Fitch affirms PLDT credit rating

Fitch Ratings has affirmed Philippine Long Distance Telephone's (PLDT) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB-' and 'A-' respectively. The Outlook is Stable. Fitch said the ratings reflect PLDT's improved market position post its successful acquisition of a 51.55% ownership interest in the third-largest telco – Digital Telecommunications Philippines, Inc. (Digitel) in an all-equity deal. As of end-September 2011, PLDT boasted dominant market positions across the wireless (revenue market share: 64%), fixed-line (subscriber market share: 56%) and nascent broadband (subscriber market share: 56%) segments. Fitch expects that PLDT's leverage will deteriorate marginally in 2012 as average revenue per user (ARPU) continues to fall as a result of increasing popularity of bucket or "all you can eat' tariff plans and a change in its revenue mix towards lower-margin data services. However, the agency does not expect PLDT's leverage to breach 2.0x, the threshold for negative rating action on its Long-Term Local Currency IDR. Fitch also expects PLDT's free cash flow to turn negative in 2012 due to higher capex requirements for data services and limited flexibility to cut dividends which have historically remained at 100% of prior year net income.