Telco competition stabilizing, says Fitch

MANILA, Philippines — Competition in the country’s telecommunications industry is stabilizing ahead of the entry of a third telecom operator, as seen in the robust first half performance of rivals PLDT Inc. and Globe Telecom Inc., Fitch Ratings said.

However, the international debt watcher said free cash flow is likely to remain negative this year as PLDT (BBB/Stable) and Globe (BBB-/Stable) ramp up their capex expansion in the second half.

Industry revenue is expected to increase at a mid-to-high single digit for the year, but Fitch said incremental cost to support network expansion is likely to moderate EBITDA growth in the second half.

“We expect PLDT will benefit from an acceleration of subscriber take-up in its fiber-broadband services, which had been affected since mid-2018 by a regulatory ruling on outsourced services. This had stalled net take-up of PLDT’s home broadband subscribers in the fourth quarter of 2018, but the subscriptions have returned to growth, lifting home broadband revenue by a modest two percent year-on-year in the first half of 2019,” the credit watcher said.

Fitch said the P3 billion to P4 billion spending this year on the hiring of installation workers and technicians should help accelerate home-broadband connections in the second semester.

“Management indicated gross installations and upgrades of home-broadband service lines were showing strong signs of recovery in July 2019,” it said.

Meanwhile, Fitch sees Globe’s service revenue likely increasing at a high-single-digit rate, faster than its forecast of mid-single-digit growth for PLDT, due to its larger post-paid subscriber base and continued market-share gains in mobile.

However, it said competition is likely to intensify in the medium term with the entry of the third mobile operator.

“Competition in the mobile sector is greater than in fixed-line, and therefore, we believe diversification into fiber broadband is advantageous for fixed-mobile convergence and in capturing the long-term demand for fiber backhaul,” Fitch said.

Fitch said the Philippine telecom sector already ranks as one of the most capex intensive in its portfolio of Asia-Pacific telecommunications companies, with total capex of more than 40 percent of revenue compared with the low-20s regional average.

This year, telecom capex is set to jump by 56 percent to P141 billion to support continued expansion in mobile data capacity and the rollout of the fixed-broadband network.

“Globe continued to outperform its rival in the first half of 2019, raising its overall revenue by eight percent year-on-year, widening its share of telecom service revenue by 0.4 percentage point to 47.5 percent over the past six months. Nevertheless, the return to growth for PLDT’s wireless revenue underscores that a firmer recovery is underway for the country’s largest telecom operator,” Fitch said.