Telcos brace for greater capex pressure in 2021

MANILA, Philippines — Regulatory pressure and looming competition are likely to push telecommunication giants PLDT Inc. and Globe Telecom Inc. to further bolster spending next year, Fitch Ratings said.

Fitch said while PLDT and Globe’s capital expenditure (capex) cuts this year should temporarily ease the burden on cash flow, regulatory pressure and looming competition with the entry of third player Dito Telecommunity are likely to drive larger investments in 2021.

“The government’s push for significant network improvements recently reiterated by President Duterte at the annual State of the Nation Address – is likely to accelerate network expansion over the next few quarters,” Fitch said.

“The new common tower policy is also likely to hasten tower builds and access to cell sites, which are being held up by the lengthy regulatory approval process for permits,” it said.

PLDT and Globe have both lowered their capex guidance for 2020 by 15 percent to 20 percent from their original targets in light of supply disruption caused by COVID-19 pandemic.

At the onset of the pandemic, PLDT  said it would cut its capex from P83 billion to P63 billion.

On Thursday, however, the company said it upgraded its capex to P70 billion, or a reduction of 15 percent from the original P83 billion, in response to the call for improved service.

Ayala-led Globe, for its part, has revised its capex guidance for 2020 to P50.3 billion, lower than the original guidance of P63 billion given the delays in the rollout during the ECQ/MECQ period.

“We believe a spillover of deferred capex into 2021 will stretch domestic telcos’ leverage profiles, as operating cash flow continue to fall behind investments,” Fitch said.

Fitch is forecasting flat industry revenue for the year, despite a stronger-than-expected three percent increase in the first half.

“Downside risks that could delay a revenue recovery in the second half include continued national lockdowns, accompanied by prolonged relief measures extended by telcos,” it said.

We believe PLDT’s broader service diversification and entrenched fixed-line position will mitigate revenue pressure in its wireless business, compared with Globe,” Fitch said.