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Limited Impact on Philippines' Telcos from Likely Entrant

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Fitch Ratings expects the potential entry in the Philippines of a new mobile carrier through a joint venture between Telstra and San Miguel to have limited impact on competition in the telecoms market over the next two years. 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.

Initial rollout by the new entrant is likely to focus on mobile broadband services in the first two years, 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.

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. The potential joint venture will benefit from Telstra's technology leadership and financial muscle, and 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 expects Philippines Long Distance Telephone (PLDT) and Globe Telecom to invest in greater capacity ahead of the potential entry of the Telstra-SMC venture. Industry capex is likely to increase to around PHP85bn in 2016 (2012-2014: PHP55bn-58bn). The immediate challenges for telcos would be the acceleration of user migration onto higher data plans, and data monetisation. Average monthly data consumption in the Philippines is still low at around 200MB-300MB per month, with consumers primarily using data for web browsing and social media applications.

Of the two incumbent telcos, Globe has a larger exposure to the mobile sector, which accounts for 76% of its revenue, following its gain in revenue share in the post-paid segment. This compares with PLDT, where the wireless business contributes 63% of its revenue and fixed-line accounts for the rest.

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Tags: telstra  fitch ratings  globe telecom  pldt  Philippines