MANILA, Philippines - Two to three years from now phone giant Philippine Long Distance Telephone Co. (PLDT) expects to complete its transformation from a traditional telecom service provider to a “multimedia communications group,” a move seen necessary to arrest declining revenues.
The phone giant has, in fact, started to move its subscribers away from traditional telco services over to the Internet by providing them with options—starting with mobile Internet browsing. Looking forward, the PLDT group also intends to construct a smart grid, which can deliver electricity from suppliers to consumers using two-way digital technology to control appliances at consumers’ homes.
“There is a whole range of communication requirements that we can deliver. We have not completed yet to becoming a multimedia communications group but we are moving to that direction. The video component is still missing. There should be a network configuration to transport content rich-type platform,” said PLDT chairman Manuel Pangilinan yesterday as he reported on the company’s third-quarter performance.
This transformation will be undertaken hopefully until 2012. Right now, Pangilinan described the market as “intense.” He noted that “It’s so intense that the company had removed 1.2 million inactive cellular subscribers from its network at end-September; will reduce headcount by a significant number by year-end and; and put in place other initiatives to reduce network operating costs.”
The transformation is being undertaken at a time when the operating environment has become increasingly price competitive and market share sensitive. Pangilinan said the change in the PLDT group’s revenue mix is putting significant pressure on margins on earning before interest, taxes, depreciation and amortization (Ebitda) such that efficiency and cost control are critical.
At end-September, PLDT’s third-quarter net profit was flat at P10.3 billion, the same level as its net income a year earlier. Core net profit, which excludes currency and derivatives-related items, increased only about 1% to P10.19 billion.
PLDT said its core net profit guidance for 2010 was P41.5 billion, nearly flat from 2009. This is on account of expected lower cellular revenues as the mobile phone business remains under pressure from tough competition in a nearly saturated market.
Though PLDT posted a 2% increase in net profit for the first three quarters of the year, its revenues during the same period dropped by 1% to P106.7 billion from P108.3 billion in the same period last year. The company’s revenues are sourced from its wireless business, which declined by 1% to P70.4 billion from P71.2 billion, and fixed line segment, which also went down by 4% to P36.8 billion from P38.2 billion.
PLDT’s cellular revenues, particularly from its short message service (SMS), also remains under pressure from the proliferation of lower yield offerings, multiple-SIM ownership and regulator-mandated load validity extensions, said PLDT president and chief executive Napoleon Nazareno,
In fact, text revenues fell 13% to P31 billion at-end September despite a 25% increase in text volumes as yields went down to P0.13 per text from P0.18 due to growth of bucket plans.
For voice, traffic increased by 140% but the yield was lower by 50% to P1.20 per minute.
PLDT’s wireless subscribers stood at 44.1 million in the third quarter from 45.3 million at end-June this year. The reduction mostly came from the SIMs (subscriber identification module) that were used for campaigning during the recently concluded polls and are no longer being utilized.
“Ten years ago, text messaging just started to boom. No one had imagined that text revenues would be dropping but that’s happening now. In the coming years, people will communicate differently. There is no clear path for now. In many ways, we must invent new applications. We must be deliberate and smart about this whole thing,” said Pangilinan.
The PLDT executive said the 2010 performance underscores earlier statements that 2010-2012 would be a critical period in the PLDT Group’s transformation.
A closer look at the underlying revenue mix will show that on-going transition of revenue streams with the lower traditional sources are being replaced by the growth of new revenue streams.
PLDT was also forced to implement a manpower reduction program as part of its cost control measures. It would cut its workforce by 850 from the current 13,000 by end of the year. However, this organizational rationalization will help save the company P1 billion a year.
“This will allow us to align the skill sets of our workforce so that we remain responsive to the changes in our business and the new technologies we are deploying,” said Pangilinan.
Moreover, the phone giant will continue to implement measures that will reduce network operating costs, not the least of which will be realized from the switch of the legacy fixed line network to a next generation network.
“To achieve the transformation and further strengthen our growth potential, investments in strengthening our network for coverage, capacity and diversity will continue,” said Pangilinan.
PLDT has set aside P28.6 billion for capital expenditures this year. It has so far spent P16.9 billion at end-September. Nazareno said substantial investments have gone into building network capacity to support both voice and data usage which have grown exponentially in recent years.
