THE credit rating margin between rivals Globe Telecom, Inc. and PLDT, Inc. is expected to narrow in the next 18 months, as the Ayala-led telco shows improved cash flows.
Fitch Ratings said in a report yesterday the growth of Globe is seen to outpace that of PLDT in the near term, resulting in intensified competition.
“Leverage headroom for PLDT is likely to be more limited over the next three years amid the larger capex needed for both its fixed-broadband and mobile network,” it said.
“We forecast leverage — measured by FFO (funds from operations) adjusted net leverage — to increase to around 3.0x for PLDT and Globe as they ramp up capex expansion ahead of a new mobile operator, Dito Telecommunity Corp. (formerly Mislatel),” it added.
Globe’s latest credit rating outlook from Fitch is “BBB-” with a stable outlook, and PLDT’s is “BBB,” also with a stable outlook.
Both telcos boosted their spending allocation this year to fuel expansion, with Globe increasing its capex by 46% to P63 billion, and PLDT ramping up spending by 66% to P78 billion.
Fitch said Globe’s revenue is seen to grow at a high single-digit rate because of its increasing market share in mobile and already stronger postpaid subscriber base. This is faster than the forecast for PLDT which is a mid single-digit growth.
“Globe’s continued outperformance in mobile revenue reflects its well-executed strategy,” the credit rater said.
But it noted PLDT’s revenues will be driven by growth in home broadband subscribers.
“Still, PLDT benefits from wider service diversification and a more entrenched fixed-line position than Globe, which Fitch regards as advantageous for fixed-mobile convergence,” it said.
“This allows operators to mitigate pricing pressure in mobile, therefore supporting a higher leverage tolerance of 3.0x for a PLDT downgrade to ‘BBB-’ compared with Globe’s 2.5x for an upgrade to ‘BBB’.”
Fitch also said the two telcos are approaching network expansion differently, with PLDT focusing its investments on fiber to boost its home broadband and enterprise businesses, and Globe on fixed-wireless broadband to expand its geographic reach.
“Fitch believes diversification into fiber broadband will strengthen the incumbents’ competitive advantage as demand for fiber backhaul and faster-speed fiber-broadband services increases with the proliferation of video streaming and use of multiple devices in the home,” it said.
The report also noted the arrival of new major telco player Dito is not seen to have an immediate impact on the giants.
“The new entrant is likely to have a limited network for at least a year from now amid the lengthy regulatory approval process for cell-site permits and the non-mandatory nature of infrastructure sharing in the Philippines,” it said.
“We believe the newcomer will pursue aggressive pricing to win market share. However, it would need to offer more than mobile services to tap into fast-growing home-broadband and enterprise services to generate sufficient returns,” it added.
Fifth-generation (5G) network is unlikely to bring disruptive effects to competition as well, as Fitch said its rollout in the country will still be limited this year.
“The pace of 5G adoption will depend on the affordability and availability of compatible devices. Prices of 5G customer-premises equipment would need to fall considerably for mass-market adoption to take place in emerging markets,” it said.
Globe launched 5G to the home last month, and PLDT aims to launch 5G services early next year. — Denise A. Valdez
