Philippine telecommunications companies are the most exposed to margin declines next year in Southeast Asia as their profitable text revenue is replaced by data services, a report from the Fitch Ratings credit agency said on Monday.
Fitch Ratings said it expects most South and Southeast Asian telecommunications companies to face a challenging environment next year, with the sector outlooks remaining stable.
“Free cash flow will be minimal or negative due to high capex; profit margins will decline on competition; and revenue growth will be limited to low-to-mid single digit percentages as fast-growing data services offset declines in traditional voice and short message service revenues,” the report read.
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Fitch noted that Indian, Indonesian, Sri-Lankan, and Philippine telecommunications companies’ 2015 revenue is likely to “grow by mid-single-digits due to growing data usage arising from the greater availability of cheaper smartphones and generally affordable data tariffs.”
According to Fitch Ratings, the Philippines, Malaysian and Indonesian telecommunications companies’ 2015 profit margins will decline due to competition, higher marketing expenses and data-to-voice or text substitution.
The agency, however, noted that Philippine telcos are “most exposed to margin declines as their most profitable text revenue is replaced by data services given that text’s revenue contribution is highest at 30% than peers.”