Bangkok--2 Nov--Fitch Ratings
During October 2010 Fitch met with a number of technology, media, telecommunications (TMT) focused credit investors in the Asia-Pacific region. Thematic discussions centered on the current Smartphone-driven growth in data average revenue per user (ARPU) and their potential to drive higher free cash flow (FCF) levels for mobile operators over the medium term.
Fitch believes the advent of these devices with larger screen sizes and user friendly operating systems, such as iPhone OS and Android, is clearly incentivizing subscribers to pay for higher priced data bundled packages in most Asia-Pacific markets. Many investors were positive on the potential for the ongoing adoption of smartphones to drive higher revenues for operators, leading to improved margins and potentially higher FCF over the medium term. However, in Fitch's view the mode by which each operator will price data remains a key risk going forward. This is particularly the case given the potential for the "all-you-can-eat" data offerings to start restricting network capacity once smartphone users represent more than 30% of an operator's total subscriber base.
Capacity constraints, and subsequent additional capital expenditures to mitigate these constraints, are likely to influence telecom operators' financial profiles. This is especially relevant for those operators who, due to competitive pressures or otherwise, decide to maintain their marketing focus on "all-you-can-eat" data packages.
Other short term risks for operators include higher operating costs to subsidize a rapid subscriber transition to the higher priced smartphones, and potentially lower voice revenues given that higher data ARPUs may afford the operators flexibility to lower voice tariffs in order to attract and/or retain subscribers, particularly in highly competitive markets.
The ability of each Telecom operator to transition the bulk of their smartphone users from "all-you-can-eat" packages over to a variety of tiered packages, where subscribers pay more according to their actual data usage, is viewed by Fitch as likely to be variable. Given this variability there is a clear need for the impact of pricing plans to be fully understood before adjusting FCF forecasts.
Fitch continues to actively monitor and comment on developments in the TMT sector, and recently published two new criteria pieces for Rating Global Telecom Companies and Rating Global Technology Companies.
Contacts:
Matt Jamieson
Fitch Ratings
Senior Director, Asia-Pacific Corporates
Head of Asia-Pacific TMT
Seoul, + 82 2 3278 8355
[email protected]
Andrew Steel
Managing Director, Asia-Pacific Corporates
Singapore, + 65 6796 7231
[email protected]
Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:
[email protected].