"We believe the reversion of iTV to its original concession terms will severely hit its market position," the brokerage said, referring to a court decision the requires iTV to pay a higher concession fee and broadcast more news and documentary programmes.

The ruling "will result in TV ad spenders shifting to other channels during prime time, meaning other TV operators will gain larger shares of the advertising spending pie," the report said.

"While iTV's revenue-generating ability will be lower, its production costs will be higher. As iTV will be unable to compete at full speed with the other four channels, the ratings war will lose intensity," Thanachart said.

The report follows the Central Administrative Court's ruling on May 9 requiring iTV to comply with its original concession terms. It must pay concession fees of Bt1 billion a year, compared with the Bt230 million it pays now. Moreover, its entertainment content must be cut from 50 per cent to 30 per cent of programming, and its prime-time slots must be allocated to news and documentaries instead of entertainment shows.

Pending an appeal to the Supreme Administrative Court, iTV said it would stick with the conditions set by an arbitration panel in 2004, which lowered its concession fee and allowed it to focus on entertainment. Last week, it paid a Bt230-million concession fee.

Along with having to return to its original concession conditions, iTV may also face a Bt76-billion penalty for changing its contract without the consent of the concession owner, the PM's Office.

Ayudhya Securities said recently that if iTV was forced to readjust its programming to broadcast news and documentaries during prime time, its ability to generate long-term revenue and profit would be lower than other channels.

It maintained its "sell" rating on iTV stock, which it valued at Bt4.40 apiece.

Thanachart Securities said in its report that the chances of the Supreme Administrative Court overturning the Central Administrative Court's ruling were not very high.

"The Central Administrative Court's decision to overturn the arbitration panel's ruling was based on the fact that the panel exceeded its legal authority in changing the details of the contract between iTV and the PM's Office," it noted.

Thanachart said less heated competition among the networks, along with stronger growth in advertising spending next year, would translate into stronger bargaining power for the remaining four channels -3, 5, 7 and Modernine. "Hiking ad rates should thus be 'doable'. We are forecasting that the sector average ad rate will rise by 10 per cent in 2006 and 6 per cent in 2007," it said.

Thanachart said that deteriorating earnings performance of TV operators over the past few years has been the result of an intensifying ratings and a slowdown in spending growth on TV advertising.

With competition becoming less intense, rising advertising spending next year and greater diversification of revenue sources, TV operators should see total revenues rise. Given their high proportion of fixed costs, the positive operational leverage benefit has also started to kick in.

"Note that a 1-per-cent rise in advertising growth leads to a 3-per-cent lift in after-tax profit for BEC [World Plc, which operates Channel 3] and around 2 per cent for MCOT [which operates Modernine]. So their earnings growth prospects are now much more convincing. Excluding iTV, we are forecasting sector earnings to grow by 52 per cent in 2006 and 17 per cent in 2007," Thanachart said.

Television advertising spending in the first five months of this year grew by 6 per cent year on year. Although the growth rate remained near last year's average, Thanachart expects slower growth in the second and third quarters due to political and economic uncertainty.

However, ad spending should start recovering in the fourth quarter, when the political impasse is expected to be resolved and growth in private consumption is expected to recover. TV ad spending should recover from 5-per-cent growth this year to 6 per cent next year and 8 per cent in 2008, Thanachart said.

Station operators should also benefit from the lack of competition from other media platforms, it said.

"While it will take around two years before pay-TV will be allowed to broadcast advertisements, we don't think it will be that easy for it to capture the share of advertising spending currently held by free-to-air TV.

 "Meanwhile, broadband Internet TV's support infrastructure, such as Internet speed and on-line content, is not yet in place. We believe free-to-air TV will remain the dominant advertising platform for the next three to five years," Thanachart said.