Philippines telcos say ‘exorbitant’ spectrum user fees hinder digitalization

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Philippines telcos Smart Communications and Globe Telecom have released statements calling for the reduction of spectrum user fees (SUFs) in the country, which they say have become exorbitant.

“Operators will struggle to make the significant investments required to support dense 4G and 5G networks. 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,” said Roy Ibay, vice president for regulatory affairs at Smart.

Globe also expressed support for zero-rating of SUFs for frequencies that are unlicensed internationally. The mobile operator says SUFs that are excessively high – in combination with taxes, regulatory fees, and other charges applied to public telecommunications companies – have an adverse impact on economic development and hinder digitalization.

In May, the Department of Information and Communications Technology (DICT) reiterated that Congress must implement the SUF to assure the long-term viability of the telecommunications sector and expand internet access.

Meanwhile, a recent report from Moody’s Investors Service noted that Asian telcos in emerging markets like Malaysia, Indonesia, and the Philippines may face higher spectrum liabilities.

Analysts expect spectrum liabilities to gross debt will reach more than 16% in 2021 and 2022, up from 11.6% in 2020 and 9.3% in 2018, if India completes its 5G spectrum auction by 2022.

The ratings agency also mentioned that if Bharti Airtel invests up to Rs 37,000 crore (around $5 billion) in 5G auctions, deferred spectrum liabilities and adjusted gross revenue liabilities may account for around 55% of the firm’s overall debt load.

The good news is that these necessary expenses are not subject to refinancing risk and have a minor immediate impact on cash flows and liquidity, according to Moody’s.

At present levels, the ratings of Asia-Pacific telcos in these markets, including China and India, might tolerate increased deferred spectrum liabilities if these expenditures are the primary force behind high debt or weaker leverage.

“Deferred spectrum liabilities are distinct from bank or capital market debt and are not subject to refinancing. Moreover, in exceptional circumstances, governments are likely to provide more payment buffers, which can alleviate cash flow pressure for some telcos,” said Moody’s vice president and senior analyst Nidhi Dhruv.

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