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Fitch: Philippine Telcos Face Higher Capex, Lower Margins

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Fitch Ratings has said in a special report that the 2012 outlook for Philippine telecommunications operators is stable. The agency expects both Philippine Long Distance Telephone Company (PLDT) and Globe Telecom to maintain credit profiles consistent with their current ratings despite declining margins and higher capex.

"A likely deterioration in 2012 credit metrics of both PLDT and Globe, due to rising margin pressures and capex investments, will not be significant enough to warrant a ratings downgrade," said Nitin Soni, Associate Director in Fitch's Asia-Pacific Telecommunications, Media and Technology team. "Operating EBITDAR margins, which are unsustainably high, will deteriorate due to an increasing adoption of 'all you can eat plans', and from an unfavourable change in revenue mix towards low-margin data services," added Mr. Soni.

Fitch believes that price competition will continue to affect average revenue per user in 2012, despite the creation of a duopoly following PLDT's acquisition of the third-largest telco, Digital Telecommunications Philippines, Inc. (Digitel). This is due to agency's expectations that PLDT will continue its unlimited tariff offerings which have been disruptive to the market in general.

The agency also believes that 2012 free cash flow (FCF) is likely to be negative due to higher capex requirements to increase coverage and capacity for data services, which is the main revenue growth driver in the medium-to-long term. Also, Both PLDT and Globe have shareholder-friendly dividend policies, and generally distribute 100% of their prior year's net income, which the agency expects to continue in 2012.

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Tags: pldt  globe telecom  Philippines