Intense competition in Malaysia to narrow telco margins, says Fitch Ratings

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KUALA LUMPUR (Nov 11): Competition in the Malaysian telecom industry will remain intense in 2015, particularly among mobile operators, which could lead to their average operating EBITDA margin narrowing by 1 percentage points-1.5 percentage points, according to Fitch Ratings.

In a report Nov 10, Fitch Ratings however said that competition would not be as fierce in the fixed-line and broadband sector, which it expects to be dominated by Telekom Malaysia Berhad (TM; A-/Negative) in the medium term.

It said average industry revenue will increase by 3%-5% in 2015 driven by strong growth in broadband and mobile data services.

Voice revenue will remain flat, while text revenue may decline as data services cannibalise text messaging, it said.

“Fitch expects 2015 capex for Malaysian telcos to be unchanged from 2014 as operators will continue investment in their 3G and 4G networks to support data growth.

“Free cash flow (FCF) will be minimal as telcos' cash flow from operations will barely cover capex and dividends,” it said.  

As a result, Fitch said it anticipates stable leverage for most telcos unless companies make special dividend payments or undertake large debt-funded acquisitions.