Fitch says stiff competition to stifle PHL telcos’ profits 

Margins of Philippine telecommunications companies will choke from stiff competition on prices, according to credit rating agency Fitch Ratings.

 

“In the Philippines, price competition will lead to continued margin erosion in 2013 despite the duopoly market,” London-based Fitch noted in its 2013 Outlook on Southeast Asia Telecommunications.

 

By duopoly, the credit rater was referring to a market dominated by Philippine Long Distance Telephone Co. and rival Globe Telecom Inc.

 

Even the growth of volume would not be able to save Philippine telcos from declining profits, according to Fitch.

 

“Volume growth is likely to be insufficient to offset margin decline, and therefore Fitch expects the telcos' cash flow from operations to be weaker,” Fitch said, referring to the Southeast Asian market in general.

 

Competition through low-priced promos like unlimited calls, text messaging, and Internet access, as well as capital investments on network upgrades already weighed on the bottom line of PLDT and Globe.

 

"Demand growth is likely to match or outpace the decline in margins and growth in investment and credit metrics will generally be stable or slightly improved,” said Steve Durose, Fitch head of Telecommunications, Media and Technology team in Asia-Pacific.

“In the cases where credit metrics will decline, Fitch expects few rating downgrades as these operators generally have significant headroom at their current rating level," Durose noted.

 

PLDT reported to the Philippine Stock Exchange a 6-percent drop in net income to P28.7 billion in the first nine months of the year. 

 

Globe also reported a 19-percent decline in profits to P6.81 billion in same period in spite of a 6 percent gain to P61.3 billion in consolidate revenues.

 

“However, leverage will improve as FCF is likely to turn positive due to lower capex – with the completion of major network investments in 2012,” said Fitch.

 

FCF or free cash flow is a measure of financial performance calculated as operating cash flow minus capital expenditures, according to Investopedia.

 

Globe expects to complete its $700-million network modernization in the first quarter of 2013, and PLDT has just completed its P67.1-billion network upgrade.

 

PLDT is partly owned by Hong Kong’s First Pacific Co. and Japan’s NTT Group, while Globe a joint venture of conglomerate Ayala Corp. and Singapore Telecom. — VS, GMA News