operators. E) Key risks for internet broadband market (1) Economic instability caused by politics: Economic instability may cause the investment plans to be downsized or delayed. (2) Industry life cycle for telecommunications and media industry: For life cycles for telecommunications and media industry, there will be a substantial investment by operators to stay competitive when the new technology comes. Thus, if the period between the existing and new technologies is long, players in the network installation will be negatively impacted as their incomes will be volatile depending on the number of projects in the relevant years.

3.2 Factors affecting the Fund’s future rent Rents that the Fund stands to enjoy can be classified into two categories: (1) rent from True Group; and (2) rent from other tenants. Factors affecting rents from these two sources of tenants may be different since conditions in the lease agreement executed between the Fund and True Group may be varied from those to be signed with other tenants. However, factors that can affect the Fund’s potential rents can be summarized as follows. I. Increase of rents based on agreements -

-

Telecommunication towers – For rental rates of telecommunication towers of True Group, both the rates and their increase have been fixed till the end of the lease term in 2027 including related discounts. For rents offered to other tenants, this depends on negotiation between the Fund and new tenants. Factors affecting rental rates of telecommunication towers are supply and demand of telecommunication towers at the time and cost of building new towers and land lease (since the tenant will calculate related costs from constructing new towers by its own as well as the cost of land lease before comparing with the rent of tower. As such, a monthly rent of the telecommunication tower should be cheaper than the monthly cost in case the operator will build his own tower to induce him to rent rather than to build). The main FOC - The rental rate of the Fiber Option Cable (FOC) has already been set at THB 350 per core kilometer per month for True Group and THB 1,100 per core kilometer per month for other tenants. This rate is fixed and won’t be increased till 2026. Page 41

2015 Annual Report - Digital Telecommunications Infrastructure Fund -

II. -

Transmission equipment relating to the core FOC and the upcountry broadband systems which are active telecommunication assets - Based on the agreement the Fund has signed with True, the rental rate of this asset was THB 317 million in 2014, and will be increased by 5% per annum in 2015 before being based on the Consumer Price Index (CPI) of the previous year as announced by Thailand’s Ministry of Commerce for the years that follow. The calculation will start on January 2016. The rate must not exceed 3.5%. Extent the towers and equipment are rented Telecommunication towers: True Group has signed an agreement to rent the minimum of the following:  6,619 slots on 3,000 telecommunication towers starting from January 1, 2015  13,993 slots on 6,000 telecommunication towers starting from January 1, 2016; and  15,249 slots on 6,000 telecommunication towers starting from January 1, 2017 However, there are as many as 22,541 slots on 6,000 towers. As a result, 7,292 slots are still available for rent to other tenants. If the Fund can rent them, it will be able to generate more incomes.

-

The main FOC: As of March 31, 2015 after the Fund invested in its 1st additional investment in the telecommunication infrastructure assets, its main FOC totals 426,143 core kilometers which True Group, as an anchor tenant, promises to rent a minimum of 271,980 core kilometers (around 64%) in 2015 which will increase to 302,290 core kilometers in the final year of the lease agreement or in 2026 (around 71%). As a result, if the Fund can secure other tenants to rent the FOC not yet leased by True Group, it will enjoy a higher rent income from this FOC.

-

Transmission equipment relating to the core FOC and the upcountry broadband systems which are active telecommunication assets: An agreement has been entered with True Group to lease the equipment up to 2018, resulting in THB 317 million worth of income from this asset in 2014. Incomes from the asset after 2018 will depend whether or not the Fund renews the lease agreement with True Group and at which rate.

Page 42

2015 Annual Report - Digital Telecommunications Infrastructure Fund 3.3 Marketing policy and competitions faced by the project a) The telecommunication tower rental business Thailand’s major mobile operators including AIS, DTAC, CAT Telecom and TOT all have telecommunication towers of their own. They may separate their tower assets in order to set up a company to operate them, or they may transfer the assets to independent operators who will run the telecom tower business for them. However, at present, there is no independent telecom owner who rent his own slot in Thailand. The telecom tower business in Thailand may face possible merger and acquisition and investment by foreign companies that could result in strong competitors. Since sites of the Fund’s telecommunication towers are in Bangkok which is highly populated and where anchor tenants and managers are confront with intensive use of network by their clients, the Fund therefore believes that the anchor tenants, like other mobile operators who are the Fund’s tenants, are likely to renew their sub-lease, operation and management contracts when they expire in order to avoid service interruption in the area and to prevent the loss of opportunity and expenses to be incurred from the relocation of antenna and other infrastructure required in the operation. As described under the previous topic of forecasted demand and supply of telecommunication towers, at present, only towers belonged to the Fund and CAT Telecom are marketed for rent. In terms of price, the Fund has a policy not to compete directly with CAT Telecom but would rather set the price to be lower than that to be invested by the operator if he is to build his own tower in order to induce him to rent rather than build. b) The FOC system rental business Thailand’s major mobile operators including AIS, DTAC, CAT Telecom and TOT all have the FOC of their own. Only wholesale FOC operators such as the Provincial Electricity Authority (PEA) and the Electricity Generating Authority of Thailand (EGAT) lease the channel capacity of fiber optics on their own FOC system. Meanwhile, upcountry broadband system operators include TOT, CAT Telecom, United Information Highway Co Ltd, United Broadband Technology Co Ltd, Advance Data Network Communications Co Ltd and Jasmine International Public Company Limited. Symphony Communication Public Company Limited is another significant competitor in the FOC and broadband system business.

Page 43

2015 Annual Report - Digital Telecommunications Infrastructure Fund Regarding the lease of the FOC business, at present, the Fund has a competitor; namely, the Jasmine Broadband Internet Infrastructure Fund (JASIF), of which the same FOC system covers the entire country. As a result, the Fund has to highlight the strength of its products and services which are: 1. One-stop solution – the Fund not only offers the FOC for rent like JASIF but also both the FOC and telecommunication towers required for use in the mobile business and the wireless broadband business. Regarding the FOC, the Fund has both core and access networks for rent. In other words, tenants may materialize the end-to-end network when renting the Fund’s system if needed. 2. Adaptability to adjust the FOC to respond to tenant’s demand – the Fund, for example, may consider building additional FOC to link an existing network with the site required by a tenant. This however will be agreed on a case-by-case basis. c) The upcountry broadband network True Group has entered into an exclusive lease agreement with the Fund which grants an exclusive right to the Group for five years as well as an option for True Group to retain this right by another five years. The Fund therefore has no marketing and competition plan for this particular asset at the moment.

3.4 Nature of products and services Nature of products can be categorized based on types of assets and operation statistics which are summarized in the following table: a) Details, number of hosting capacity and rented rate of tower In general, a telecom tower is located on the ground and higher than 32 meters. Telecom towers on a rooftop may host at least two tenants. Most towers belonged to the Fund can host two or more tenants. If additional telecom towers are being delivered and exclusive rights relating to BFKT’s towers and AWC’s towers end, the Fund’s telecom towers which are part of our assets will be able to host an average of 4.14 tenants (hosting capacity divided by a total number of telecom towers).

Page 44

2015 Annual Report - Digital Telecommunications Infrastructure Fund

Types of towers

Height

Ground-based Ground-based Ground-based Rooftop towers DAS Total

>50 meters 32-50 meters