Fitch downplays Telstra entry’s impact on telecommunications

MANILA, Philippines - Fitch Ratings expects the potential entry of a new player in the Philippine telecommunications market through the joint venture of Australia’s Telstra and San Miguel Corp. (SMC) to have limited impact on incumbent service providers for the next two years.

Despite the limited impact, Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc. are expected to hike their spending to prepare for the entry of the new player in the market.

In a statement yesterday, Fitch said it sees limited impact on competition from the entry of a new player over the next two years citing difficulties the newcomer are expected to face in providing regional mobile coverage amid the lack of domestic roaming arrangements.

“The joint venture will experience large cash burn given the significant capital outlay and price competition to build a subscriber base,” Fitch said.

The new entrant is expected to focus on mobile broadband services in the first two years of its operations as the Philippine mobile market which is still largely 2G-based, presents opportunities to offer faster 4G LTE services.

The new player is expected to expand into mobile telephony after it completes building its network.

SMC is currently in talks with Telstra to form a joint venture for a wireless business in the Philippines.

Telstra chief executive officer Andrew Penn said the company is looking to invest less than $1 billion in the Philippines when it decides to pursue plans with SMC.

SMC president and chief operating officer Ramon Ang has said the focus would be postpaid and broadband, should the joint venture push through.

Fitch said the potential joint venture would benefit from Telstra’s technology leadership and financial muscle as well as  SMC’s 700MHz spectrum-frequency, which is more cost-efficient to roll out given its wider coverage and ability to penetrate through buildings and walls compared to higher frequency bands.

While Fitch sees limited impact on competition from the likely entrant, the debt rater said PLDT and Globe are likely to invest in greater capacity ahead of the Telstra-SMC launch.

It noted industry capex is likely to rise to around P85 billion next year from P55 to P58 billion in 2012 to 2014.

“The immediate challenges for telcos would be the acceleration of user migration onto higher data plans, and data monetization,” Fitch said.

Average monthly data consumption in the Philippines is still low at around 200MB-300MB per month, with consumers primarily using data for web browsing and social media applications.

Of the two incumbent telcos, Fitch said Globe has a larger exposure to the mobile sector, which accounts for the bulk or 76 percent of its revenue, amid its gain in revenue share in the post-paid segment.