The potential entry of a third mobile operator in the Philippines, a market with just two dominant players, will intensify competition over the longer term but will have limited impact on domestic competition in the next two years, Fitch Ratings said.
Australia’s largest operator Telstra confirmed a month ago it had been in talks for several months with Philippines’ San Miguel Corp (SMC), one of the largest conglomerates in the region, about investing in a local mobile operator.
The new entrant will have to invest heavily to build out a nationwide network in the initial period since the country doesn’t have mandatory infrastructure sharing requirements. Fitch believes the impact of a new operator on industry profitability will be greater over the longer term.
Fitch expects PLDT (Smart) to sustain its leading position in the Philippines, but its changing revenue mix and the build-out of digital businesses are likely to erode its operating margin to 44-45 per cent from 46.6 per cent in 2014. Fitch’s forecast assumes losses in the digital business over the next three years.
Its 3G/4G expansion will likely push its capex/revenue ratio to 25 per cent in the current fiscal year, up from 20 per cent in 2014. The agency expects capex, however, to normalise to 20 per cent of revenue after 2016.
Meanwhile, number two Globe Telecom will also face some pressure on operating margins, which are expected to fall to 44 per cent this year from 45.2 per cent last year. Fitch forecasts that cost management and revenue growth will only partially offset the negative effect of its changing revenue mix.
It predicts mid-single-digit revenue growth this year (down from 8.5 per cent last year), which is higher than its flat forecast for PLDT.
Globe’s larger proportion of postpaid and smartphone users will translate into stronger data monetisation and gains in market share, Fitch said. Over the past three years its share of industry mobile revenue rose to 43 per cent from 37 per cent after it raised handset subsidies and increased penetration in rural areas.
Its 3G/4G network expansion will boost capex to PHP39 billion ($850 million) this year, including $200 million brought forward from last year. Fitch expects capex to decline to around $700 million to $750 million in 2016-2017.
Globe added six million mobile connections over the past twelve months, taking its total user base to almost 49 million and increasing its market share 3 points to 41 per cent in Q3, according to GSMA Intelligence.