MANILA, Philippines - London-based Fitch Ratings believes that the recent directive issued by the National Telecommunications Commission (NTC) to lower the fee on text messages by 20 percent and reimburse subscribers for allegedly overcharging would not impair the credit profile of major players.
Fitch said NTC recommended that Philippine telecom operators led by Ayala-controlled Globe Telecom Inc. as well as PLDT’s Smart Communications Inc. and Digitel Mobile Philippines lower standard text message fees to not more than P0.80 per text message from P1 and at the same time reimburse at least P0.20 per text message for overcharging since Dec. 1 last year.
Fitch said in a study that it believes that regulatory risk is increasing as the domestic regulatory body which is the NTC becomes more consumer-oriented.
The rating agency said the directive would not impair the credit profile of major telco players in the Philippines particularly that of Globe.
“However, Fitch does not believe the potential revenue cut will materially impair Globe’s credit profile,” the agency said.
It pointed out that regular text messages contribute significantly lower revenues as more subscribers are shifting to bucket-pricing promos.
“This is because revenue generated from standard text service, subject to the regulation, is significantly lower as a share of total revenue than that from unregulated bucket-pricing tariffs,” Fitch argued.
Fitch also expects Globe’s operating EBITDAR margin, despite deterioration, to remain high at over 40 percent compared with other investment-grade Asia-Pacific telecom operators.
It affirmed the Globe’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BBB-’ on the back of a stable outlook.
“The ratings reflect Globe’s stable credit metrics as the number-two telecom operator in the Philippines with over 30 percent market shares in wireless and broadband. The stable outlook reflects Fitch’s view that the company’s financial metrics, despite on-going margin deterioration, will remain commensurate with its current rating level over the next 12 to 18 months,” it explained.
Fitch expects the company’s operating margin to continue to decline over the medium term due to growing competition on unlimited tariff offerings and handset subsidies.
Fitch believes that this trend is unlikely to reverse in a maturing wireless industry with an over 100 percent penetration rate. This also means subscriber acquisition cost will increase as operators seek to protect market share.
Fitch forecasts that the company’s free cash flow (FCF) generation will turn negative in 2012 given high capital expenditures and dividends. In addition, the company’s tender offer to acquire Lopez-owned Bayan Telecommunications Inc. debt could amount to $134 million which could increase funds flow from operations (FFO)-adjusted net leverage.
Last Tuesday, NTC directed Globe, Smart and Digitel to reduce off-net SMS rates or text messages set to another network to not more than P0.80 per text message from the current rate of P1.
The agency also ordered the telco providers to refund or reimburse their subscribers the excess charge of P0.20 per off-net SMS from Dec. 1 last year up to the present by crediting the prepaid load of prepaid subscribers and effecting the refund through the respective subscriber billing for postpaid subscribers.