Telcos brace for revenue squeeze as local competition intensifies

Be ready for single-digit growth.

Intensifying revenue cannibalisation will squeeze the profit margins of Singapore’s telcos. According to Fitch Ratings, most South and South-East Asian telcos will face a generally challenging environment in 2015.

Telcos in the region will have minimal or even negative free cash flow (FCF) due to high capital expenditure, while profit margins will decline on intensifying competition.

In Singapore, telcos’ FCF will be low despite reduced capital expenditure, as they will continue to distribute 80%-100% of their net income in dividends. Local telcos’ capex is expected to be 10-11% of revenue in 2015, down from 13% in 2014.

Across the region, 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. 

“Singaporean telcos' revenue will only grow by low-single-digit due to higher intensity of cannibalisation of voice/text and international revenues by data. This is in spite of higher data revenues as the industry moves to volume-based pricing,” noted Fitch.

Fitch also noted that SingTel, in particular, has higher leverage than peers at its ratings level and has limited financial flexibility for additional debt-funded M&A.