Fitch Ratings: Philippine Telco Competition Stabilising; FCF to Stay Negative

(The following statement was released by the rating agency)


Fitch Ratings-Singapore-August 15: The Philippine telecom industry's robust 1H19
performance was underpinned by stabilising competition ahead of a third telecom
operator's entry, says Fitch Ratings. However, free cash flow (FCF) is likely to
remain negative this year as PLDT Inc. (BBB/Stable) and Globe Telecom, Inc.
(BBB-/Stable) ramp up their capex expansion in 2H19.

Fitch expects industry revenue to increase at a mid-to-high single digit for
2019, though incremental cost to support network expansion is likely to moderate
EBITDA growth in 2H19. Revenue in 2Q19 increased 7% yoy, while adjusted EBITDA,
excluding the effect of changes in lease accounting under PFRS 16, rose by 8%
yoy, fuelled by faster data growth. Globe continued to outperform its rival in
1H19, raising its overall revenue by 8% yoy (PLDT: 5%), widening its share of
telecom-service revenue by 0.4 percentage point to 47.5% over the past six
months. Nevertheless, the return to growth for PLDT's wireless revenue (1H19: 6%
yoy) underscores that a firmer recovery is underway for the country's largest
telecom operator.

We expect PLDT will benefit from an acceleration of subscriber take-up in its
fibre-broadband services, which had been affected since mid-2018 by a regulatory
ruling on outsourced services. This had stalled net take-up of PLDT's
home-broadband subscribers in 4Q18, but the subscriptions have returned to
growth, lifting home-broadband revenue by a modest 2% yoy in 1H19. The PHP3
billion-4 billion to be spent this year on the hiring of installation workers
and technicians should help accelerate home-broadband connections in 2H19.
Management indicated gross installations and upgrades of home-broadband service
lines were showing strong signs of recovery in July 2019.

Globe's service revenue is likely to increase at a high-single-digit rate,
faster than our forecast of mid-single-digit growth for PLDT, due to its larger
post-paid subscriber base and continued market-share gains in mobile. However,
competition is likely to intensify in the medium term with the entry of the
third mobile operator, Dito Telecommunity. Competition in the mobile sector is
greater than in fixed-line, and therefore, we believe diversification into fibre
broadband is advantageous for fixed-mobile convergence and in capturing the
long-term demand for fibre backhaul.

Telecom capex is set to jump by 56% this year to PHP141 billion to support
continued expansion in mobile-data capacity and the rollout of the
fixed-broadband network. However, we expect 5G rollout in the Philippines to be
limited this year, considering the early stage of global adoption and
deployment, particularly in a predominantly prepaid market like the Philippines.
The Philippine telecom sector already ranks as one of the most capex intensive
in Fitch's portfolio of Asia-Pacific telecommunications companies, with total
capex of more than 40% of revenue compared with the low-20s regional average.

Contact:

Janice Chong

Director

+65 6796 7241

Fitch Ratings Singapore Pte Ltd.

One Raffles Quay

South Tower #22-11

Singapore 048583

Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email:
peter.hoflich@thefitchgroup.com; Leslie Tan, Singapore, Tel: +65 6796 7234,
Email: leslie.tan@thefitchgroup.com.

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