Asia-Pacific telecommunications - risks

Asia-Pacific telecom sector well-positioned to manage risks

Fitch Ratings said its overall outlook for the Asia-Pacific telecommunications sector in 2008 is stable, reflecting the view that operators are relatively well-positioned to manage risks.

Fitch said in a report that while revenue growth is likely to slow, cash flow from operations and free cash flow (FCF) after dividends are likely to rise on aggregate, but cautioned that it expects FCF to fall for half of the 28 rated operators across Asia-Pacific.

Fitch sees competition, regulation, mergers and acquisition and new technologies as the leading themes for the sector in 2008.

Notable exceptions to the stable outlook include Korea-based Hanarotelecom Inc, which Fitch recently upgraded to 'BBB+' from 'BB' following SK Telecom Co Ltd's acquisition of a controlling stake, for which it was assigned a positive outlook in view of the potential for an even closer level of integration between the two entities.

Advanced Info Service Public Company Ltd and Total Access Communication Public Company Ltd in Thailand are both on negative watch, as Fitch awaits a newly elected government in 2008 to clarify policy, regulatory and legal risks which increased in 2007.

In Sri Lanka, the rating agency expressed concern over the weakened macroeconomic environment and security situation, and accordingly, Sri Lanka Telecom is assigned a negative outlook.

Fitch said it expects average revenue growth to slow to 5.2 pct in 2008 from 9.4 pct in 2007, largely associated with declines in fixed and mobile average revenue per user (ARPU) as competitive and regulatory factors force tariffs downwards.

Nevertheless, Fitch expects a number of operators in the emerging markets to record strong revenue growth in 2008, including China Mobile Ltd, PT Excelcomindo Pratama and PT Indosat Tbk. EBITDA margins are likely to be stable overall, but Fitch expects downward pressure for the Indonesian operators, Telecom Corporation of New Zealand Ltd, KT Corporation, SK Telecom and Sri Lanka Telecom.

Fitch also expects positive FCF growth exceeding 10 pct in 2008 to be recorded by China Mobile and China Netcom Group Corp. Other operators expected to record strong positive FCF for 2008 in absolute terms include China Telecom Corporation Ltd, Singapore Telecommunications Ltd, Philippine Long Distance Telephone Company, NTT Corp, KT Corp, SK Telecom, and Chunghwa Telecom Co Ltd.

On the other hand, Fitch expects negative FCF (after dividends) in absolute terms to be registered by Telstra Corp Ltd and Telecom Corp of New Zealand; Fitch's four rated telecommunications operators in Indonesia; and Telekom Malaysia Berhad.