SingTel’s Digital Life segment to continue losing streak in 2015-2016: Fitch

After losing $170m in 2014.

Leverage could deteriorate as SingTel embarks on debt-funded acquisitions to expand its Digital Life segment, which includes mobile video and digital advertising.

According to a special report by Fitch, SingTel has budgeted SGD1.5bn for such acquisitions during 2015-2016. SingTel's digital acquisition strategy is broadly credit negative as it will weaken its credit profile in the short term. Fitch expects the Digital Life segment to continue to report EBITDA losses during 2015-16 following a loss of SGD170m in 2014.

Industry revenue will grow at a low single-digit rate as an increase in the high teens in mobile data revenue will offset declining text and international service revenue. Data revenue will benefit from volume-based pricing as a greater portion of users move to tiered data bundles. The average operating EBITDA margin for the telcos will improve slightly to around 32% from 31% in 2014, benefitting from tiered data pricing and lower subscriber acquisition costs as handset subsidies decline.

All three operators have largely completed their Long-Term Evolution (LTE) network expansion, and have low maintenance capex requirements.

The Singapore industry regulator's plan to allow a fourth operator or a mobile virtual network operator - although unlikely - could lead to a significant increase in competitive intensity. This could change the Outlook on the sector to negative.

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