Fitch Says Competition & High CapEx to Pressure Colombia Telecom Credit Profiles

A weak consumer environment, mobile market saturation, pricing pressure, high interest rates and elevated investment spending needs will pressure credit profiles for select Colombia telecom companies, Fitch Ratings says. Defending market share and generating sufficient FCF (Free Cash Flow) to maintain conservative leverage profiles will be key rating factors for incumbent operators. The current operating environment will constrain financial flexibility and could pressure ratings for Colombia Telecomunicaciones (ColTel) and UNE EPM Telecomunicaciones (Tigo UNE).

Colombia’s mobile market is the most saturated in the Andean region, with over 82 million mobile lines as of 1Q23. The competitive environment has intensified in recent years, spurred by new entrants such as WOM Colombia, as well as high levels of capex related to the renewal of spectrum and network modernization. Examples of the latter include fiber investments and transition spending related to the move to fifth-generation (5G) technology in the coming years from 4G.
Within this rapidly evolving environment where mobile penetration is high, companies are trying to maximize their 4G network by offering bundle services but post-paid subscriber growth is offset by competitive pressures on ARPUs.
Fitch expects already depressed industry cash flows to be pressured as a result of spectrum license renewals. During 2023-2024, Colombia’s four main operators face renewal processes of their spectrum holdings and need to financially prepare for the upcoming 5G spectrum auctions adding more uncertainty about capex allocation.

5G mobile network technology will enable significantly faster data speeds compared to existing cable or ADSL, low latency, and greater capacity. It will also allow for new applications and services in various industries, such as healthcare, transportation and manufacturing. The share of smartphone subscribers reached half of the Colombian market in 2022 driven by the increased availability of low-cost options, as well as lower pricing of voice and data services.

In the Colombian broadband market, Fiber to the home’s (FTTH) deployment is gaining traction, especially in urban areas, as it offers faster speed compared to traditional cable (copper or ADSL) and more reliable internet connections, supporting the increasing demand for data-intensive applications. Telecom providers, including Coltel and Tigo in Colombia, are expanding their FTTH infrastructure to offer higher-speed internet services and capitalize on the growing digital needs of consumers and businesses.

Capitalizing on new technologies are key for future growth; however, the ultimate roll-out cost and investment payback periods remain uncertain due to the weak consumer environment and affordability’s issues for these technologies. Companies are trying to offset the upfront costs by transitioning to less capital-intensive business models; however, the change will take time.

Some actions taken, or under consideration, to move to capital-light operating models include selling and leasing backs passive assets and partially divesting fixed infrastructure. Another example includes entering into partnerships, such as Tigo and Coltel’s recent efforts to explore the possibility of sharing their mobile networks and other network resources. The definitive agreement is subject to approval by the relevant governmental authorities.