Fitch Ratings has affirmed Philippine Long Distance Telephone Company's (PLDT) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB-' and 'A-' respectively. The Outlook is Stable.

­The ratings reflect PLDT's market leadership that has been reinforced by the acquisition of 99.5% of Digital Telecommunications Philippines at end-Q312. PLDT boasted dominant subscriber market shares across the wireless (68%), fixed-line (65%) and broadband (63%) segments at end-H112.

PLDT's ratings also benefit from the company's strong credit metrics including high EBITDA margins (H112: 45.6%), despite yoy deterioration (H111: 54.1%), as well as sound leverage, measured by funds flow from operations (FFO)-adjusted net leverage, of 1.3x at end-2011.

The Stable Outlook reflects Fitch's view that the company's financial profile will remain commensurate with the current rating level over the next 12 to 18 months. However, Fitch expects the company's operating margin to continue to decline over the medium-term due to aggressive competition and as lower-margin data revenue increases its share. In addition, free cash flow (FCF) generation is likely to turn negative in 2012 given high capex requirements and dividend payment leading to increase in financial leverage over 1.5x by end-2012.

PLDT's Foreign Currency IDR continues to be constrained by the Philippines' Country Ceiling of 'BBB-', reflecting the country's foreign currency transfer and convertibility risk. On the other hand, PLDT's Long-Term Local Currency IDR exceeds the sovereign's Long-Term Local Currency IDR by three notches - the maximum allowed by Fitch for this company - as does not take into account foreign currency transfer and convertibility risk. It is also reflective of the company's unconstrained credit profile.