The two largest telecommunications carriers in the Philippines should brace themselves for stronger financial headwinds and expect earnings to erode in 2017 due to projected hike in capital spending.
Credit watcher Fitch Ratings said in an outlook report that it would be challenging for Philippine telcos to generate positive cash flow in the next two years, in light of the decline in profitability and high capital expenditures.
The industry is expect to invest P93 billion to P96 billion in 2017, as PLDT Inc. and Globe Telecom Inc. ramp up infrastructure spending to roll out cell sites for the new frequencies they acquired from their copurchase of San Miguel Corp.’s telco assets.
“The industry outlook could turn stable from negative if competition in the data segment eases, which may lead to improved margin and cash generation. However, we see a revision of the industry outlook as unlikely,” the debt creditor said.
It forecasts the earnings margin of the telco industry will narrow to as much as 38 percent in 2017, underpinned by competitive pressure and the ongoing shift to lower-margin data services.
PLDT, it said, is more vulnerable to margin dilution, as its push to regain lost market share entails higher marketing cost and increased handset subsidies.
Globe, on the other hand, is expected to gain traction in 2017.
“We think Globe’s higher average revenue per user postpaid subscribers should translate into stronger data monetization and market-share gains. Our forecasts assume that its revenue growth will decline to the mid-single-digits in 2017-2018, but outpacing that of PLDT’s low-single-digit level,” Fitch Ratings said.