Philippine Rating Services Corp (PhilRatings) said local telecommunication companies had leveraged themselves up to 50 per cent in the pre-crisis period to fund massive capital expenditures.But the expansion of the sector left these companies in heavy debt with no hope of quickly recovering their investments.

Daunting competition from dominant carrier Philippine Long Distance Telephone Co (PLDT) and the interconnection obstacle pose key threats to earnings of smaller firms which proliferated following the deregulation of the sector in 1989, it added."Heightened competition, with the liberalisation of the industry, has exposed most industry players, particularly the smaller and less diversified companies, to margin pressures," it said in a study.

"Financial flexibility isanticipated to remain relatively stable on account of a favourable outlook for the industry. Investors and lenders of capital, however, are expected to be picky, preferring to invest in larger and more product diversified companies."There are now about 266 telecom operators in the country but the study was confined to 10 key players.PhilRatings said the expansion in the telecommunications subscriber base would benefit the three biggest telecoms companies: PLDT, its mobile unit Smart Communications and the country's largest digital mobile firm, Globe Telecom.

Diversified revenue streams
Despite a dismal first quarter net income of 110 million pesos ($2.6 million), PLDT is still the best bet for investors as it offers a basket of services from its mobile, satellite, cable, Internet and fixed line portfolio.

An attempt to diversify its revenue base following the decline in international accounting rates would help the company's coffers, but PhilRatings warned of potential risks from its debt,along with those of its ailing mobile unit Pilipino Telephone Corp .

-- Reuters