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Fitch Sees Free Cash Flow Generation a Challenge for Telco Players

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MANILA, Philippines – Fitch Ratings sees generation of positive free cash flow (FCF) for Telco players, PLDT Inc. and Globe Telecom Inc., as a challenge in two years.

FCF deficit will continue until the next year, Fitch Ratings claimed. This is attributed to higher capital expenditures and decline in profitability, which are anticipated in the mobile industry’s aggressive competition.

The shift to lower-margin data services will provide a swing from 40 to 41 percent to 37 to 38 percent for EBITDA (earnings before interest, taxes, depreciation and amortization).

Fitch said PLDT’s bid to regain its lost market share would make it more vulnerable to FCF deficit.  The telco player continues to incur higher handset subsidies and marketing costs. Additionally, voice and messaging services are largest contributors of its revenue, equivalent to 53%.

Globe’s 42% reliance to voice and messaging services is lower than PLDT’s. Fitch added the telco player will have stronger gains in market share and data monetization. This is contributed by its higher returns from post-paid subscribers.

Though both telco players will suffer from decline in revenue in 2017 and 2018, Globe will still have higher profit growth than PLDT.

In 2015, Globe had 15 percent increase in revenue, amounting to P113.7 billion. PLDT had very slight revenue increase from P162.9 billion to P162.9 billion.

As expansion of fiber infrastructure and LTE network continues, telco players are anticipated to compensate more. Capital expenditures could rise to as much as P96 billion in 2017, an increase of P21 billion compared to 2015.

Both telco players acquired San Miguel spectrum resources for better indoor coverage. Included in the agreement is access to 700 megahertz band. Following the three-year rollout plans, PLDT and Globe assures LTE acceleration in up to 95 percent of cities and municipalities.

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