Steady revenue growth, new services in telecoms' future: Moody's

Moody’s analysis is contained in its new report “Asia Pacific Telecommunications Industry: Revenue Will Continue Increasing in Line with GDP Growth; Capex Will Decline”, co-authored by assistant vice president Nidhi Dhruv and associate analyst Carole Herve. The outlooks reflect the agency’s expectations for the fundamental business conditions in the industry over the next 12-18 months.

“Moody’s-rated telecommunications companies’ average aggregate year-on-year revenue growth will be around 4-5 per cent over the next 12-18 months, similar to the growth rate in 2014,” Dhruv said. “Although EBITDA [earnings before interest, taxes, depreciation and amortisation] will continue to increase, companies’ average EBITDA margin will contract slightly, and capital spending will decline, as telecom companies complete their 3G or 4G investments. 

“Deepening mobile-phone penetration, continued competition and increased revenue contribution from data services will continue to pressure margins, but it will remain healthy.” 

Moody’s expects the average EBITDA margin for telecom companies to be 38.0 per cent in 2015, slightly lower than the 38.2 per cent this year. It expects growth rates to be 1-2 per cent in developed markets – Singapore, Japan and South Korea – and 5-8 per cent in emerging markets – China, Thailand and Indonesia – after excluding the impact of China’s new value-added tax. Aggregate absolute EBITDA will increase about 2 per cent year on year.

Finally, average capital spending as a percentage of revenue will decline to around 23 per cent in 2015. Debt-to-EBITDA ratios will also decline, driven mainly by EBITDA increases, says Moody’s.

Steady recurring cash flows continue to support industry liquidity and resilience even during economic downturns, says the rating agency, and telecom companies still benefit from easy access to bank funding and capital markets.

Meanwhile, Asia-Pacific telecom operators are turning to next-generation networks to tap rising demand, said a report by Standard & Poor’s Ratings Services, “Asia-Pacific Telecom Operators’ Investment in Next-Generation Networks Will Dial Up Revenue”.

“Asia-Pacific’s steady GDP growth and stable macroeconomic environment should sustain demand for telecom services, supporting our generally stable credit outlook,” S&P credit analyst Paul Draffin said. “Investment in next-generation networks will enable telecom companies to tap rising demand for data services, modestly boosting their revenues in the next two years.”

In the region’s more developed markets, such as Australia, Hong Kong, Japan, Singapore and South Korea, telecom operators are pumping funds into fourth-generation cellular networks. Elsewhere, in less developed countries investment in 3G networks is continuing apace. Several telecom operators are also pursuing new business channels such as cloud computing, exposing them to non-traditional, formidable competitors. 

Meanwhile, mergers and acquisitions are likely to remain modest because of regulatory restrictions in some markets and the tightly held nature of many assets. S&P expects some M&A activity to continue, however, particularly in the tower-infrastructure sector and digital-technology space.