THE possible entry of a third player in the telecommunications industry might be ”disruptive” to the incumbents, but will need sinificant financial muscle to make a dent in the market, S&P Global Ratings said.
“When [PLDT, Inc. and Globe Telecom Inc] jointly acquired SMC (San Miguel Corp.) assets, they raised barriers to entry for telcos… Any new entry could be disruptive, but there are many, many barriers ahead of it,” like larger capital expenditure requirements, S&P Global Ratings analyst Wei Kiat Ng said yesterday in a webcast.
Mr. Ng said the possible third player would also need “huge financial power.”
S&P Global said in the webcast that it expects data revenue of companies it follows in the region to surpass voice and SMS revenues by the end of the year.
The rated sector companies in the region are: Singapore Telecommunications Ltd. (Singtel); Telekom Malaysia Bhd. (TM) and Axiata Group Bhd. of Malaysia; Advanced Info Service Public Co. Ltd. (AIS) of Thailand; PLDT Inc.; PT Telekomunikasi Indonesia’s wireless subsidiary, PT Telekomunikasi Selular (Telkomsel) and PT Indosat Tbk. of Indonesia.
S&P Global also said it expects voice and SMS revenue to fall to only 25% of revenue in five years’ time.
Mr. Ng said the telco industry has “seismically moved” in recent years, particularly in the Philippines, Thailand, and Malaysia where there is intense competition, and least in Singapore.
All rated companies also saw declines in their earnings before interest, tax, depreciation, and amortization (EBITDA),recording low returns on capital amid high capex requirements for acquiring spectrum and technologies such as 4G.
Companies have stretched balance sheets due to decreased margins and elevated capital outlays, and decreased headroom within ratings.
PLDT, with a BBB+/Stable rating, was shown to have “moderate” headroom.
Mr. Ng also said that telcos are grappling with the problem of converting data growth, which produces lower margins, into profitability.
Telcos are trying to resolve this by catering to persons “who are less price-sensitive” and by investing in entertainment services.
PLDT, for example, offers video streaming such as iFlix and Globe offers the streaming service HOOQ.
Telcos also face the challenge of moving to higher technologies and adapting to increasing wants of customers.
Mr. Ng said that consolidation is becoming less apparent in the Southeast Asian markets. “We don’t see that much consolidation anymore, [except probably in] Indonesia. In Singapore, Malaysia, Thailand…[it is] unlikely.”
Mr. Ng also said that it is unlikely for Southeast Asian telcos to acquire 5G technology soon.
“A lot are still grappling with 3G and 4G, more [so] LTE (long-term evolution). I think Singapore, Malaysia, Thailand will be the first to take 5G…In our rating horizon, there is not much expectation (that telcos will take 5G).
Mr.Ng said that with all the issues with monetizing data, the “last thing” on the minds of telcos is acquiring 5G technology. — Patrizia Paola C. Marcelo
