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5G capex risk a top issue for investors — Fitch

FITCH Ratings said the pace of investment in the fifth-generation (5G) technology is among the top issues for credit investors in the telecommunications sector in the Asia-Pacific region.

The global debt watcher said emerging markets in the Asia-Pacific region like the Philippines are “likely to pace 5G investments over the next few years to support cash flow, and enable investments to meet proven demand.”

“Capex (capital expenditure) intensity in these markets typically hover around 25%-40%, above the region’s average in the low 20s,” it said in a non-rating action commentary e-mailed to reporters on Monday.

In advanced markets like South Korea, China, Taiwan, Singapore, and Australia, telecommunications companies are likely to position 5G as a “network differentiator to strengthen their competitiveness.”

The debt watcher expects operating cash flow to significantly “lag behind 5G investments, keeping free cash flow (FCF) constrained over the next three years,” Fitch Ratings added.

Near-term uplift from 5G revenue is unlikely to be significant, Fitch Ratings said further, citing a lack of “compelling” applications that differentiate 5G services from 4G.

“Our forecasts assume staggered 5G capex and spectrum costs as these become certain, with low visibility on returns over the next three years. The impact will, however, be uneven across the portfolio in light of the asymmetrical developments,” it explained.

PLDT, Inc. Chief Revenue Officer Alfredo S. Panlilio said in a virtual briefing in October last year that the telco may set a higher budget for 5G in 2021.

PLDT’s wireless arm Smart Communications, Inc. launched its 5G service commercially in July last year.

The company also plans to roll out more fiber lines and ports nationwide, as it aims to serve the “continuously rising demand of more Filipinos for high-speed broadband and connectivity.”

Globe Telecom, Inc. is also rolling out more 5G areas this year. Globe’s 5G is currently available in 1,045 areas in the country.

PLDT’s 5G network is available in its headquarters in Makati City, New Clark City in Pampanga, and Araneta in Quezon City.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Arjay L. Balinbin

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