THE Philippine telecommunications sector is expected to spend more than it can generate internally over the next 18 months, with telcos turning more to debt to fund their future capital expenditures, Fitch Ratings said.

In a statement Thursday, Fitch said: “We forecast average capex intensity for the sector to stabilise at 35%-37% in 2020, resulting in negative free cash flow (FCF) which we expect to be debt-funded.”

Also, over the next 18 months, capex for 5G technology is likely to be limited due to “lack of applications and the absence of a robust ecosystem of customer devices,” it added.

Philippine telcos are expected to be still dependent in the next three years on existing 4G technologies amid growing demand for data.

Fitch noted that both PLDT, Inc. and Globe Telecom, Inc. are positioned to increase their financial flexibility to raise more debt to fund future capex.

It also said it expects “intensified” competition with the entry of China-backed DITO Telecommunity Corp., which hopes to corner nearly a third of the market in two to three years.

“However, the newcomer’s pledge to provide coverage for 37% of the population by July 2020 (with 27Mbps minimum broadband speed) and up to 84% by 2024, suggests limited coverage in the short term,” Fitch added.

Fitch said PLDT, which it rates at BBB with a stable outlook, had a “stronger recovery” in the third quarter as it entered into its “third consecutive quarter of growth in wireless revenue, underscoring a firmer recovery for the sector.”

It noted that PLDT’s quarterly wireless revenue increased 12% year-on-year, which is higher than the 9% posted Globe Telecom, Inc. (BBB-/Stable), adding that network quality and coverage have substantially improved for both telcos because of their capex over several years prior to the entry of Dennis A. Uy’s DITO.

Globe posted an attributable net income of P5.63 billion in the three months to September, up 17% from a year earlier, driven by strong growth in all its data-related products and services.

Meanwhile, PLDT’s attributable profit fell 16% in the third quarter, as higher revenue from wireless was offset by lower earnings from its fixed-line and other businesses. It posted a net income attributable to the parent of P3.79 billion, as revenue slipped 5% to P42.45 billion. Data and broadband account for 66% of PLDT’s total service revenue, growing 20% to P76.7 billion in the first nine months. — Arjay L. Balinbin

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