Data traffic to hike capex of telcos — Fitch

MANILA, Philippines — Telecommunications providers are expected to shell out more to address the surge in data traffic as a result of the ongoing coronavirus disease 2019 or COVID-19 pandemic.

Fitch Ratings said the greater need for data connectivity amid the COVID-19 pandemic would support demand for telecom services among Asia Pacific (APAC) telcos.

The global debt watcher said the longer-term effects of elevated data traffic should accelerate capex investment to support additional network capacity, more so in markets with under-developed fixed-line infrastructure.

“Depending on how long the pandemic continues, the rising use of online connectivity and remote access technology from home is likely to drive the need for greater capacity to maintain network resilience,” Fitch Ratings said.

“It is still too early to assess the full impact of these effects on APAC telcos’ capex budgets, but we believe much of the investment will be frontloaded to cater for the near-term surge in data traffic,” it said.

According to Fitch Ratings, telecom markets with developed fiber-broadband infrastructure and fiber networks such as South Korea and Singapore are better-positioned to cope with demand than emerging markets in Indonesia, India, Philippines and Thailand, where mobile remains the dominant platform for broadband access.

Fixed-broadband markets in such emerging countries are significantly underserved due to the limitations of fixed-line infrastructure, it said.

Fitch, however, said the ability to increase the return on network investments would remain a challenge for the APAC telcos.

It expects the growth in telecom revenue to lag behind data consumption, noting that telcos are seldom able to price data to capitalize fully on the rapid growth in traffic.

“Some telcos have offered larger data allowance while maintaining current price plans as part of their response efforts. This is despite declining roaming revenues due to curbs on overseas travel,” Fitch said.

“Closure of retail outlets due to self-isolation and quarantine measures imposed in some countries could also lead to slower gross subscriber additions in prepaid markets reliant on traditional distribution networks,” it said.

The country’s two biggest telcos are allocating all-time high capex budget this year, with PLDT earmarking P83 billion and Globe allotting P63 billion.

Fitch’s sector outlook on APAC telecoms has been negative since end-2019 after revising it from stable, reflecting the narrowing rating headroom following a prolonged period of intense competition, high capex and shareholder returns.