Moody's: stable outlook for APAC telcos

Published November 30, 2021, 2:47 PM

by Emmie V. Abadilla


Moody’s Investors Service gave a stable outlook for Asia Pacific’s telecommunications sector in the next 12-18 months, according to the agency’s latest report.

Based on its Nov. 30, 2021 report, the Philippines’ rising data consumption and broadband use continue to drive revenue growth.

However, legacy voice and messaging services have declined and now contribute a smaller proportion of revenues.

Moody’s rating for PLDT Inc., the only local telco in its list of 16 Asia Pacific (APAC) telcos, remains stable at Baa2.

Overall, APAC telco revenues will grow as consolidation eases competition in emerging markets and developed markets see early gains from 5G adoption, while free cash flow will turn positive on lower shareholder returns, according to the credit rating agency.

In 2022-23, competition and scale benefits will drive consolidation in some emerging markets, while free cash flow will turn positive despite high capital spending as companies rein in shareholder returns, Moody’s Investors predicted.

Specifically, “Revenue for APAC telcos will grow 3.5 to 4.0 percent in 2022 as consolidation will likely ease competition in some emerging markets and developed markets will see early gains from 5G adoption,” says Nidhi Dhruv, a Moody’s Vice President and Senior Analyst.

“However, revenue growth will lag average regional GDP growth of 5.0 percent as the sector matures,” he observed.

Capital spending remains high at around 22-23 percent of revenue as telcos accelerate 5G spending.

Nevertheless, most telcos will fund spending largely using internal cash.

Emerging market telcos in APAC will lead capital spending at around 30 percent of revenue in 2022, to enhance existing networks and initial investments in 5G.

Meanwhile, developed market telcos’ capital expenditure to revenue will remain stable at around 14 percent as they benefit from well-established networks.

Despite the high capital spending, APAC telcos’ free cash flow will turn positive as companies reduce shareholder payments.

Refinancing risk is manageable for most APAC telcos, given the sector’s strong funding access, with only 12 to 15 percent of total debt maturing in 2022.

Moreover, APAC telcos’ access to bond and bank funding will likely remain strong.