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China Telcos' Credit Metrics to Weaken

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Fitch Ratings says in a report that margin pressure from further reduction in data tariffs, the full impact of data carryover plans, and rentals payable to China Tower are unlikely to threaten the credit profiles of China Mobile Limited and China Telecom, though their rating headroom will decline further.

Fitch believes Chinese telcos may face another round of tariff-cutting pressure from the government in 2016. In 2015, the Ministry of Industry and Information Technology (MIIT) put forward specific goals to cut average data tariffs by 30% by end-2015.

From October 2015, the MIIT also required operators to allow consumers to carry over unused data volume within packages to the next month.

Tower-sharing will not alter the credit profiles of CML and CTCL very much, though adjusted net adjusted leverage will rise in the short term. We believe tower-sharing will enable CTCL to gain access to CML's network resources and improve its network quality and coverage as well as to save capex over the long term.

However, Chinese telcos' capex may remain high in 2016, though off from the peak in 2015. Fitch expects CML to keep a high capex budget while CTCL may use savings in broadband capex and from tower-sharing to speed-up 4G network rollout.

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