Moody’s expects flat revenue growth for local telcos


MOODY’S Investors Service Inc expects Malaysia’s mobile revenue to be flat owing to intensifying competition and suboptimal data pricing.

The international rating agency in its Asia-Pacific Telecommunications 2021 Outlook report said although revenue growth for the sector is expected to remain stable, there are still factors why some countries will report lower growth.

“For Malaysia, mobile revenue will be flat on intensifying competition and sub-optimal data pricing, despite growth in data usage.

“We expect declines in fixed-line revenue due to lower voice usage and more affordable pricing of broadband services,” the report stated.

Moody’s noted that two local telecommunications companies’ (telcos) rates are expected to be stable.

“Axiata Group Bhd and Telekom Malaysia Bhd are rated Baa2 and A3 respectively, both of which are expected to be stable,” it said.

However, despite the country’s moves to roll out 5G in 2022, it is lagging behind as an early adopter.

“The country is making moderate progress in spectrum allocation, network infrastructure, technology trials and government support, but there is minor to no progress in actual demand,” the report found.

Among the early adopters, namely Hong Kong, Singapore and the Philippines, Malaysia is placed the lowest.

The region sees South Korea leading the pack in 5G adoption, followed by China, Japan and Australia.

In the Asia-Pacific region, its VP and senior analyst Nidhi Dhruv said revenue growth of 3.5% to 4% is expected in 2021 as the sector gradually recovers from the pan- demic-led decline in the first half of 2020.

“This revenue growth lags behind the average GDP growth of 5% for the 11 Asia-Pacific countries with rated telcos in 2021.

“Exposure to Covid-19 disruption is low as an essential service, given the increasing online shopping entertainment and telecommuting,” he noted in a research statement.

Factors that may affect the outlook negatively, however, include the intensifying price competition or the extension of Covid-19 impact.

Operators in emerging markets are also set to see faster revenue growth versus developed markets due to relatively lower penetration rates.

He added that given the revenue increases, Ebitda will grow 2% to 3% in 2021 after just 0.1% growth in 2020, and margins will remain stable around 37% as telcos cut costs and delay capital expenditure (capex) in a more difficult environment.

“Although operators’ capex will decline marginally, it will remain high at about 22% of revenue on average in 2021, well above the US and European telcos’ ratios.

“But most companies should be able to fund their spending largely with internal cash,” he added.

The research house noted that among the six themes that will shape global credit in 2021 are uneven recovery, policy challenges, rising debt burdens, digital transformation, environmental impact and social trends.

“With the current shift to remote work, remote learning and higher levels of e-commerce, telcos handle a larger amount of data and are more exposed than before to cyber attacks.

“Telcos are also required to maintain a high level of cyber risk awareness and take mitigating actions to curtail cyber risk,” it said.

Read our earlier report

Moody’s: Stable outlook for APAC telcos in 2021