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

2. 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

3. 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

4. Mobile subscribers growth in Asia 4 Mobile subscribers grew more than 6 times between 1995 and 1999. 4 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.

5. Mobile Subscribers Growth in Selected Asia-Pacific Countries  Mobile subscribers ('000) CAGR(%) 1995 1999 1995- 199  Australia 2,305 7,800 35.6  China 3,629 43,270 85.8  Hong Kong 798 3,990 49.5  India 77 1,600 117.4  Indonesia 211 2,400 83.6  Japan 11,712 54,111 46.6  Korea 1,641 23,400 94.3

6. Mobile Subscribers Growth in Selected Asia-Pacific Countries  Mobile subscribers ('000) CAGR(%) 1995 1999 1995- 199  Malaysia 1,005 2,657 27.5  New Zealand 365 1,300 37.4  Philippine 494 2,710 53  Singapore 306 1,471 48.1  Taiwan 772 10,300 67.8  Thailand 1,298 2,428 16.9  Total 24,536 157,437 59.2

7. 70 60 50 40 30 20 10 0

8. 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

9. 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 1999. 4 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.

10. All grades Noninvestment grade

11. 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 1999. 4 The above ratio for non-investment grade telcos was 20% in 1996, but slid to between 0% to 10% between 1997 and 1999.

13. 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.

14. All Ratings

15. 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.

16. 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