Fitch Ratings in its relative credit analysis of the telecom industry believes a consolidation in Asia, including Malaysia, Indonesia, and India, will lead to growth in profitability as mobile competition becomes more rational. Further industry consolidation is likely as scale becomes increasingly important in the sector, and the focus of competition under 5G national plans shifts from infrastructure to service innovation to develop wider ecosystems and user cases.
Market position and financial structure are key differentiating factors for APAC telcos, as they continue to invest in spectrum and network upgrades to preserve their competitive capabilities in an increasingly commoditised sector. The 5G technology favours operators with scale and strong balance sheets, which may contribute to diverging credit quality over time across the peer group.
Fitch expects telcos’ median 2023 leverage to remain stable before increasing slightly in 2024. Free cash flow generation will improve in the near term with better profitability, but will remain limited, as modest EBITDA growth will be consumed to build or expand 5G infrastructure as well as invest in non-telecom segments.
Rating headroom is moderate to high for most of the telcos covered, underlining the emphasis on capital preservation through staggered 5G investment, and controlled dividends and asset sales. Singapore Telecommunications Limited (A/Positive) and SK Telecom Co., Ltd (A-/Positive) have high rating headroom and Positive Outlooks with improving leverage ratios while PT XL Axiata Tbk (BBB/Negative) has a Negative Outlook due to its linkage with its parent, whose credit profile has weakened recently
