Competition, commoditization to impact APAC telco earnings in 2019

20 Dec 2018

Telecoms operators in Asia Pacific will face stronger competition and increasing commoditization in 2019, with revenue growth lagging behind GDP growth in the region, according to a report released by Moody’s.

In the report, the rating agency predicts overall revenue growth rate in the region stands between 2% and 2.2% in 2019, while average GDP growth is forecast at 4.6%.

Moody’s report covers operators across 11 markets in the region: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines and Singapore.

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In developed markets such as Australia, Japan and Singapore, revenue growth in 2019 is predicted to slow down, due to intensified competition, consolidation and the entry of new players, says Nidhi Dhruv, vice president and senior analyst, at Moody’s.

In Australia, as the national broadband network (NBN) rollout continues, incumbent Telstra is gradually losing its effective monopoly as a wholesale access provider, and therefore, its wholesale revenue. Dhruv adds that competition for new subscribers likely ease if TPG Telecom’s planned merger with Vodafone Australia receives the necessary approvals.

Competition in Japan is set to get fiercer with the threat of new entrant, Rakuten, which received a mobile license in April and plans to launch 4G mobile services in October 2019. Similarly, competition in Singapore is intensifying as the country’s fourth operator, TPG Telecom, is set to launch services by early 2019.

While overall revenue growth in the region remains slow, the situation is most pronounced in emerging markets, where growth is expected to decline by 3%-3.5% in 2019, compared with 3.9% in 2017, dragged by intense competition and pricing pressures.

Take China, for example, the government has been pressuring the country’s three major operators - China Telecom, China Mobile and China Unicom ­- to reduce tariffs and increase speed, but mobile tariff declines have been more than offset by a significant increase in data usage and revenue.

In India, operators have been consolidating which promises to usher in a more rational pricing environment emerging in the longer-term, but there is no near-term catalyst for a rise in APRUs.

In Malaysia, intensifying competition and sub-optimal data pricing are dragging operators” revenue growth. The Philippines is also seeing intense competition despite the duopolistic market, and growth in internet and data-related services are being partly offset by contractions in text and international long-distance calls.

‘Future-proof’ revenue streams

Driven by price pressures and continued declining revenues from traditional telecoms services, telcos in the region are rethinking revenue diversification strategies.

They are pursuing service differentiation and cross-industry partnerships in areas of mobile payments, video streaming, digital marketing, cyber security or cloud-based services.

These value-added businesses are inherently margin dilutive, but essential for ‘future-proofing’ the sector’s revenue streams and to keep telcos relevant in the digital ecosystem, the rating agency says.

All in all, Moody’s says the outlook for the sector in APAC is stable through 2019, with companies in the region likely to show relatively stable leverage and debt levels over the next 12-18 months.

Moreover, while liquidity is weakening, such levels remain supported by the companies’ access to the banks and bond markets.

This article first appeared in Telecom Asia Vision 2019 Supplement

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