KUALA LUMPUR (Oct 24): Malaysian telecommunication companies (telcos) will continue to experience intense competition, margin squeeze and high capex, according to Fitch Ratings.

In an outlook report published yesterday, Fitch sees continuing pressure on data tariffs, limiting any meaningful recovery in mobile operators' revenues.
However, it said competition in the fixed-line and fibre broadband segments will remain moderate.

Fitch forecasts fixed-line revenue to grow by a low single-digit percentage, driven by Telekom Malaysia Bhd's (A-/Stable) deployment of high-speed broadband Phase II and sub-urban broadband projects.

It said the average operating EBITDA margins of telcos are likely to narrow by 80bp-120bp, as telcos compete on price for IDD services and on the size of data allowance to counter weak consumer spending.

"Expansion in fibre services and long-term evolution (LTE) services will drive capex.

"In addition, mobile operators will have to incur high spectrum costs under the new fee structure for the 900MHz and 1800Mhz bands set by the telecoms regulator, the Malaysian Communications and Multimedia Commission (MCMC).

"MCMC is reviewing the reallocation of 700MHz, 2300MHz and 2600MHz spectrum by end-2016. To preserve cash flows, operators are likely to monetise non-core assets or cut dividends to ease pressure on leverage," it said.

Fitch anticipates limited upside on the sector outlook, as the ongoing weakness in the Malaysian ringgit and intense competition are likely to weigh on operating cash flows.

"However, a significant easing in competition which improves margin and cash flow from operations could lead to the sector outlook turning stable, from negative," it said.