Fitch has assessed the telecom regulatory risk environment for 13 markets across Asia-Pacific and concluded that Sri Lanka, Australia and South Korea have the highest regulatory risk on a comparative basis, whereas Malaysia has the lowest.
In order to convey its conclusions in a transparent manner, Fitch has developed an indicative telecom regulatory risk score – on a scale of one to 10 – for both the incumbents and second-entrants in each market. The overall score for each operator reflects an assessment of three major regulatory sub-categories: Political & Social Policy Risks; Industrial Policy Risks; and Inability of Ownership/Management to Offset Regulatory Risks. In a new report, entitled “Asia-Pacific Telecoms: Impact of Regulation on Free Cash Flow and Ratings”, Fitch provides detailed guidelines explaining its methodology for scoring each aspect of regulation.
“A high regulatory risk score of 6 or above denotes that the regulatory environment has a significantly negative impact on the operator’s ability to generate Free Cash Flow (FCF) and in contrast a low score below 3 denotes a potentially positive impact on FCF,” notes Matt Jamieson, Senior director and Head of Fitch’s Asia Pacific Telecommunications, Media and Technology team.
As a general guideline, and as indicated by the absence of “Low” risk scores (with the exception of the incumbent operator in Malaysia), in Fitch’s view regulatory considerations typically have a negative or constraining effect on the operators’ ability to generate FCF, and therefore on its overall rating analysis.
The overall risk scores for each market (after averaging the separate incumbent and second-entrant risk scores detailed in the report) are as follows:
Hong Kong: 4.5
New Zealand: 5.5
South Korea: 6.0
Sri Lanka: 6.5
Fitch’s regulatory risk-scoring system exemplifies its existing best-practice approach to considering telecom regulatory matters as part of the rating process for Asia-Pacific telecom operators. As such, no rating changes are expected due to the publication of this report.
This report is intended to be followed shortly by the publication of three separate “Regulatory Risk Assessment” reports (North Asia, South and South-East Asia, and Australia & New Zealand), which will provide more specific details on the rationale behind the agency’s regulatory risk scores for each of the 13 telecom markets it covers across the Asia-Pacific region.
The report is now available on the agency’s website, www.fitchratings.com.
Contacts: Matt Jamieson, Seoul, +82 2 3278 8355; Vicky Melbourne, Sydney, +61 2 8256 0325; Priya Gupta, Singapore, +65 6796 7222.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935, Email: email@example.com; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: firstname.lastname@example.org.