Telcos under pressure to hike capex: Fitch

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    PLDT Inc. and Globe Telecom Inc. are anticipated to infuse higher capital expenditure in 2021 on government pressure to improve services and the looming competition from the third telecom player, according to Fitch Ratingst.

    The global credit watcher in a report said the telecom firms’ capex cuts this year should temporarily ease the burden on cash flow, but regulatory pressure and looming competition are likely to drive larger investments in 2021.

    In the light of pandemic-related supply disruptions, the telcos reduced their capex guidance this year by 15 to 20 percent from their original targets: PLDT to P70 billion from P83 billion and Globe to P50.3 billion from P63 billion .

    “The government’s push for significant network improvements — recently reiterated by President Duterte at the state of nation address — is likely to accelerate network expansion over the next few quarters,” Fitch said.

    Fitch added the new common-tower policy is also likely to hasten tower builds and access to cell-sites, which are being held up by the lengthy regulatory approval process for permits.

    The new policy requires telcos to lease new towers from independent tower companies, a move to level the playing field for new entrant, DITO Telecommunity. However, the mandatory tower- sharing does not apply to existing towers.

    PLDT has signed agreements with six tower companies to build 181 common towers and will seal agreements with more tower companies this year. Globe has remained aggressive in building towers in the country.

    PLDT and Globe revenues this year are expected to be flattish as compared to last year.

    “We forecast flat industry revenue for 2020 (versus 2019: 7 percent growth), despite a stronger-than-expected 1H20 (first half of 2020) increase of 3 percent. Downside risks that could delay a revenue recovery in 2H20 (second half of 2020) include continued national lockdowns, accompanied by prolonged relief measures extended by telcos,” Fitch said.

    Competition in the telecom industry will further intensify by next year with the commercial launch of DITO and the planned initial public offering (IPO) of fiber broadband operator, Converge ICT Solution.

    “We expect competition to remain stable over the next 12 months, with the commercial launch of Dito not taking place until 1H21 (first half of 2021) at the earliest. The third mobile network operator aims to cover at least 37 percent of the national population across 17 cities and municipalities by March 2021,” Fitch said.

    However, the planned IPO of Converged ICT will increase competition in the fast-expanding home broadband market.

    “We believe PLDT’s broader service diversification and entrenched fixed-line position will mitigate revenue pressure in its wireless business, compared with Globe,” Fitch said.