Sat, Feb 15, 2020 - Page 12 News List

Telecoms to lose leverage paying for 5G

COST OF ADMISSION:The price of buying spectrum on the 3.5GHz frequency band was 80 percent higher than in Italy, which had the most expensive 5G costs

By Crystal Hsu  /  Staff reporter

The financial leverage of Taiwanese telecoms is likely to deteriorate as they pay high 5G spectrum costs and increase capital expenditure to roll out 5G services later this year, Fitch Ratings said yesterday.

The local 5G spectrum auctions, which are conducted in two phases, saw aggressive bids from all Taiwanese telecom operators in the first phase, the ratings agency said.

Spectrum costs on the 3.5 gigahertz (GHz) frequency band amounted to US$0.71 per megahertz (MHz) per capita, which is 80 percent more expensive than the US$0.4 per MHz per capita in Italy, which until now had the most expensive 5G spectrum, Fitch said.

The spectrum price is likely to increase in the second phase of bidding, which is to finish at the end of this month and involves the sale of premium locations within the 3.5GHz spectrum band, it said.

Taiwan Chungwha Telecom Co (中華電信), Taiwan Mobile Co (台灣大哥大), Far EasTone Telecommunications Co (遠傳電信) and Taiwan Star Telecom Co (台灣之星) each won spectrum in the 3.5GHz band, which is best suited for 5G services in terms of coverage and capacity, Fitch said.

The agency expects all four operators to launch 5G services in the third quarter of this year.

Taiwan Mobile’s adjusted net leverage — funds from operations against its total debt ratio — would worsen by 2.9 times this year and 2.7 times next year, Fitch said as an example.

The projection assumes the company funds a potential spectrum payment of NT$31 billion (US$1.03 billion) entirely by debt, it said.

Meanwhile, Taiwan Mobile might increase its capital expenditure to NT$11 billion from a previous estimate of NT$7.1 billion to launch 5G services, it said.

Fitch said it expected operators to introduce higher-tier 5G plans to move customers to 5G speeds, and industry average revenue per user would grow by 3 percent this year and next year.

However, the improvement in cash generation would be insufficient to offset the increase in debt to fund the large spectrum dues, the agency said.

Taiwan Mobile’s leverage could improve if the company reduces its dividend payments of about NT$15 billion a year or sells its treasury stocks, which are valued at NT$75 billion, Fitch said.

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