MANILA, Philippines - The profitability of Philippine Long Distance Telephone Co (PLDT) and Globe Telecom is likely to decline next year and their capital expenditure to increase, debt watcher Fitch Ratings said in a report.
In its report "2015 Outlook: Philippine Telecommunications Services", Fitch said it expects free cash flows for PLDT and Globe to be negative next year due to the higher capex.
Industry capex is seen at P60 billion in 2015, as both telcos invest in fast-growing data services and expand their fiber networks next year.
Fitch said dividends will also likely increase in line with larger profit as PLDT and Globe distribute around 100% and 85%, respectively, of net income. However, it noted PLDT could review its dividend policy as leverage continues to deteriorate following its debt-funded acquisitions and large capex plans.
Fitch said industry revenue will rise by a mid-single digit rate, driven by fast-growing data services, which is seen to offset stagnating voice and declining text and international revenue.
"Profitability will also deteriorate as a lower-margin data service replaces higher-margin legacy services, including voice, text and international traffic," it noted.
Despite this, Fitch said Globe and PLDT's ratings will not be affected. PLDT currently has a BBB rating with stable outlook, while Globe has a BBB- rating with stable outlook.
"Although unlikely, the industry outlook could turn negative if free cash flow falls significantly more than Fitch's expectations due to greater competition in the data segment," it added.