OREANDA-NEWS. Fitch Ratings says in a report today that credit profiles for South Korean telecommunications companies are likely to remain stable in 2016 with softer competition in the wireless market.

The effective implementation of the Handset Distribution Act continues to keep excessive competition among Korean telecom operators in check. The operating margins of SK Telecom Co., Ltd (SKT, A-/Stable) and KT Corporation (KT, A-/Stable) are weak for their rating levels, but are likely to improve slightly, as we expect marketing costs to remain at a low level in 2016.

We expect the increase in wireless data traffic volume to raise average revenue per user (ARPU) in 2016, despite the slowing growth in LTE users. Fitch forecasts ARPU for SKT and KT to rise in the low-single-digits in 2016.

Fitch expects the Korean telecom operators to continue to generate robust operating cash flow, underpinned by improved operating performance and modest working capital needs. However, SKT's leverage ratio is likely to increase due to the acquisition of a stake in a local cable company, CJ Hellovision Co., Ltd (CJHV), while higher profitability at KT will drive a slight improvement in its balance sheet.

SKT will merge its wholly owned subsidiary SK Broadband Co., Ltd. with CJHV after acquiring 30% in CJHV. The merger is likely to boost SKT's media business by broadening its subscriber base. Fitch expects SKT to increase sales of bundled services across wireless, pay-TV, and broadband.