PLDT, Globe credit scores seen unaffected by spending spree

Fitch Ratings said the credit score of telecommunication industry players Philippine Long Distance Telephone Co. and Globe Telecom would not be affected even as both firms were expected to ramp up spending ahead of the entry of a third player.

Fitch Ratings, in a special report, added that while the impact of the entry of San Miguel Corp. and possible partner Telstra Corp. Ltd of Australia would be limited in the next two years, “the effect on industry profitability could be greater over the longer term.”

In the report, Fitch Ratings said the so-called free cash flow deficit (FCF) would likely continue in 2016 as PLDT and Globe continued to invest in “greater capacity for 3G/4G services and fixed broadband infrastructure.”

San Miguel president Ramon Ang earlier said SMC’s telecommunication venture would focus on the high-speed mobile Internet segment.

Already, PLDT has hiked capital spending to a record P43 billion from P39 billion originally. Capital spending will likely remain elevated through 2017, according to PLDT chair Manuel V. Pangilinan, as PLDT invests more in boosting its network for Internet services. Globe Telecom, meanwhile, said it would spend about $850 million (P40 billion) in 2015.

Fitch Ratngs noted that heighten competition comes as consumers clamor for more digital and Internet service.

It said the changing revenue mix and cheaper data plans could narrow the average operating Ebitda (earnings before interest, tax, depreciation and amortization) margin further “by around 100bp, to around 45 percent.”

“The industry outlook could turn negative if severe competition in the data segment were to result in a sharper-than-expected fall in FCF. We feel this is unlikely, however,” Fitch Ratings said.

“Fitch expects the impending entry of a new mobile carrier to have only a limited impact on competition over the next two years, in the absence of mandatory infrastructure sharing. However, the effect on industry profitability could be greater over the longer term,” it added.