Higher capex seen for telcos

MANILA, Philippines — Regulatory pressure and looming competition from a new entrant are expected to drive capital expenditures of the country’s two telco incumbents by a fifth or a quarter higher next year, Fitch Ratings said.

Fitch Ratings said it is forecasting the capex of telco giants PLDT Inc. and Globe Telecom Inc. to increase by 20 to 25 percent in 2021.

The higher spending, it said, would be driven by the accelerated network rollout in mobile and fiber broadband in the coming quarters, ahead of new major player Dito Telecommunity’s entry in March 2021.

Fitch Ratings said the country’s new common-tower policy is also likely to accelerate tower builds and access to cell-sites, which were previously held up by the lengthy regulatory approval process for permits.

The Philippines currently has among the highest capex/revenue ratios in Asia-Pacific at around 40 percent, according to Fitch Ratings.

“We expect the incumbent operators’ free cash flows to stay negative, albeit steady, as the resumption in EBITDA growth and the normalization of the cash-conversion cycle following the pandemic relief measures offset capex expansion,” it said.

PLDT chairman and CEO Manuel V. Pangilinan earlier said that there would be continued capex expansion in 2021 and 2022 for the telco giant, “at least for the foreseeable future.”

PLDT was supposed to allocate an all-time high capital expenditures budget of P83 billion this year, eclipsing last year’s record high capex of P72.9 billion.

The telco, however, was earlier forced to downsize this year’s capex to about P63 billion as a result of the slowdown in network rollout due to the quarantine controls imposed in the second quarter.

But with the network rollout regaining momentum following the easing of lockdown restrictions, PLDT has increased its target capex back up to about P70 billion or more.

Globe, for its part, also earlier 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.

“PLDT’s heavy capex investments over the past few years and the reallocation of 2G spectrum to 4G have improved network quality and coverage, contributing to increased revenue share since fourth quarter of 2019 at the expense of Globe,” Fitch Ratings said.

Fitch Ratings also sees sector revenue to grow by mid-to-high single digits in 2021, driven by fast-expanding home broadband services and localized competition in mobile.

“Nevertheless, we expect competition to intensify in the medium term as new entrants expand coverage,” it said, citing the likes oDito, Converge ICT, and NOW Telecom.

Fitch Ratings said PLDT’s more diverse service offerings and entrenched fixed-line position should offset revenue pressure in its wireless business, compared with Globe.

“We believe PLDT’s extensive fibre infrastructure will support its 5G rollout. That said, the telcos are likely to depend on the existing 4G network to meet data demand, while pacing 5G investment over the next few years to preserve cash flow. Globe and PLDT are likely to restrict 5G fixed-wireless access to selected areas,” it said.