Asia-Pacific Telecommunications September 15, 2000 Christopher Irwin Standard & Poor’s and Taiwan Ratings

What you can find in this report Commentaries on 4 Trends in Asia-Pacific telecommunications 4 Australian telecom industry 4 Hong Kong & Singapore telecom industry 4 Japan & Korea telecom industry 4 Taiwan wireless industry 4 Credit statistics 4 26 Rationales and credit comments

Credit trends in Asia-Pacific Telcos Unprecedented growth because of : 4 Industry liberalization and competition 4 Wireless as an alternative to fixed-line telephony 4 An explosion in internet use 4 A strong demand for broadband access

Mobile subscribers growth in Asia 4 Mobile subscribers grew more than 6 times between 1995 and China, Japan, and Korea are the largest market 4 India, Korea, and Indonesia enjoy the highest compound average growth rate 4 Expected further growth in Philippines, China, and Thailand due to still low penetration rate 4 Growth in more developed countries will rely on 3G technology.

Mobile Subscribers Growth in Selected Asia-Pacific Countries  Mobile subscribers ('000) CAGR(%)  Australia 2,305 7,  China 3,629 43,  Hong Kong 798 3,  India 77 1,  Indonesia 211 2,  Japan 11,712 54,  Korea 1,641 23,

Mobile Subscribers Growth in Selected Asia-Pacific Countries  Mobile subscribers ('000) CAGR(%)  Malaysia 1,005 2,  New Zealand 365 1,  Philippine 494 2,  Singapore 306 1,  Taiwan ,  Thailand 1,298 2,  Total 24, ,

Credit trends in Asia-Pacific Telcos Increasing business risk due to : 4 The fickleness of consumer preferences make demand and future revenues uncertain 4 Operators are driven to play the game of size, due to “the winner takes all” rule 4 Rapid technology revolution results in shorter economic life of equipment 4 Regulatory uncertainty

Credit trends in Asia-Pacific Telcos Divergence in leverage profile 4 Median total debt to capital for investment grade telcos was 30% in 1996, but up to 50% in 1997 and 1998, and improved to 35% in Median total debt to capital for non-investment grade telcos was 50% in 1996, then up to 70% in 1997 and 1998, and still remained at over 70% in 1999.

All grades Noninvestment grade

Credit trends in Asia-Pacific Telcos Weakening cash flow protection measures 4 Median funds from operation-to-total debt ratio for investment grade telcos was over 120% in 1996, but slid to 40% to 50% between 1997 and 1998, and then improved to 80% in The above ratio for non-investment grade telcos was 20% in 1996, but slid to between 0% to 10% between 1997 and 1999.

Credit trends in Asia-Pacific Telcos 4 Ratings distribution of communications companies versus all companies shows that there is a greater proportion of communications companies with ratings at the tail-ends of the distribution, particularly at the “AA” and “B” categories than the overall rated population.

All Ratings

Credit trends in Asia-Pacific Telcos 4 The higher variability in credit quality of telcos across the rating spectrum reflects the relatively higher credit risk profile of the telecom industry as a whole, as well as the very different risk characteristics of incumbent telcos compared with new entrants in terms of market position and financial profile.

Critical Success Factors 4 Economies of scales, but with prudence 4 Retained and cultivate valued customers with quality service, innovative products, and competitive pricing 4 A balance of debt and equity financing 4 Strong balance sheet