Fitch: Newcomer Telstra faces difficulties in local industry

Fitch Ratings said incumbent players Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom face new challenges with the entry of the third telecommunications player, but it noted that any impact would likely be “limited” over the next two years.

Fitch was referring to the possible entry of San Miguel Corp., which is in partnership talks with Australia’s Telstra Corp. Ltd. SMC president Ramon Ang had said they may launch the new service, mainly focused on high-speed mobile Internet, as early as 2016.

“Infrastructure sharing is not mandatory in the Philippines and Fitch expects the newcomer to face difficulties providing regional mobile coverage in the absence of domestic roaming arrangements,” it said.

Fitch noted that the initial rollout by the new entrant was likely to focus on mobile broadband services “with a likely expansion into mobile telephony once the network build-out is completed.”

“However, the joint venture will experience large cash burn given the significant capital outlay and price competition to build a subscriber base,” it added.

Nevertheless, Fitch said there were opportunities for telecommunications players in the high-speed Internet space that SMC-Telstra was eyeing.

“The Philippines’ mobile market is highly saturated, and is still largely 2G-based. We believe this could present strong value propositions for faster 4G LTE services and the impact on industry profitability would be greater over the longer term.,” Fitch said.

The venture, it said, would benefit from Telstra’s technology and financial resources as well as SMC’s 700MHz spectrum-frequency.

“The 700MHz frequency is more cost-efficient to roll out because of its wider coverage and in-building penetration than higher frequency bands,” Fitch said.

Globe and PLDT, meanwhile, are likely to ramp up spending to bolster their networks ahead of the entry of any new player with industry-wide capital spending set to hit P85 billion next year against the annual average of P55 billion to P58 billion from 2012 to 2014.

“The immediate challenges for telcos would be the acceleration of user migration onto higher data plans, and data monetization,” Fitch said.

It also noted that Globe has a larger exposure to the mobile sector, which accounts for 76 percent of its revenue, following its gain in revenue share in the post-paid segment. For PLDT, this contribution is at 63 percent.