OREANDA-NEWS. Fitch Ratings says in a Special Report released today that capex is likely to rise for Philippine telcos in 2016, ahead of the possible entry of a new mobile entrant, but their ratings will not be affected - due to the high rating headroom.

The free cash flow deficit (FCF) is likely to continue in 2016 as Philippine Long Distance Telephone Company (PLDT, BBB/Stable) and Globe Telecom, Inc. (Globe, BBB-/Stable) invest in greater capacity for 3G/4G services and fixed broadband infrastructure. The changing revenue mix and cheaper data plans could narrow the average operating EBITDAR margin further by around 100bp, to around 45%.

Fitch expects the impending entry of a new mobile carrier to have only a limited impact on competition over the next two years, in the absence of mandatory infrastructure sharing. However, the effect on industry profitability could be greater over the longer term.

The industry outlook could turn negative if severe competition in the data segment were to result in a sharper-than-expected fall in FCF. We feel this is unlikely, however.

PLDT's Foreign-Currency IDR could be upgraded upon positive rating action on the Philippines' Country Ceiling. Conversely, negative rating action on the Country Ceiling would result in a downgrade. Globe's Foreign-Currency IDR would be upgraded if funds flow from operations (FFO)-adjusted net leverage were to decline to below 2.0x (2015: 2.3x) on a sustained basis.

The report, "2016 Outlook: Philippine Telecommunications Services", is available on www.fitchratings.com.