South, Southeast Asia Mobile Profits Challenged in 2015

South and Southeast Asia might be among the world's fastest-growing mobile markets, but profit and free cash flow pressures will be significant in 2015.

Fitch Ratings expects most South Asia and Southeast Asia telecommunications operators will face a generally challenging environment in 2015, although its sector outlooks will remain broadly stable.

Minimal or negative free cash flow will result from high capital investment in mobile networks (3G and 4G),  while profit margins will decline because of  competition, Fitch Ratings said.

“Revenue growth will be limited to low-to-mid single digit percentages as fast-growing data services offset declines in traditional voice and SMS revenues,” Fitch Ratings said.

Philippine, Sri-Lankan and Thai telcos might invest 25 percent to 30 percent of their revenue either to expand networks or acquire new spectrum.

Singaporean telco free cash flow also will be low despite reduced capex at 10 percent  to 11 percent of revenue, down from the 2014 level of 13 percent of revenue. Also, Singapore firms  will continue to distribute 80 percent to 100 percent of their net income in dividends.

India, Indonesia, Sri-Lanka, and Philippines mobile operator 2015 revenue was likely to grow by mid-single-digits due to growing data usage arising from the greater availability of cheaper smartphones and more-affordable data tariffs, Fitch Ratings said.

Singapore mobile service provider revenue will grow by low single digits because of continuing cannibalization of voice, text messaging and international revenues. Higher data revenues will offset most of the losses.
Malaysian and Thai service provider revenue is likely to grow by low single digits due to intense competition,” Fitch Ratings said.

Fitch also said Philippines, Malaysian and Indonesian telcos' 2015 profit margins would decline due to competition, higher marketing expenses and data-to-voice/text substitution.

Philippine telcos, it said, were most exposed to margin declines as their most profitable text messaging revenue is replaced by data services. Text messaging revenue contribution for Philippines operators is as much as 30 percent of total revenue.

Indian mobile service provider profit margins are likely to remain stable, as voice prices gradually rise.

Privately-owned Thai service provider profitability could improve by three percentage points in 2015.

Weaker telcos in India, Indonesia and Sri-Lanka may consolidate or exit the industry.
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