Credit-rating agency Fitch Ratings has given a stable outlook to Globe Telecom Inc.’s (Globe) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at “BBB-”. The senior unsecured and National Long-Term Rating were also affirmed at “BBB-” and “AAA(PHL),” respectively.
Fitch said that the key rating driver is Globe’s solid market position, as the ratings reflect the firm’s status as the second-largest telecom operator in the duopoly like Philippine market after Philippine Long Distance Telephone Co. (PLDT)
Globe is the only telecommunication operator competing with PLDT in all three segments and has substantial market share—wireless with 40 percent, broadband 30 percent and fixed line with 20 percent. The credit-rating agency also said that Globe benefits from a relatively benign regulatory regime with inexpensive spectrum costs, no mobile number portability, no tower sharing and unregulated tariffs.
The outlook reflects Fitch’s view that the company’s financial metrics will remain commensurate with its current rating level over one to 1.5 years, even though margin deterioration is likely to continue.
Furthermore, Fitch cited Globe’s strength in the postpaid segment, since the company continues to expand its share in the market by offering fully customized tariff plans, while PLDT is likely to remain less aggressive in the near term.
In first nine months of 2013, Globe’s postpaid services accounted for 37 percent of mobile revenues, compared with 33 percent a year earlier, due to its subscriber base growing 19 percent over the previous year. The company’s strength in the post-paid segment and higher portion of smartphone users, which is 18 percent versus PDLT’s 10 percent, are likely to result in better data monetization leading to strong growth in the wireless mobile as well as the broadband sector.
“We expect to see a gradual margin decline over the medium term. This is due to growing competition with unlimited tariff offerings and handset subsidies,” Fitch said.
Fitch also said that this trend is unlikely to reverse in a mature wireless industry with a penetration rate of over 110 percent. Additionally, the structural shift from high-margin traditional voice services to low-margin data service is contributing to margin contraction.
The ratings agency also noted that Globe’s capital expenditure will be reduced but maintained at 19 percent of sales in 2014 and thereafter, once network upgrades are completed by the end of 2013.
Globe’s capital expenditure will be around P29 billion in 2013 compared with P20 billion in the previous year.
The Ayala-led telecom company is using Bayan Telecommunications Inc.’s existing 10-mega hertz (MHz) spectrum on the 1,800-MHz band, after its acquisition of BayanTel’s debt in 2012.
Fitch also said that BayanTel also has claims on an additional 10MHz on the 2,100-MHz band that is currently subject to a permanent court injunction that Globe is looking to use. Additional spectrum should aid Globe toward improved network quality and enable further data growth. Globe is in the process of converting significant portions of its holdings of BayanTel’s debt into equity, with the aim of getting a majority stake in BayanTel.