Fitch Ratings sees ‘larger investments’ by telcos in 2021

MANILA, Philippines — A credit rating agency is seeing local telecommunications companies infusing more investments next year amid “regulatory pressure and looming competition.”

Fitch Ratings said in a statement Friday that: “Philippine telecommunication companies’ 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.”

The competition being referred to by the credit rater was DITO Telecommunity, the third telco player that should have begun its product rollout but was interrupted by the COVID-19 pandemic.

READ: 3rd telco gets 6-month reprieve on commitments

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

During his State of the Nation Address (SONA) last month, Duterte warned leading telco firms Smart and Globe to improve their services by December or face the possibility of being seized by the government.

READ: Duterte to Smart, Globe: Improve services by December or face expropriation

READ: ‘Shape up’: Gov’t takeover of telcos possible, Sotto warns

“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,” Fitch Ratings noted.

“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,” it added.

Fitch Ratings further said telcos’ continuous deferment of investment until 2021 would help it to have leverage next year because operational cash flow and expenses are still higher than revenues. It said revenue predictions for the rest of 2020 would remain flat due to the existing lockdowns.

PLDT Co. remains the industry’s top performer, upping its telco revenue share by 0.8 percentage points to 54 percent due to supposedly strong execution of wireless and fixed-line internet services.

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

There had been much anticipation about the third telco player’s entry in the country as many complain of slow internet connections in certain areas.

The community quarantine periods and the distance learning methods to avoid local coronavirus transmissions have led the public to question how online operations would ensue with slow data speeds, especially in the countryside.