By Adam J. Ang
The Philippines’ telecommunications giants are likely to raise their investments next year as they face regulatory pressure and looming competition, according to Fitch Ratings.
Globe Telecom, Inc. and PLDT, Inc. both have reduced their capital expenditures (capex) this year by around 15% to 20% from their initial targets prior to the onset of the global coronavirus pandemic.
The telcos are under pressure to address President Rodrigo R. Duterte’s demand for network improvements, lest they face closure.
“We believe a spill-over of deferred capex into 2021 will stretch domestic telcos’ leverage profiles, as operating cash flow continues to fall behind investments,” the credit rating firm said.
Fitch sees the two firms ramping up network expansion over the remaining quarters of 2020.
It noted that building new towers and access to cell sites remain hampered by an extensive permit approval process while the common-tower policy is set in place. The policy requires telecommunications players to lease new towers from independent tower firms to level the playing field for the upcoming industry entrant, Dito Telecommunity Corp.
“We expect competition to remain stable over the next 12 months,” Fitch said, as the Dennis A. Uy-led company won’t enter until the first half of 2021.
But this won’t be the case in the home broadband market, as the planned public debut of fiber broadband operator Converged ICT Solutions will heighten competition.
“We believe PLDT’s broader service diversification and entrenched fixed-line position will mitigate revenue pressure in its wireless business, compared with Globe,” the rating firm claimed.
The telco industry’s capex grew at a one-third compound annual growth rate (CAGR) between 2017 and 2019, while revenues went up at a 7% CAGR.
Fitch said its revenue movement will remain unchanged at 7%, despite a “stronger-than-expected” 3% increase in the first semester.
Prolonged lockdown and extended relief measures by telcos could delay their revenue growth in the second half of the year.
PLDT still led the industry for three consecutive quarters in the April-June period, making up more than half of the telcos’ revenues. This is due to its “strong” execution in the wireless segment and fixed-line home broadband services, as well as improved network quality and coverage on heavy capital spending over the past years and the recent reallocation of 2G spectrum to 4G.
Globe, meanwhile, saw a 4% decline in its revenue share due to “weakening” mobile revenue.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls.