Profit margins at the country’s two dominant telecommunication players are expected to narrow next year as revenues from text messages continue to shrink, Fitch Ratings said in a forecast.
The rating agency said profitability for Philippine Long Distance Telephone Co (PLDT) and Globe Telecom Inc. would slip as lower-margin data service replaces higher-margin services such as text, voice, and international traffic.
Fitch said revenue growth for the telcos would be limited to low-to-mid single digit percentages as fast-growing data services offset declines in traditional voice and SMS revenues.
However, the two companies’ ratings will not be affected given the available headroom, according to Fitch.
Fitch also expects free cash flows (FCF) for both PLDT and Globe to be negative in 2015 because of higher capital expenditures (capex).
FCF represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.
“Although unlikely, the industry outlook could turn negative if FCF falls significantly more than our expectations due to greater competition in the data segment,” Fitch added.
Capex will be around P60 billion next year, or 24-25 percent of revenue from P58 billion this year, as both telcos invest in fast-growing data services and expand their fiber networks, the rating firm said.
The rating firm said PLDT’s $445 million investment in Rocket Internet AG a few months ago has raised leverage, with the acquisition unlikely to contribute financially to the telco’s credit profile in the next two to three years.
PLDT’s third-quarter results showed a 3 percent drop in net profit to P27.96 billion as of end-September from P28.96 billion it recorded in the third quarter of 2013.
Earlier, Globe reported a 198 percent surge in net income to P10.5 billion in the first nine months of the year against 2013 figures.