Moody’s: AsPac telcos to face higher spectrum liabilities

MANILA, Philippines — Telecommunications companies in Asia’s emerging markets, including the Philippines, may face higher spectrum liabilities, but it would have limited immediate impact on their liquidity and cash flow, according to Moody’s Investors Service.

In a report, Moody’s said the ratings of Asia-Pacific telcos in emerging markets could tolerate increased deferred spectrum liabilities at current levels if these essential costs are the main driver of high debt or weaker leverage.

For these emerging markets consisting of China, India, Indonesia, Malaysia and the Philippines, Moody’s said the ratio of spectrum liabilities to gross debt would increase to more than 16 percent this year and 2022 from 11.6 percent in 2020 and 9.3 percent in 2018, assuming India completes its 5G spectrum auction next year.

Moody’s, however, said deferred spectrum payments have limited immediate impact on operators’ liquidity and cash flow despite an increase in debt, adding that spectrum liabilities are long-dated and not subject to refinancing risk.

It said these liabilities also do not have maintenance or incurrence covenants, which support companies’ financial flexibility.

“Deferred spectrum liabilities are distinct from bank or capital market debt and are not subject to refinancing,” Moody’s vice president and senior analyst Nidhi Dhruv said.

“Moreover, in exceptional circumstances, governments are likely to provide more payment buffers, which can alleviate cash flow pressure for some telcos,” Dhruv said.

In a statement, PLDT Inc. said it would likely end with roughly the same P2.4 billion expenditure on spectrum user fee (SUF) for 2021.

While PLDT welcomed the recent approval by the House of Representatives of House Bill 9851 or the Zero Spectrum User Fee for Telcos Using Wi-Fi Act, the company reiterated its call for the reduction and/or rationalization of SUF for other spectrum/frequencies.

Roy Ibay, Smart Communications Inc. vice president for regulatory affairs, said spectrum fees imposed on public telecommunication entities are becoming unreasonable and excessive.

“It is our position that SUF must be set at modest levels with a view to recovering only the regulator’s spectrum management costs as mandated by law,” Ibay said.

“In other jurisdictions, national regulatory authorities are even required to publish reports that set out the total sum of charges collected, and the total administrative expenditures incurred to justify the SUF imposed by government,” he said.

Ibay said increased demand from mobile users put a strain on networks, necessitating the use of more spectrum.

He said higher spectrum use directly corresponds to an increase in spectrum prices, both of which are rising.

“Operators will struggle to make the significant investments required to support dense 4G and 5G networks,” Ibay said.

“Given the foregoing, a sustainable policy on spectrum users fees is imperative and should consider that there should be a uniform computation of SUF across all frequency bands. All frequencies are created equal. There appears to be no basis for creating a price differentiation among the various frequencies,” he said.

In a statement last week, Globe Telecom Inc. also reiterated its call for the zero rating of SUFs for frequencies that are internationally considered as unlicensed frequencies.

The Ayala-led telco said “SUFs that are set too high in combination with taxes, regulatory fees and other charges on public telecommunications entities negatively impact economic growth and impedes digital transformation.”

It said the reduction of the SUF would allow telcos to divert essential resources to much needed network builds, instead of paying expensive fees.