Most Asian telcos to come under pressure next year, says Fitch Ratings

Fiercer competition and rising capital expenditure (capex) needs will put pressure on the credit profiles of most Asian telcos over the next year, says Fitch Ratings.

The rating agency said it had a negative outlook on the telecoms sectors in India, Singapore, Malaysia, Thailand and the Philippines. However, South Korea, Indonesia, China and Sri Lanka are all on stable outlook.

In a statement here today, Fitch said competition is likely to intensify in India, Singapore and Malaysia, with new entrants poised to offer cheaper tariffs to poach customers from incumbents.

"Competition could be the most intense in India, where a well-capitalised new entrant, Reliance Jio, is offering free voice and text services and cheaper data tariffs than the incumbents.

"We expect the blended tariff to decline by five to six per cent for Indian telcos.

"In Malaysia, the fixed-line market leader, Telekom Malaysia, is making a move into the wireless market, which will prevent a recovery in the revenue of wireless incumbents next year.

"Finally, Singapore will soon auction sufficient spectrum to allow the entry of a fourth mobile network operator," it added.

Fitch said rising competition will add to pressure on revenue, which it expects to grow by just zero to five per cent in most Asian telco markets next year.

"Data usage will continue to rise strongly.But, most telcos are pricing data in such a way that increased usage is not translating into similar revenue growth.

"The trend of falling data tariffs and the substitution of data for voice and text will continue in most markets. Fixed-line and international long-distance services are in a structural decline," it added.

The rating agency said China is the only market where it expects higher data usage to translate into growth in average revenue per mobile user.

It said weak revenue growth will result in a hit to the profit of most Asian telcos.

Fitch said earnings before interest, taxes, depreciation and amortisation (EBITDA) margins are likely to shrink the most in the Philippines and India, where telcos still derive the majority of their revenue from voice and text services.

"Chinese and South Korean telcos' profitability will remain stable, reflecting weaker competition and lower marketing and handset subsidy costs.

"Chinese telcos will benefit further from lower tower lease rental costs," it added.

Fitch said rising capex needs will mean that many Asian telcos will have minimal-to-negative free cash flow next year.

"Thai, Philippine and Indian telcos are likely to have the highest capex/revenue ratios, at around 28 to 30 per cent, as they strengthen 4G networks in response to fast-growing data consumption and the rising importance of network quality.

"In contrast, Chinese telcos' capex could decline by 10 per cent as their 4G development cycle has peaked," it explained.

Fitch said it expects industry consolidation in India, Indonesia and Sri Lanka, as weaker telcos exit the market or seek merger and acquisition to strengthen their competitive position.

Among the Fitch-rated Asian telcos, Singapore Telecom Ltd (A+/Stable), Telekom Malaysia Bhd (A-/Stable), Reliance Communications (BB-/Stable), Global Cloud Xchange (B+/Stable) and PT Tower Bersama Infrastructure Tbk (BB/Stable), have low ratings headroom. - BERNAMA