Rising capex pressures Asian operator margins - Mobile World Live

Rising capex pressures Asian operator margins

14 NOV 2016

Intensifying competition and rising capex requirements will put additional pressure on the credit profiles of most Asian mobile operators over the next year, Fitch Ratings warned.

Competition is likely to intensify in India, Singapore and Malaysia, with new entrants poised to offer cheaper tariffs to poach customers, Fitch said. Competition could be the most intense in India, where a well-capitalised new entrant, Reliance Jio, is offering free voice and text services and cheaper data tariffs than the incumbents.

Thai, Philippine and Indian telcos are likely to have the highest capex/revenue ratios, at around 28-30 per cent, as they strengthen 4G networks in response to fast-growing data consumption and the rising importance of network quality. In contrast, Chinese telcos’ capex could decline by 10 per cent as their 4G development cycle has peaked.

“We expect the blended tariff to decline by 5-6 per cent for Indian telcos. In Malaysia, the fixed-line market leader, Telekom Malaysia, is making a move into the wireless market, which will prevent a recovery in the revenue of wireless incumbents next year. And Singapore will soon auction sufficient spectrum to allow the entry of a fourth mobile network operator,” it said.

Weak revenue growth
Rising competition will add to pressure on revenue, which Fitch expects to grow by just 0-5 per cent in most Asian telecoms markets next year. Data usage will continue to rise strongly, but most telcos are pricing data in such a way that increased usage is not translating into similar revenue growth.

It expects the trend of declining data tariffs and the substitution of data for voice and text to continue in most markets. Fixed-line and international long-distance services are in a structural decline. China is the only market where it expects higher data usage to translate into growth in ARPU.

Weak revenue growth will impact the profit of most Asian telcos. EBITDA margins are likely to shrink the most in the Philippines and India, where operators still derive the majority of their revenue from voice and text services.

Chinese and Korean telcos’ profitability will remain stable, reflecting weaker competition and lower marketing and handset subsidy costs. Chinese telcos will benefit further from lower tower lease rental costs.

“We expect industry consolidation in India, Indonesia and Sri Lanka, as weaker telcos exit the market or seek M&A to strengthen their competitive position. The Sri Lankan market looks particularly crowded and ripe for consolidation. Debt-funded M&A could threaten the ratings of acquirers in these markets,” Fitch said.

The agency has a negative outlook on the telecoms sectors in India, Singapore, Malaysia, Thailand and the Philippines. South Korea, Indonesia, China and Sri Lanka all have a stable outlook.


Joseph Waring

Joseph Waring joins Mobile World Live as the Asia editor for its new Asia channel. Before joining the GSMA, Joseph was group editor for Telecom Asia for more than ten years. In addition to writing features, news and blogs, he...

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