Moody's Investors Service says that in a number of South and Southeast Asian countries, the dividends that telco companies pay to their government owners represent a greater cash drain than spectrum payments - Photo by GSMA

JAKARTA (TheInsiderStories) – Moody’s Investors Service says that in a number of South and Southeast Asian countries, the dividends that telco companies pay to their government owners represent a greater cash drain than spectrum payments.

“The high prices that telcos in this region pay during spectrum auctions regularly make headlines, but the recurring dividends that they do pay to governments tend to get less attention,” says Nidhi Dhruv, a Moody’s Vice President and Senior Analyst in a written statement.

He adds, “Yet, our analysis finds that in some countries dividends account for a greater share of revenue.”

While spectrum payments in government-run auctions are higher in absolute terms, on a relative basis dividends account for a larger percentage of aggregate revenue for telcos in several countries.

“Government-owned incumbent telcos in Singapore, Malaysia and Indonesia pay the highest dividends to their respective governments, while privately owned telcos in India, Thailand and Bangladesh pay more in spectrum auctions,” adds Dhruv.

At the same time, regulatory frameworks in the countries where telcos pay high dividends are generally stable and predictable. By contrast, regulations in Thailand, India, Bangladesh and Pakistan are less predictable and often politicized.

High capital spending, dividends and spectrums have resulted in neutral or negative free cash flow for telcos in the region. Moody’s expects these trends to continue through at least 2021, and does not expect the telcos will be able to generate enough cash to pay down debt and reduce their elevated leverage.

However, telcos have more flexibility to reduce their dividends, and limited flexibility to cut back on capital spending and spectrum purchases, given the intense market competition.

In Indonesia, the government is planning to consolidate telco companies to only three players left. Currently, there are still five telecommunications industry players in the country.

On February, president director of PT Smarrfren Telecom Tbk (IDX: FREN) Merza Fachys, said President Joko Widodo saw a lot of pressure that is experienced by telecommunications companies because of technological changes. He noted, the entry of 4G makes the company have to prepare a large investment caused the voice and SMS services dropped significantly.

Therefore, he asserted, the consolidation is the solution to solve this problem and industry players often discuss this matter. He stated, “The discussion of consolidation is getting faster, this is indeed the way to achieve efficiency in the telecommunications industry.”

Moreover, Fachys said, the government indeed expects that there will only be three industry players to make this industry healthy. President Director of EXCL Dian Siswarini commenting the discussions of consolidation kept continuing between operators, but is is still the authority of shareholders.

Former minister of communication and information Rudiantara has said that there were too many telecommunications players in Indonesia. Therefore, he hoped there would be consolidation through acquisition or merger among players so only two to three players remained.

Written by Staff Editor, Email: theinsiderstories@gmail.com