Telco revenue to be flat this year — Fitch Ratings

By Arjay L. Balinbin, Reporter

THE revenue of Philippine telecommunications companies will “remain relatively flat” this year as the coronavirus pandemic continues to disrupt economic activities, Fitch Ratings said in a report released on Tuesday.

“Fitch forecasts industry revenue will remain relatively flat in 2020 from a 7% increase in 2019, below our previous estimate of mid-to-high single digits, amid the pandemic,” the global debt watcher said in a non-rating action commentary e-mailed to reporters.

It noted that telecom revenue rose at a “slower pace” of 5% in the first quarter this year from the 9% revenue growth during the same period last year, “despite incorporating only two weeks of the enhanced community quarantine (ECQ) measures since mid-March 2020.”

“We expect leverage metrics to be stretched over the next 18 months, as operational cash flows lag behind investment outlays,” it added.

Fitch Ratings also noted PLDT Inc. is expecting a “softer” momentum in the second quarter while Globe Telecom, Inc. “has a more pessimistic outlook of a low double-digit sequential quarterly decline, with the shift of mobile traffic to home broadband services and weak economic conditions affecting mobile spending.”

PLDT Chairman, President and Chief Executive Officer Manuel V. Pangilinan said in a recent briefing that the telecommunications company’s revenue for the second quarter was likely to “show a decline of low to middle single digits” compared with the first-quarter revenue this year.

PLDT’s first-quarter total revenues went up 7% to P43.65 billion, of which service revenues increased 8% to P41.8 billion and non-service revenues inched up 1.3% to P1.85 billion.

The company’s net income decreased 12% to P5.91 billion because of losses on its investment in Germany-based Internet company Rocket Internet and ramped-up investment in its digital arm Voyager Innovations, Inc.

But compared with the first quarter last year, it is likely that the second quarter will show growth, Mr. Pangilinan said.

“The first half of this year will also be ahead of the first half of last year in terms of revenue,” he added.

For its part, Globe’s consolidated service revenues rose 2% to P36.9 billion from P36 billion, citing the “limited impact” of the pandemic on its operations.

Globe’s first-quarter net income declined 2% to P6.6 billion from P6.73 billion in the same period last year due to sustained increase in depreciation charges and a bigger share in affiliates’ losses.

Fitch Ratings said the payment extensions offered by telcos to their post-paid customers, including enterprise segments, were “likely to increase cash-collection cycles.”

It also noted that PLDT benefits from wider service diversification and a more entrenched fixed-line position compared with Globe.

PLDT expects its capital spending for this year to be reduced by 24% to P63 billion from the planned P83 billion as movement and travel restrictions under the ECQ hamper its network rollout.

Citing the same reason, Globe, which had initially budgeted P63 billion for this year, said its capital expenditure guidance for the next quarter would likely be lower by at least P2 billion from the P10.7 billion it had spent in the first quarter.

“We believe a spill-over of deferred capex (capital expenditures) into 2021 would raise leverage further, particularly in the absence of resurgence in EBITDA (earnings before interest, taxes, depreciation and amortization),” Fitch Ratings said.

It said both Globe and PLDT had initially planned “another record year of capex investments” in 2020, in line with their capex push ahead of the launch of a third mobile-network operator, Dito Telecommunity Corp.

“Fitch expects average FFO (funds from operations) net leverage to rise to around 3.0x in 2020-2021, underscoring our negative outlook on the Philippine telecom sector,” the ratings agency added.

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.