5G could drive up Asian telco revenues as well as costs: S&P

HONG KONG -- 5G is getting a good reception in Asia-Pacific, with quick uptake in the few markets that have already launched, according to a new report by S&P Global Ratings. It says higher data consumption on advanced networks points to 5G as a potential source of faster revenue growth for telecommunications companies. However, in some countries, 5G-related costs and spending could hit margins hard.

"We believe 5G's faster network speeds, combined with growing demand for high-quality video content, will drive up demand for data usage," said S&P Global Ratings credit analyst, JunHong Park.

 "However, the costs related to rollout and competition will hurt margins."

As a pioneer in the region, and the world, Korea offers a good test case for the impact of 5G, the report says.

Within six months of its launch of commercial 5G services in April 2019, around 3.5 million subscribers (representing 5% of total wireless subscribers) adopted 5G services. Moreover, they consumed triple the data of 4G LTE subscribers over the same period.

As a result, average revenue per user (ARPU) has improved for Korea's three leading telcos: SK Telecom Co. Ltd., KT Corp., and LG Uplus Corp. However, all three operators also reported declining margins, due to heavy expenses incurred on 5G marketing and deployment.

The report says at least five Asia-Pacific countries will have rolled out 5G by next year. Besides South Korea since April 2019, these are Australia (June 2019), China (November 2019), Japan (March 2020) and Singapore (late 2020).

In Australia, the report says, Telecom operators are very keen to deploy 5G-based fixed wireless access (5G FWA) broadband services. Currently Australian telcos need to pay high fixed-line network access charges to the government-owned National Broadband Network (NBN), for its provision of home broadband services.

"This continues to weigh on their earnings. As a result, mobile network operators are incentivised to bypass the NBN with their own 5G FWA networks," the report says.

"China's advanced-network construction is still at an early stage. However, we expect an aggressive buildout of infrastructure networks to support 5G in China.

"The country is in a hurry to get moving, in our view. Its three State-run telecom operators, China Mobile Ltd., China Telecom Corp. Ltd. and China Unicom Ltd. rolled out 5G mobile services on November 1, ahead of the country's initial timeline of a 2020 launch.

"The services have been launched in 50 major cities including Beijing, Shanghai, and Shenzhen. However, the country faces unique headaches due to technology-related trade tensions."

The report says: "Overall, we expect 5G development to be slightly credit negative due to high capital spending and marketing costs. This adds to burdens amid an already tough environment, as indicated by the negative outlooks on 25% of our rated portfolio of telecommunications companies in Asia-Pacific.

"Nonetheless, a few early signs point to a smaller hurdle compared with the 4G LTE rollout in some countries.

"In the longer term, 5G has the potential to expand telcos' market size, because its applications could increase revenues from both consumer and commercial users."

www.sstandardandpoors.com (ATI).