• PLDT, Globe expect pressure on revenue, capex — Fitch

Fitch Ratings is expecting tempered revenue growth and increased capex pressure on telco giants PLDT Inc. and Globe Telecom Inc. with the looming arrival of a third telco player.

In a report, the debt watcher said the third telco player is initially likely to compete aggressively on price as it strives to grab market share in an already highly saturated mobile market.

“We expect a large cash burn for the new entrant to roll out its network, and consequently, only a newcomer with deep pockets and technical expertise would be able to compete effectively against the incumbents. Fitch expects this to temper revenue growth and raise the capex pressure on PLDT Inc. and Globe Telecom Inc.,” Fitch said.

Although the severity of the threat from a new entrant is unclear at this stage, Fitch said government intervention may be needed to accelerate industry reforms to raise competition.

Among the government intervention cited by the debt watcher are the re-evaluation of the current 40 percent foreign-ownership cap for public utilities, infrastructure and tower sharing, as well as spectrum redistribution.

“Even after setting aside spectrum frequencies for the new telco, the incumbents still possess a majority of the rights across a range of spectrum frequencies, some of which were acquired from their joint purchase of San Miguel Corp.’s telecom assets in 2016,” Fitch said.

“The spectrum limitation of the third license suggests that the newcomer would focus on the cost-effective long-term evolution (LTE) network to accelerate network rollout,” it added.

Fitch said the ability to monetize higher data traffic remains a key challenge in the country, which is also facing secular declines in revenue from legacy services such as SMS, international and mobile voice.

“The aggressive LTE rollout by the incumbent operators would also raise entry barriers for the newcomer. Fitch sees fixed-mobile convergence as advantageous, allowing telcos to tap into the fast-growing home-broadband market to mitigate mobile pressure and retain customers,” it said.

Overall, Fitch has given a negative sector outlook on the Philippine telecoms market due to the intensifying competition.

“Our expectations that net leverage for the sector will rise to around 3.0x through to 2020 (2017: 2.6x). The Philippines’ average capex intensity of around 35 percent is one of the highest in the region compared with the 23 percent mean of our portfolio of Asia Pacific telecoms companies,” it said.

For PLDT’s part, the company does not see the entry of the third telco player as significantly impacting its operations next year, according to its chairman and chief executive officer Manuel V. Pangilinan said.

“We don’t know how the revenue picture will develop with the entry of a third telco. I would like to think in respect to the first year, the impact would not be significant on the market and on the revenue profile. We’re assuming that the third telco as a new entrant is to build the relevant infrastructure, but we still don’t know what their plans are,” Pangilinan said.

“So most likely, a reading of the third telco player is it will principally be a mobile player. On our part with significant portion of our revenues that are fixed, so we think the impact, if any, on the fixed revenues will be modest. On the mobile side, again it depends on how fast the third telco player develops and builds out its infra services. So, as far as we’re concerned, at least for the first year, we’re forecasting our revenues based on plans, that it will continue to show a good growth,” he said.

In terms of capex, Pangilinan said PLDT is likely to allocate the same amount for next year as it did this year, at around P58 billion to P60 billion.