Higher Investments, Softer Growth To Hinder Latin America's Telecom's Sector - Emerging Market Views

Higher Investments, Softer Growth To Hinder Latin America’s Telecom’s Sector

The Latin American telecommunications industry is changing to negative, from stable, “as companies will need to resume investments in 2021 after the coronavirus-related pause this year,” says Moody´s Investors Service, the global ratings agency.

“In a long-term, post-coronavirus environment, Latin America‘s telecom providers will continue to benefit from positive fundamentals leading to solid growth in data consumption, but capital spending will return to normal in 2021, straining cash generation,” says Moody´s senior credit officer Marcos Schmidt.

Schmidt added: “EBITDA minus CAPEX, a key metric for the industry in the region, points to higher capital intensity for 2021, holding back cash flow generation despite EBITDA and EBITDA margins returning to growth in 2021 on positive industry fundamentals.”

The agency sees limited near-term risk of abrupt regulatory changes across the region, but the spread of the coronavirus will hurt telecom companies’ fundamentals. In Argentina, recession and high inflation will keep lowering consumer purchasing power, limiting companies’ room for price adjustments. In Mexico, economic stress will offset any benefits from a temporary exponential growth in data traffic during the lockdown.

Looking at Brazil, the industry is showing particular strength during the pandemic with “a relatively high penetration rate for 4G services,” according to Moody’s, and companies will keep investing capital heavily to keep up with fiber network expansion plans and quality enhancements.

Overall, the agency notes, data, and mobile demand continue to rise across Latin America, where low data and pay-TV penetration still offer incremental benefits as consumers upgrade to faster, data-oriented networks on existing infrastructure.