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Fitch flags constraints to telco competition

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REUTERS

By Denise A. Valdez
Reporter

THE IMPENDING ADDITION to the Philippines’ list of major telecommunications service providers notwithstanding, the new entrant faces systemic constraints to full-blown competition, Fitch Ratings said in a Nov. 7 note e-mailed to journalists on Thursday.

The credit rater said the provisional winner of the government auction for the Philippines’ third major telco — Mislatel Consortium, composed of China Telecommunications Corp., Dennis A. Uy’s Udenna Corp. and its subsidiary Chelsea Logistics Holdings Corp. — faces industry barriers that will make the task of challenging incumbents PLDT, Inc. and Globe Telecom, Inc. a tall order.

Fitch said it expects the third telco to “initially… compete aggressively on price as it strives to grab market share in an already highly saturated mobile market” and its challenge “to temper revenue growth and raise the capex pressure on PLDT, Inc. and Globe Telecom, Inc.”

PLDT Chairman Manuel V. Pangilinan said in a briefing on Thursday that the company is likely to maintain capital expenditures at P58-60 billion for 2019, while Ma. Yolanda C. Crisanto, Globe senior vice-president for Corporate Communications, said in a mobile phone message also yesterday that capex will keep close to spending in the last two years. PLDT has kept capex guidance at P58 billion this year, while that of Globe of $100 million.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls.

“The severity of the threat from a new entrant is unclear at this stage,” the debt watcher said, adding that “government intervention may be needed to accelerate industry reforms to raise competition.”

Such intervention includes mandating infrastructure and tower sharing, spectrum redistribution as well as removal or reduction of the 40% foreign ownership cap on public utilities.

“Even after setting aside spectrum frequencies to the new telco, the incumbents still possess a majority of the rights across a range of spectrum frequencies…” Fitch noted, adding that this limitation may push the third major telco to invest more in cost-effective long-term evolution (LTE) technologies to accelerate network rollout.

The debt watcher noted, however, that incumbents PLDT and Globe have already had a headstart even in the LTE space.

Globe said last week it is close to achieving 95% nationwide coverage for its LTE rollout, while PLDT said its LTE base stations not total some 14,300.

Overall, Fitch — which has a “BBB” credit rating for PLDT, or a notch above minimum investment grade, and “BBB-” for Globe, or minimum investment grade, both with “stable” outlook (meaning debt ratings are likely to be sustained over the next 12-18 months) — said it has a negative sector outlook on the Philippine telecommunications market due to intensifying competition and rising debt.