PLDT Inc. and Globe Telecom Inc. are projected to infuse higher capital expenditure (capex) in 2021 driven by regulatory pressure and looming competition from a new entrant, according to global credit watcher Fitch Ratings.
Fitch has projected PLDT’s capex of P70 billion and Globe’s P50 billion this year to increase by at least 20 percent next year saying “the Philippines has among the highest capex/revenue ratios in Asia-Pacific, at around 40 percent.”
Fitch expects the two telcos’ free cash flows to stay negative, albeit steady, as the resumption in earnings before interest, tax, depreciation and amortization growth and the normalization of the cash-conversion cycle following the pandemic relief measures offset capex expansion.
The strategic execution will be key amid the challenges posed by the pandemic and rising competition, it added.
PLDT and Globe are accelerating their network rollout in mobile and fiber broadband in the coming quarters, ahead of Dito Telecommunity Corp.’s entry in March 2021. Fibre broadband provider Converge ICT Solutions Inc. and fixed-wireless service provider NOW Telecom Inc. have niche target markets.
“Nevertheless, we expect competition to intensify in the medium term as new entrants expand coverage,” Fitch said.
It added the country’s new common tower policy is also likely to hasten tower builds and access to cell sites.
Fitch also expects revenue to grow by mid to high single digits in 2021, from 3 percent year-on-year growth in first nine months of the year, driven by the fast-expanding home broadband services and localized competition in mobile.
However, it noted 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 fiber infrastructure will support its fifth generation (5G) rollout. The telcos are likely to depend on the existing 4G (fourth generation) network to meet data demand while pacing 5G investment over the next few years to preserve cash flow,” Fitch said.
It said Globe and PLDT are likely to restrict 5G fixed-wireless access to selected areas.
According to Fitch, 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.
It added PLDT outperformed the industry for the fourth consecutive quarter in third quarter this year, gaining another 0.9 percentage point to 55 percent of total telecom revenue.
The strong performance stemmed from strong execution in wireless and fiber-broadband services, resulting in both 9 percent year-on- year growth.
Fitch said Globe’s quarterly revenue fell 3 percent year-on-year due to weakening mobile revenue which declined by 10 percent year-on-year.