Intense competition makes it a tough year for PH telcos

Posted at 01/01/13 10:40 AM

MANILA, Philippines - Major players in the telecommunications industry led by dominant carrier Philippine Long Distance Telephone Co. (PLDT) and Ayala-controlled Globe Telecom Inc. expect more intense competition next year with the completion of their respective capital intensive modernization projects.

PLDT chairman Manuel V. Pangilinan said 2012 was a tough year for the PLDT Group amid heightened competition resulting in price pressures, higher operating expenses, and margin pressures.

“It has been a tough year because of competition. Competition has heightened this year,” Pangilinan said.

Globe president and chief executive officer Ernest Cu said earlier that the company anticipates more intense competition in the industry with the capital intensive projects undertaken by major players.

However, Cu remains confident that the company’s innovative spirit and strong focus on customers would help Globe survive intense competition in the industry.

“Our business remains fundamentally strong and the transformation initiatives in our network and IT infrastructure are pushing through as planned.  We shall build on our earlier triumphs to bring out the best services for our customers,” Cu said.

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Capital Intensive network modernization projects

Last September, PLDT announced it has completed its two-year P67 billion network upgrade and modernization program way ahead of schedule tripling the company’s voice and data capacity.

The upgrade brought the PLDT Group’s total fiber assets to 54,000 kilometers that is more than four times the 12,000 kilometers of fiber network being built by Ayala-controlled Globe Telecom Inc.

This gives PLDT the most extensive and advanced network in the country with over 48,000 kilometers of fiber assets with an additional 6,000 kilometers of Fiber-to-the-Home further expanding its long-term evolution (LTE) sites.

PLDT’s Smart Communications and Sun Cellular have established an access network that is enabled with 3G and LTE technologies with 3G coverage reaching majority of the population and LTE piloting in a growing number of areas.

These developments come on the heels of a core network upgrade that would boost PLDT’s domestic fiber optic network (DFON) with 100G Technology and the completion of an international undersea cable system that more than doubled the international bandwidth capacity of the PLDT group.

On the other hand, Globe is set to complete its $700 million network transformation in the first quarter of 2013 as a solution for the congestion brought about by the explosion in mobile data and inadequacy in capacity of a legacy network.

Globe’s previous network is designed to provide quality voice and short message service (SMS) on account of the subscriber demand in the early 2000s.

The exponential increase in access of social networking sites via mobile phones as a result of the institutionalization of the so called “unli” service have rendered existing main voice and SMS networks to be no longer adequate and sustainable.

Lower profits due to intense competition

PLDT’s profits slipped six percent to P28.7 billion in the first nine months of the year from P30.6 billion in the same period last year on the back of stiffer competition and manpower reduction.

On the other, consolidated service revenues of PLDT jumped 12 percent to P126.2 billion from P112.27 billion while total revenues surged 13 percent to P128.56 billion from P114.05 billion.

The decline in income in the first nine months of the year could be attributed to the consolidation of the operating performance of Digital Telecommunications Philippines Inc. (Digitel). It spent P69.2 billion to acquire the stake of taipan John Gokongwei in Digitel.

Likewise, PLDT spent P1.8 billion for the manpower reduction program undertaken in the second quarter of the year.

Pangilinan said the company is maintaining its profit guidance of P37 billion for this year.

“We continue our steady financial performance as we wait for the industry situation to stabilize. We hope to provide a better indication of when we can expect to return to the profit growth track when we announce our yearend results next March,” Pangilinan said.

Meanwhile, Globe registered a 19 percent drop in net income to P6.808 billion from January to September this year compared to P7.994 billion in the same period last year due to higher expenses brought about by its capital intensive $700 million network modernization and transformation program.

The company’s capital expenditures jumped 16 percent to P16 billion in the first nine months of the year from P13.9 billion in the same period last year on the back of higher investments on network modernization and IT transformation coupled with the usual spending to expand coverage and capacity of its broadband and mobile networks.

The telco provider reported that its consolidated revenues increased six percent to P61.3 billion from P57.7 billion on the back of the strong performance of mobile, broadband, and fixed line data segments.

Race for subscribers

With the launching of new gadgets including the much awaited iPhone5 from Apple Inc. last Dec. 14, both the PLDT Group and Globe are on a mad rush to entice new subscribers.

Latest data showed that PLDT Group’s cellular subscriber base reached 68.6 million as of end-September. Subscribers of wireless arm Smart stood at 25.6 million followed by Talk ‘N Text with 26.5 million, and Digitel’s Sun Cellular with 16 million.

Likewise, Globe’s mobile subscribers rose 10 percent to 32.1 million as of end-September. Increasing demand for internet connectivity, fueled in part by the popularity of social networking sites, coupled with technological advancements that bring about improved Internet connection speeds continue to drive growth in the Company’s broadband business.

As of end-September, Globe’s total broadband subscribers surged 20 percent to over 1.6 million from 1.4 million.

In the midst of competition’s aggressive switching campaign, Globe reported over 20 percent growth in its postpaid segment in revenue to P5.8 billion and subscriber base to 1.66 million as of end-September 2012.

Mergers and acquisitions

After successfully acquiring Digitel in late 2011, the PLDT Group was beefing up its interests in broadcasting and print media as part of its efforts to transform into a multi-media company.

The Group through Mediaquest Holdings Inc. was looking at acquiring a controlling stake in broadcast giant GMA Network Inc. by purchasing the 79 percent interest of the Gozon, Duavit, and Jimenez families.

Last October, PLDT and GMA announced that both parties decided to terminate negotiations even before the yearend deadline due to concerns including the regulatory approvals by Congress.

Pangilinan said the termination of the talks with major shareholders of GMA would not stop the company from evolving into a full pledged multimedia service provider.

“The termination of the GMA acquisition initiative is not expected to adversely impact the PLDT Group’s strategy of evolving from a traditional telecommunications company into a multimedia service company,” Pangilinan said.

The PLDT Group through MediaQuest Holdings Inc. would continue to pursue multiple platforms with the successful investment in TV5 and Cignal TV.

Pangilinan is also looking at increasing the Group’s stake in The Philippine STAR to a majority control as it owns a 30 percent interest in BusinessWorld Publishing Corp. and a 12 percent stake in the Philippine Daily Inquirer.

On the other hand, Globe is looking at acquiring a stake in the Lopez-controlled Bayan Telecommunications Inc. (Bayantel) after inking a contract for a joint use in frequencies.

It has also completed its tender offer to all outstanding holders of 13.5 percent senior notes of Bayantel originally due last December 2006. About 92.90 percent of the notes of Bayantel was tendered and not withdrawn.

The telco provider launched last Nov. 6 a tender offer for the outstanding notes and bonds of Bayantel and Radio Communications of the Philippines Inc. (RCPI).

Last Nov. 6, Globe announced it has commenced separate discussions with the controlling shareholders of Bayantel regarding a wide range of commercial arrangements including a potential acquisition by Globe of an equity interest in the cash-strapped company.

As early as August, Lopez Holdings Corp. president Salvador G. Tirona confirmed that the Lopez group remains open to selling its telecommunications business that has been under rehabilitation since July 2004 after its debt swelled to $325 million.

Bayantel has reportedly settled a total of P8.19 billion in total debt since it filed for corporate rehabilitation in 2004. In the first nine months of the year, the company paid P908.3 million worth of debt.

The debt-ridden telco provider had been subject to court-supervised rehabilitation proceedings since 2003 and intends to pay its $325 million outstanding debt within 2023.

Telco’s vs regulators

Aside from intense competition, telco providers would have to deal with state regulator National Telecommunications Commission (NTC) that directed them to slash fees slapped on text messages to not more than P0.80 from P1 and at the same time refund subscribers for overcharges since December 2011.

This means that companies would have to shell out at least P1.42 billion worth of refund to their subscribers for failing to slash its P1 fee per text message and pay a fine of P200 per days until full compliance.

Telco providers are being penalized for non-compliance with Memorandum Circular 02-10-2011 issued last October 10 last year or the “Interconnection Charge for Short Messaging Service (SMS)” that took effect last Dec. 1 last year. The circular supposedly reduced the SMS or text interconnection charge to P0.15 from P0.35 for the purpose of making text messaging more affordable to the public pursuant to the directive of the Office of the President.

The companies already filed an appeal before NTC questioning the authority and the basis of NTC to order a refund and the reduction in fees on text messages.

The services of PLDT’s Smart and Globe improved after they were given two months by NTC to improve their network performance after failing the monitoring in the second quarter.

NTC director for common carrier authorization department Edgardo Cabarios said based on a monitoring conducted by the regulator in September both Smart and Globe registered a significant improvement in their grade of service or rate of blocked calls in September compared to April to June.

He explained that the regulator did not conduct monitoring for the months of July and August to give the telco providers to improve their network performance.

“The team did not conduct benchmarking for the months of July and August to afford the telcos ample time to improve their services, taking into account the results of the 2nd quarter benchmarking which showed failing marks for both Smart and Globe,” he said.

Cabarios said the test conducted in September covered 2,189 random calls simultaneously done for Smart and Globe.

Based on the Quality of Service Benchmarking tests last September, Cabarios said the grade of service of Smart improved to 2.54 percent from 9.95 percent in the second quarter while that of Globe improved to 2.75 percent from 4.45 percent.

Blocked calls or grade of service refers to the percentage of calls that were not given access by the network or percentage of the network failure to establish connection between the caller and the receiver.