Top telcos face rising business risks - Fitch

The major players in the Philippine telecommunications sector face rising business risks as traditional areas exhibit slower growth, international ratings agency Fitch Ratings said in a statement. In the note sent to media late Monday, Fitch said its outlook on Philippine Long Distance Telephone Co. (foreign currency Issuer Default Rating 'BB+'/Stable) and Globe Telecom (FC IDR 'BB+'/Stable) remains broadly stable, but noted that event risk had come into greater focus in recent weeks. "Concomitant with increased shareholder demands, major operators are grappling with evolving industry pressures in terms of slowing growth in traditional areas (cellular services and fixed-voice) and rising investment needs for new growth areas such as consumer broadband," said Priya Gupta, Director in Fitch's Asia-Pacific telecommunications, media and technology team. Last week, PLDT approached bondholders to seek higher flexibility on certain covenant limitations, while main competitor Globe declared special dividends amounting to around 55 percent of prior-year net income. "These developments have not resulted in any negative rating action, but cautions that both operators have only moderate headroom for an increase in net debt at their current local currency IDR levels," the ratings agency said. Fitch noted that thus far, both PLDT and Globe have managed to successfully balance both shareholder and creditor expectations. Nonetheless, Fitch said the key players are faced with rising business risk. Fitch noted that the hunt for growth has led PLDT to diversify into call center operations and business process outsourcing. "Financial year 2007 capex targets are noticeably higher than in previous years, allocated to continued mobile investments (both 2G and 3G) and rollout of broadband networks. PLDT is also spending on next-generation infrastructure including upgrading to an all-IP core network which will enhance data capabilities and improve operating efficiency," Fitch said. This, as 2G cellular services, the industry's main growth engine, are expected to deliver only modest revenue growth. Fitch said key credit drivers over the next 12 to 18 months include effective cost control measures in view of the low revenue growth environment, prudent investment/expansion into new growth avenues, and management of shareholder demands. However, the ratings agency said market irrationality remains a major risk and cautioned that renewed outbreaks of acute competition could give rise to negative ratings pressure. - GMANews.TV