Fitch Ratings on Monday downgraded the outlook on Philippine telecommunications sector to negative from stable amid the stiff competition in the domestic market.
Fitch said it revised downward the sector’s outlook in the belief that domestic market competition would intensify further as the market-leader PLDT Inc. took a more aggressive approach. The outlook is contained in the credit rating agency’s “2017 Outlook: Philippine Telecommunications Sector Report.”
Fitch said it would be challenging for Philippine telcos to generate positive free cash flow in the next two years, in light of a decline in profitability and high capital expenditure.
PLDT announced it would spend $1 billion this year to expand mobile broadband network, particularly 700 megahertz, which the company acquired from Vega Telecoms Inc., the telco unit of San Miguel Corp.
Rival Globe Telecom also raised its capital expenditure to $1.05 billion this year from the original capex of $750 million.
The telecom operators aim to accelerate LTE rollout to cover 90 percent to 95 percent of cities and municipalities nationwide by 2018.
“We expect telecom operators to offer cheaper data pricing and higher handsets subsidies — alongside an accelerated 4G rollout to drive data adoption in a predominantly prepaid market,” Fitch said.
Fitch said it expected PLDT to be “more vulnerable” to margin dilution as it incurred higher marketing cost and handset subsidies in a bid to regain lost market share.
The credit rating agency said PLDT was more reliant on legacy service as 53 percent of its first-half revenue came from voice and messaging services compared to Globe’s 42 percent.
Fitch said it expected PLDT’s revenues to grow at a low-single-digit level next year, while Globe’s revenue would grow at middle-single-digits.
“The industry outlook could turn stable from negative if competition in data segment eases which may lead to improved margin and cash generation,” Fitch said.
“However, we see a revision of the industry outlook as unlikely,” it said.
PLDT, partly owned by Hong Kong’s First Pacific Co. Ltd. and Japan’s NTT group, earlier reported a net income of P12.46 billion in the first half, down by 33 percent from P18.73 billion a year ago.
Rival Globe reported a net income of P8.97 billion in the January-to-June period, up from P8.71 billion a year ago.