Chilean telco Entel's capex set to remain high for coming years

Chilean operator Entel estimates there will be a 2-3 percentage-point impact on capex intensity over the next two years due to the rollout of 5G networks, CEO Antonio Büchi said during the company’s Investors Day.

For 2023, the company expects investments to be below 20% of revenue. "That figure may not necessarily be maintained in the coming years, and I wouldn’t rule out a return to 21%. It's a level we're comfortable with and it’s temporary," Marcelo Bermúdez, VP of corporate finance, said during the same event.

In April, Entel announced investments of US$618mn in Chile and Peru this year, representing 19.7% of its revenue.

These investment demands impact the company’s cash flow, although it is a temporary effect driven by technology investment cycles. The same occurred during the previous 4G investment cycle, but the company later saw seven years of recovery.

"Since we began deploying 5G in 2021, we’ve seen a similar effect, with a reduction in free cash flow," Bermúdez said.

In February, Fitch projected that the capex-to-sales ratio would reach 21-22% in the coming years, with levels expected to decline after 2026.

The ratings agency also forecast negative cash flow in the medium term due to capex requirements and dividend payments.

The growth in capital injection is attributed to the 5G rollout in Chile, investment demands for the fiber business in both markets where Entel operates and increased investment efforts in Peru.

"Peru had very low investment rates, around 13%. We’re now bringing Peru’s investment to more typical industry levels," Bermúdez added. "We estimate it will grow to around 18% of revenue."

This investment is primarily driven by the growth of the mobile business, though fiber expansion is also expected to increase.

The company previously announced a 10% increase in investments this year to expand network coverage and capacity, allocating US$131mn to the mobile business and US$16mn to the home segment.

Currently, the company is deploying 5G on its 2,300MHz spectrum network.

Bermúdez anticipates that once the mobile investment cycle in Peru and Chile is complete, with a fixed capex level in place, the company will likely reach investment levels of approximately 18.5-19% of consolidated revenue by 2027, similar to 2021 levels before the 5G rollout.