Fitch: Asian telecoms face deteriorating margins

Fitch Ratings said that the slowing pace of subscriber growth coupled with increasing competition in the Asian telecommunications sector is likely to exacerbate the effect of evolving industry risks over time. The agency still considers the credit outlook for most emerging markets to be stable to positive for the time being, but noted that they tend to be laggards with respect to trends that afflict the developed markets, where the outlook is broadly stable to negative. Rising business risk - already having a greater effect on developed market operators - is expected to become more pronounced by 2008 across the emerging markets.

"The pressures from rising penetration rates, fixed-to-mobile substitution and convergence are driving lower operating margins, in particular for fixed-line operators," Jonathan Cornish, head of Fitch's Asia-Pacific telecoms, media and technology team, said in an agency report. Despite mobile having underpinned growth throughout the region in recent years, Fitch said operators are also experiencing margin contraction on account of aggressive price-based competition and increased subsidies as they either migrate customers to 3G from 2G or rapidly expand their network capacity in anticipation of further liberalization.

With rapid changes in technology prone to increase investment in new services and further fragment the industry, the agency predicted continued margin deterioration over the next two years.

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