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A weak consumer environment, mobile market saturation, pricing pressure, high interest rates, and elevated investment spending needs are expected to put pressure on credit profiles for select Colombia telecom companies, according to Fitch Ratings. Incumbent operators will need to defend their market share and generate sufficient Free Cash Flow (FCF) to maintain conservative leverage profiles in order to maintain their ratings.

Colombia’s mobile market is already highly saturated, with over 82 million mobile lines as of the first quarter of 2023. The competitive environment has intensified in recent years, with new entrants like WOM Colombia and high levels of capital expenditure for spectrum renewal and network modernization. This includes investments in fiber and the transition to fifth-generation (5G) technology.

The current operating environment, with high mobile penetration, has led companies to maximize their 4G networks by offering bundle services. However, competitive pressures on Average Revenue Per User (ARPU) have offset growth in post-paid subscribers.

Fitch expects that industry cash flows will be further depressed due to spectrum license renewals. Colombia’s main operators will face renewal processes for their spectrum holdings during 2023-2024 and need to financial prepare for upcoming 5G spectrum auctions, adding more uncertainty regarding capital expenditure allocation.

The emergence of 5G technology will enable faster data speeds, low latency, and greater capacity compared to existing cable or ADSL networks. It will also open up opportunities for new applications and services in sectors such as healthcare, transportation, and manufacturing. The share of smartphone subscribers in the Colombian market reached half in 2022, driven by the availability of low-cost options and lower pricing for voice and data services.

In the broadband market, the deployment of Fiber to the Home (FTTH) is gaining traction, especially in urban areas, as it offers faster speeds and more reliable internet connections. Telecom providers like Coltel and Tigo in Colombia are expanding their FTTH infrastructure to meet the growing demand for data-intensive applications from consumers and businesses.

However, the adoption of new technologies comes with challenges. The upfront costs and investment payback periods remain uncertain due to the weak consumer market and affordability issues. Telecom companies are looking to transition to less capital-intensive business models, including selling and leasing back passive assets and partially divesting fixed infrastructure. Partnerships, such as the exploration of network sharing between Tigo and Coltel, are also being considered.

It is worth noting that any definitive agreements will require approval from relevant governmental authorities.

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