5G Investment Upcycle in Global Telecoms - Corporates - Roxhill Media
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Corporates
Telecommunications
Global
5G Investment Upcycle in Global
Telecoms
Telcos to Press on Despite Uncertainties, Raising Pressure on Credit Profiles
Special Report │ 14 September 2020 fitchratings.com 1Corporates
Telecommunications
Global
5G Investment Upcycle in Global Telecoms
Telcos to Press on Despite Uncertainties, Raising Pressure on Credit Profiles
5G deployments in 1H20 have progressed slowly in most parts of
“Higher-than-expected 5G investments and the world amid the coronavirus pandemic and the corresponding
delays in spectrum auctions. However, Fitch Ratings expects rising
low visibility on investment returns will keep pressure on the sector’s credit metrics, with higher 5G spending in
free cash flow constrained, reducing rating 2021-2022 and the tough economic environment delaying
headroom over the next three years.” economic returns.
Janice Chong, Fitch Ratings Nearly half of the 90 publicly rated companies in our global telecom
portfolio (excluding tower companies) have low rating headroom,
underlining the importance of prudent capital management
through staggered investments, dividend cuts, and non-core asset
sales to preserve balance-sheet strength.
Diverging 5G Priorities
Diverging capex patterns have emerged during the pandemic, with
5G priorities advancing in South Korea, China, Taiwan, Singapore,
Australia and the US. We expect the pandemic effects on 5G rollout
to be short-lived, leading to a resumption of 5G-related
investments in 2021.
Related Research
5G adoption will advance unevenly across the Asia-Pacific (APAC )
UK Ban on Huawei's 5G Equipment Increases Telecoms' Capex
region. Europe and the Middle East are likely to ramp up 5G rollout
(July 2020)
in 2021-2022, followed by Latin America. The alternative of
What Investors Want to Know: Coronavirus Impact on Asia- deprioritising 5G may put telcos at risk of falling behind rivals, as
Pacific Telecoms (June 2020) capex and spectrum spending are vital in preserving competitive
The Road Back: Post-Lockdown Assumptions for Global capabilities in an increasingly commoditised sector.
Corporates (June 2020)
What Investors Want to Know: Latin American Telecoms Uncertainties to Fuel 5G Risk
(April 2020) Policy shifts to restrict the deployment of Chinese 5G equipment
Coronavirus Unlikely to Delay US 5G Wireless Network Spending will raise investment and procurement uncertainties in markets
(April 2020) heavily reliant on Huawei Technologies Co., Ltd. and ZTE
Coronavirus Data Traffic to Raise Capex for APAC Telecom Corporation.
(March 2020) 5G has so far offered limited success in consumer segments, due to
Global Telecoms: The Winding Road to 5G (October 2019) the lack of differentiation from existing 4G services and, therefore ,
the ability to charge premium pricing. Its potential lies in enterprise
applications that can be fully realised through a costlier deployment
of a 5G standalone network.
Analysts
Janice Chong
Stretched Leverage
+65 6796 7241 We expect operating cash flow to lag significantly behind 5G
janice.chong@fitchratings.com investments, keeping free cash flow (FCF) constrained over the
next three years. Our forecasts include staggered 5G capex and
Damien Chew spectrum cost as these become certain, with low visibility on
+44 20 3530 1424 returns during the rating horizon. The impact will, however, be
damien.chew@fitchratings.com uneven across the portfolio, given the asymmetrical development.
5G will favour telcos with scale and strong balance sheets, which
John C. Culver may contribute to diverging credit quality over time within the
+1 312 368 3216 telecoms sector.
john.culver@fitchratings.com
Sul Ahmad
+1 312 368 3348
sul.ahmad@fitchratings.com
Special Report │ 14 September 2020 fitchratings.com 2Corporates
Telecommunications
Global
to support cash flow. Likewise, Fitch expects telcos in Latin America
Pandemic Influencing 5G Rollout to cut capex by as much as 30% and defer 5G trials to 2021 to
There were 23 operators deploying 5G services over January-July mitigate cash burn, as the region is still transitioning to 4G.
2020, bringing total 5G commercial launches to 78 across 37
A number of countries, including the UK, France, Spain, Portugal,
countries. However, 5G services in these countries are still limited,
as pandemic-related disruptions led to the deferment of Austria, Brazil, Mexico, Colombia and the Czech Republic, have
postponed 5G spectrum auctions this year, and telcos have cut
discretionary capex in most markets for operators to conserve cash
or prioritise necessary capacity investment. discretionary capex to focus on maintaining network resilience.
This comes amid delays in the absence of solid business cases and
Leading the way are telcos from advanced markets, such as South restrictions on Chinese 5G telecoms equipment in some countries.
Korea, China, Taiwan, Australia, Singapore and the US, which are
pressing ahead with 5G plans to lead technology innovation. In the We also expect a delayed 5G rollout to 2021 in western Europe as
operators prioritise 4G network upgrade and fibre-to-the-home
Middle East, the early adopters include Kuwait, Qatar and the UAE.
The GSM Association (GSMA) predicts there will be 1.8 billion 5G (FTTH) investments. The European Union target for 2025 calls for
every European household to have access to download speeds to
connections by 2025, with developed Asia and North America
leading the pack. It expects 5G to account for around 50% of total 100Mbps on a connection that is upgradeable to 1Gbps. Spain is the
most advanced in terms of FTTH deployment, while Italy, Germany
mobile connections in these regions, ahead of Europe (34%) and the
and the UK lag.
20% global average.
5G Adoption in 2025 (% of connections) The Cost of a Huawei Ban
Developed Asia Procurement Uncertainties
North America Outside of the US, restrictions on Chinese 5G equipment could
Europe
delay 5G rollouts and place immense pressure on telcos that keep
Developing Asia
GCC Arab States
prices affordable, particularly in the emerging markets. According
Global Average to GSMA, Huawei and ZTE had a combined market share of more
CIS than 40% of global radio access network (RAN) revenue in 2018,
Latin America almost double the percentage in the US.
Rest of MENA
Sub-Saharan Africa India has yet to announce an official ban on Chinese telecoms
equipment. However, an escalating border dispute with China may
0 10 20 30 40 50 60
(%) lead to restrictions on the participation of Chinese equipment
Source: Fitch Ratings, GSMA
vendors, which could serve as reference for other markets in
We envisage a resumption in 5G plans in 2021, although the determining 5G cost implications and the success of open RAN
economic fallout from the pandemic could curb consumer demand, architectures. Chinese vendors account for more than half of the
including for the 5G-enabled iPhone by Apple, which is slated for Indian telecom equipment market, largely concentrated among
launch towards the end of the year. GSMA sees greater pandemic Vodafone-Idea, Bharti Airtel Limited (BBB-/Negative) and state-
effects in APAC – given its early adoption – but expects “a short- owned BSNL. Reliance Jio is the only telco in India that does not use
term dip rather than a long-term slump”. any Chinese equipment and is planning to develop its home-grown
open RAN 5G solution. A 5G spectrum auction was originally
Telecom Capex/Revenue Across Regions planned to take place in early 2020, but has now been delayed to
Average 2017-2021F 2021.
(%)
25 In spite of this, many countries such as Spain, Hungary, Sweden,
22
19 Ireland, Bahrain, the Philippines, Thailand and Malaysia are still
20 16 reluctant to ban Chinese telecom equipment, highlighting diverging
14
15 views on this issue.
10
Timeline of Huawei Ban Across Countries
5
0 US, Australia UK
Estonia, Czech
North America LATAM EMEA APAC Poland Republic
New Zealand,
Source: Fitch Ratings Japan Latvia
Fitch believes the telecoms sector in the US has modest flexibility
to reduce capex, with wireless spending (including 5G) remaining a Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
priority. Capex intensity in North America is the lowest globally, 18 18 18 19 19 19 19 19 19 20 20 20 20
averaging 14% in 2017-2021F, highlighting market saturation.
Conversely, a heavy capex burden in APAC – where emerging Romania Denmark
markets like India, Indonesia, Sri Lanka and the Philippines are
already dealing with capex intensity of up to 30%-40% – mean Source: Fitch Ratings
operators are likely to pace 5G investments over the next few years
Special Report │ 14 September 2020 fitchratings.com 3Corporates
Telecommunications
Global
UK Mobile Network Operators' Exposure to Huawei Network Equipment
Operator Descriptions Core RAN
Vodafone Vodafone Group Plc (BBB/Stable) estimates it will cost telcos up to GBP2 billion and the UK's Cisco Ericsson, Huawei,
position in 5G. Huawei's equipment accounted for 32% of its RAN sites. Nokia
EE, BT BT is likely to be the most affected by the ban, due to its heavy reliance on Huawei equipment Ericsson, Huawei Huawei, Nokia
for both its mobile network (under EE) and wholesale fixed-line network (Openreach). Huawei
reportedly accounted for two-thirds of EE's 4G network. The ban would cost BT more than the
GBP500 million it had quoted under the previous 35% cap.
Three UK CK Hutchison Group Telecom Holdings Limited’s (BBB+/Stable) UK operations did not provide Nokia Nokia, Samsung,
any cost estimates, but a ban could delay 5G rollout up to 18 months. The telco's exposure is Ericsson, Huawei
limited to Huawei's 5G RAN, as it uses Nokia 5G core – placing it in a better position than
domestic peers that use Huawei's 5G core network. Three is now switching to its alternative
vendor for 5G RAN, Ericsson.
O2 O2 has the smallest direct exposure to Huawei equipment, although it has a network-sharing Ericsson Ericsson, Nokia
agreement with Vodafone.
Source: Fitch Ratings, www.lightreading.com, companies
Costly Swap Out aiming to increase its market share to 20% by end-2020. Research
firm Dell’Oro Group estimated that Samsung had a 3% share of the
The phase-out of Huawei 5G equipment in the UK raises concerns
over inter-operability of different vendor equipment, which may global telecom equipment market in 2019. NEC is the supplier of 4G
and 5G networks for Japan’s fourth mobile operator, Rakuten.
prompt a replacement of existing 4G infrastructure. This could cost
carriers up to GBP2 billion and a “two to three years” delay in 5G Huawei and Nordic firms Ericsson and Nokia collectively account
for more than half of the world’s telecom equipment revenue, and
rollout, according to the government. The UK government ruling in
control a majority of the RAN market.
June 2020 requires removal of all 5G Huawei equipment from the
telco networks by 2027. It has also banned new Huawei 5G 5G equipment based on the open industry standard, open RAN,
equipment from end-2020, reversing its earlier decision to cap the could be an alternative for operators as they seek to control capex.
vendor's RAN at 35%. Rakuten and US operator Dish Network led the deployment of 5G
open RAN by turning to smaller vendors for their 5G rollouts.
GSMA, in its April 2019 report, estimated that a full ban on Chinese
vendors from the 5G network rollout in Europe would cost
operators EUR55 billion and at least an 18-month delay of 5G 5G Returns Still Years Off
launches. However, Telefonaktiebolaget LM Ericsson (BBB-
Lack of Premium Pricing in Consumer Market
/Stable) and Nokia Corporation (BBB-/Stable) claimed such
estimates were overstated. Another report by Strand Consult Our forecast assumes flattish growth in 5G markets, in the absence
suggests a much lower price tag of USD3.5 billion for Europe to of meaningful 5G-supported revenue streams such as ‘internet-of-
replace equipment purchased from Huawei and ZTE in 2016-2019. things’ (IoT) or enterprise 5G services. At its infancy, 5G still lacks
It assumes network upgrades will need to take place over time, compelling applications that sufficiently differentiate its value from
regardless of a choice of vendors, and should therefore be viewed LTE services. This inhibits telcos’ ability to price their services at a
as a sunk cost. premium. There is also a lack of willingness for consumers to pay.
Global Telecom Equipment Revenue User Willingness to Pay More for 5G
Outer ring: 2019 Don't know No extra Up to 10% more Up to 20% more >20%
Inner ring: 2018
100%
Huawei Nokia Ericsson ZTE Cisco Others
80%
25% 28%
60%
25% 40%
28%
8% 20%
7% 17%
8%
14% 0%
16% China CIS North MENA Global Latin Europe APAC
10% America average America
14%
Source: Fitch Ratings, Dell'Oro Group Source: Fitch Ratings, GSMA
Alternative Network GSMA’s “The Mobile Economy 2020” report concluded that the
potential of revenue uplift from 5G is greatest in China and South
Trade restrictions on Huawei will create opportunities for Korea at around 3% growth, followed by the US (2%), but consume r
technology companies such as Japan’s NEC and South Korea’s intentions to upgrade to 5G are weaker in Europe, the UK, Japan
Samsung Electronics Co., Ltd. (AA-/Stable). Samsung, which
recently clinched a deal with Verizon to supply 5G equipment, is
Special Report │ 14 September 2020 fitchratings.com 4Corporates
Telecommunications
Global
and Australia. Europe is likely to be more content with 4G speeds, services and options to swap content, roaming pass, and top-up data
and weak economic conditions there may curb consumer spending. allowances.
Telcos have sought to maintain 5G tariffs at current 4G prices to Australian market leader Telstra Corporation is seeking to raise
drive subscriber migration at its infancy, although 5G price plans monthly prices by at least AUD5 across 5G post-paid plans after
typically fall at the higher end of the range of unlimited plans. None September 2020. However, 5G availability is still limited in
of the US operators are charging extra for their 5G plans. Verizon Australia, and it remains to be seen if Telstra’s peers will follow with
Communications Inc. (A-/Stable) back-tracked on previous plans to a premium pricing strategy. The newly merged TPG-Vodafone
charge additional USD10 monthly for its 5G unlimited plans. Hutchison Australia (now known as TPG Corporation) said it will
prioritise network performance instead to drive 5G adoption. The
Verizon’s high-band millimetre wave frequencies offer faster 5G
profitability of Australian telcos has been under pressure due to the
speed, but lack coverage. T-Mobile US, Inc. (TMUS, BB+/Stable) was migration of fixed-broadband users on to NBN Co.’s network.
the first in the US to offer nationwide 5G rollout in December 2019,
and AT&T, Inc. (A-/Stable) launched its services in July 2020, using True 5G Potential Lies in Enterprise Market
their respective low-band 600MHz and 850MHz frequencies.
Fitch believes the ‘enterprise’ market holds the greatest promise
Verizon is targeting nationwide 5G by the end of this year through for 5G, as the willingness to invest for efficiency, latency (response
dynamic spectrum sharing, allowing the use of existing 4G spectrum
time) and reliability can provide new revenue streams for
to support 5G data traffic via a network software upgrade, as operators, beyond enhanced mobility. However, the real benefits
opposed to the conventional spectrum re-farming process.
can only be realised with the deployment of a 5G standalone
South Korea is one of the few exceptions thus far; telcos found some network, along with government initiatives to drive uptake.
success in luring subscribers to migrate to higher-priced 5G tariff Early 5G deployments have so far been based on non-standalone
plans. The Korean 5G user base swelled to 7 million by end-May
specifications, which are supported by existing 4G radio-access
2020, representing 10% of its total mobile connections, just over network and core infrastructure, used primarily for enhanced
one year after its commercial launch in April 2019. mobile broadband to provide higher data bandwidth.
Korea’s 5G proliferation was driven by generous 5G handset
Manufacturing is one of the enterprise verticals to shape the
subsidies and the popularity of unlimited data plans bundled with prospects of 5G use cases through smart factories and supply-chain
music streaming and media content services, while the government
management. ABI Research predicts that manufacturing will
had pushed for sufficient spectrum in the mid-band (3.5GHz) and represent almost 25% of the total generated revenue in the 5G
millimetre wave (28GHz) as early as July 2018. Domestic telcos are ultra-low latency use cases market by 2028.
also developing adjacent businesses to fuel growth, including
content creation, 5G-based cloud gaming, and augmented reality.
Development of 5G Standalone Networks
Carriers have managed to reverse declines in wireless revenue
since 2019. However, this is not typical of most other telecom Singapore Singapore’s push for 5G standalone networks is a departure
markets. from the strategies of early adopters. The country awarded
nationwide 5G licences to Singtel and consortium M1-
Korean Telcos' Wireless Revenue Growth StarHub in April 2020, setting a 50% nationwide coverage
milestone by end-2022. The telecoms regulator is
(%) SKT KT
partnering with the industry to develop use cases,
6
4
establishing testbeds and R&D.
2 UK Vodafone UK is working with Ericsson, MediaTek, Oppo and
0 Qualcomm on the development of its standalone 5G
-2
network, although it is uncertain when the network will be
-4
-6 available.
-8
-10 Australia Telstra has upgraded its 5G RAN coverage across Australia,
connecting a Cloud Native 5G Core network to handle 5G
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
standalone traffic, independent of existing 4G network
technology.
Note: Revenue includes interconnection fees
Source: Fitch Ratings, companies Korea All three Korean telcos SKT, KT and LG Uplus have carried
out 5G standalone network trials, and aim to launch this
SK Telecom Co., Ltd (SKT, A-/Negative), KT Corporation (A/Stable ) technology in 2H20. They agreed to invest a total of
and LG Uplus announced plans to invest up to KRW25.7 trillion KRW26 trillion through 2022 to boost 5G network across
(USD2.2 billion) by 2022 to bolster the nationwide 5G network , the country.
consistent with South Korea’s five-year Digital New Deal initiatives. US T-Mobile is planning to deploy a 5G standalone network
The aim is to expand 5G coverage to 70% by 2025. To support the ahead of its rivals. Up until now, all 5G networks have been
5G buildout, the Korean government is looking into providing tax in NSA (non-standalone) mode, which mixes 5G radio
incentives, although the specifics have yet to be revealed. connections with 4G core networks. 5G standalone-based
networks, however, can offer a 40% improvement in
Elsewhere, a few are testing 5G pricing strategy by introducing latency (or lag time).
incremental fees and charging 5G based on speed. For example, BT
Source: Fitch Ratings, www.lightreading.com, www.rcwireless.com
Group plc’s (BBB/Stable) mobile subsidiary, EE, opted for a
premium pricing strategy by bundling plans with value-added
Special Report │ 14 September 2020 fitchratings.com 5Corporates
Telecommunications
Global
Narrowing Rating Headroom Global Telecoms: Rating Headroom by Region
As of end-August 2020
Fitch expects a stable rating trajectory for most of the companies in Low Moderate High
our global telecom portfolio. However, rating headroom is 100%
narrowing amid ongoing competitive pressures on EBITDA, high 80%
capex investments, and spectrum auctions. The APAC region has 60%
the highest percentage of negative outlooks at 33% (global average: 40%
18%), of which nearly half have close links with parents or are
20%
sovereign-support driven.
0%
Our global telecoms portfolio also reflects a widely distribute d APAC LATAM EMEA North America Global
spectrum of ratings, underscoring the large variation of credit Note: Public Foreign-Currency IDRs only and excludes tower companies. Portfolio
quality within the sector. Fitch’s global telecoms universe size: APAC (18), LATAM (19), EMEA (41), North America (12), Global (90).
Source: Fitch Ratings
(excluding tower companies) has a relatively equal split between
high-yield and investment grade. The former is typically highly Issuers with low rating headroom accounted for 42% of the North
leveraged, although several publicly rated IDRs in LATAM and American telecom portfolio. Verizon, AT&T and TMUS are
EMEA are constrained by Country Ceilings or sovereign risk. committed to 5G rollout over the next few years, while the fourth-
Higher-than-expected 5G investments, the difficulty in forecasting largest mobile operator, United States Cellular Corp. (BB+/Stable),
spending in spectrum auctions, and a slower return-on-investments should continue to build on its millimetre wave spectrum inventory
could weigh on leverage metrics, raising the pressure on ratings. and acquire more spectrum in the mid-band category in the
GSMA forecasts some 78% of telcos’ USD1.1 trillion mobile upcoming auctions.
investments in 2020-2025 (2019: USD1.0 trillion) will be spent on Some 61% of the 41 companies that we rate in EMEA were in the
5G networks. high-yield category, but the portfolio has 85% on stable outlook and
Rating pressure is more pronounced in the APAC region. Around two-thirds with moderate-to-high rating headroom. Deleveraging
two-thirds of the 18 companies have low rating headroom, prospects are constrained by subdued EBITDA growth, fibre
demonstrating a more limited organic deleveraging capacity broadband deployment, mobile network expansion, and spectrum
relative to the other regions. However, Fitch-rated APAC telcos– investments over the next two years. We expect an increase in
unlike their regional peers – are largely investment-grade (89%), network sharing – either the passive tower infrastructure or active
reflecting the strong underlying strength and, in some cases, the radio equipment – to reduce the cost of 5G network rollout.
influence on the ratings from higher-rated parents. The Latin America portfolio continues to be weighted slightly
In APAC, we look for sufficient improvements in the operating towards high-yield issuers, at 63% of the 19 publicly rated IDRs.
metrics of South Korea’s largest mobile operator SKT, and Rating constraints include Country Ceilings, weakening
indications of 5G investments for Singapore Telecommunications macroeconomic fundamentals, and Fitch’s expectations of
Limited’s (Singtel, A/Stable) standalone network. shareholder distributions.
In North America, issuers at the lower end of the rating spectrum Our expectations that the region will remain a 5G laggard
are typically highly leveraged; they face growing secular challenges underscores a lower capex risk, although the large forex exposure
– such as the wireline segment – and limitations on their access to and sovereign risks will continue to drive its rating trajectory.
capital, which may put further pressure on their ratings in 2021.
Special Report │ 14 September 2020 fitchratings.com 6Corporates
Telecommunications
Global
Global Telecom: Key Assumptions
Region Key assumptions
APAC • Average revenue growth to be flat to low-single-digit in 2020 (2019: 4%), before recovering to pre-pandemic levels in 2021.
• Upselling of data services and bundles to increase average revenue per user (ARPU) and accelerate cost-cutting efforts to
manage EBITDA margins. 5G services will accelerate migration to unlimited data plans.
• Advanced 5G markets such as South Korea, China, Japan, Taiwan, Singapore and Australia to position 5G as network
differentiator to stem competition. Telstra’s tariff hike on 5G plans will serve as a reference for monetisation prospects outside
South Korea.
• Emerging markets, including India, Indonesia, Thailand and the Philippines, are likely to delay discretionary capex to enable
investments to meet proven demand. High exposure to Chinese telecom equipment could contribute to 5G procurement
uncertainties. Capex intensity in these markets is likely to stay at around 25%-40%, above the region’s average in the low 20s.
North America • Relatively stable telecoms revenue due to the essential nature of wireless and broadband services, although the pandemic
impact is more pronounced on media assets and advertising revenue. We had previously anticipated low-single digit revenue
growth with margin improvement, but these setbacks are likely to dent prospects.
• The pandemic is unlikely to slow the pace of 5G rollout in the US, and will have a limited effect on AT&T’s and Verizon’s pre-
dividend FCF. We expect 5G deployment to ramp up in 2H20 and 2021, as more spectrum becomes available. However, higher
5G spending is unlikely to affect overall capex, with receding 4G investments. We forecast median capex/revenue of 16%.
• No change in dividend policies, as we believe dividend cuts would be the last option. Wireless leaders Verizon and AT&T, and
cable operators, have sufficient financial resilience and opex levers to support a continuation of planned 5G capex, without
cutting dividends.
• Following its acquisition of Sprint Corporation in April 2020, TMUS has greater resources to aggressively invest and deploy
Sprint’s mid-band spectrum that supports a more robust nationwide 5G network build-out, with greater capacity that meets
regulatory requirements for population coverage and speed.
EMEA • Revenue to decline by around 4% in 2020, and flat in 2021 on the back of an approximately 80% drop in roaming revenue and
weak macroeconomic environment.
• Delayed 5G rollout to 2021 as operators continue with 4G network upgrade and FTTH investments. The European Union
target for 2025 calls for every European household to have access to download speeds to 100Mbps on a connection that is
upgradeable to 1Gbps.
• Passive network sharing is common in Europe, and we believe network sharing of active infrastructure such as RAN will
increase, particularly with 5G. Capex for incumbent operators typically accounts for 15%-20% of revenue (excluding spectrum
costs).
• Limited organic deleveraging capacity, with FCF growth constrained by ongoing competitive pressure, high capex for fibre
broadband deployment, mobile network expansion, and spectrum auctions.
• Telcos are likely to consider selling non-core assets including towers to unlock value opportunities. Operators have reduced
dividends in previous downturns, and some have indicated flexibility around dividend payments in 2020.
Latin America • Median decline in revenue of 4%-6%, and EBITDA margins to narrow by 3%-5% in 2020.
• Companies could cut capex by 15%-30% in 2020 to mitigate cash burn caused by the economic fallout of the coronavirus
pandemic. Capex in the sector is usually at least 60%-denominated in hard currency, making it costlier to invest when local
currencies depreciate.
• Spectrum auctions and 5G pilot projects to be postponed until 2021; the region is viewed as a 5G laggard, and will continue to
focus on transition from 3G to 4G in 2020-2021.
• Non-core assets divestment throughout the region to improve financial flexibility and deleveraging.
• Net leverage should trend sideways around 3.0x for the portfolio as a whole. Investment-grade issuers generally have around
1.0x less net debt than their non-investment-grade counterparts. However, the leverage metric is not the most important
rating driver for certain non-investment-grade issuers that are constrained by Country Ceilings.
Source: Fitch Ratings
Special Report │ 14 September 2020 fitchratings.com 7Corporates
Telecommunications
Global
Global Telecoms: Distribution of IDRs Global Telecoms: Distribution of IDRs by Region
As of end-August 2020 As of end-August 2020
(Number of issuers) APAC LATAM EMEA North America
16
14 (Number of issuers)
12 16
10 14
12
8 10
6 8
4 6
2 4
0 2
0
BBB–
BB–
BBB
BB+
B–
A+
A-
BB
B+
CCC+ &
A
B
BBB+
below
BBB–
BB–
BB+
B–
A+
A-
BBB
BB
B+
CCC+ &
A
B
BBB+
below
Note: Public Foreign-Currency IDRs only and excludes tower companies. Note: Public Foreign-Currency IDRs only and excludes tower companies
Source: Fitch Ratings Source: Fitch Ratings
Rating Outlook/Watch by Region
Global Telecoms Rating Outlook/Watch As of end-August 2020
As of end-August 2020 Stable Negative Positive CCC+ & below - No Outlook
CCC+ and
below 100%
Negative/Rating Watch 4% 80%
Negative 60%
6%
40%
Positive
20%
14%
0%
APAC LATAM EMEA North America
Stable
76% Note: Public Foregin-Currency IDRs only and excludes tower companies.
Source: Fitch Ratings
Note: Public Foreign-Currency IDRs only and excludes tower companies.
Source: Fitch Ratings
Global Telecoms: Rating Upgrades and Downgrades
January-August 2020
Investment Grade Vs. High Yield Portfolio (No.) Upgrades Downgrades
As of end-August 2020
Investment grade High yield 9
8
100% 7
11%
6
80% 5
61% 58% 51%
63% 4
60%
3
40% 89% 2
1
20% 39% 42% 49% 0
37%
APAC LATAM EMEA North America
0%
APAC LATAM EMEA North America Global Note: Public Foreign-Currency IDRs only and excludes tower companies.
Source: Fitch Ratings
Note: Public Foreign-Currency IDRs only and excludes tower companies
Source: Fitch Ratings
5G Vs. 4G Download Speeds
5G download speed 4G download speed
(Average download speed (Mbps)
500
400
300
200
100
0
USA Netherlands Germany UK Hong Kong Switzerland Kuwait Canada Taiwan Australia South Korea Saudi Arabia
Data collection from 16 May to 14 August 2020
Source: Fitch Ratings, Opensignal
Special Report │ 14 September 2020 fitchratings.com 8Corporates
Telecommunications
Global
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