Philippines' largest telco sees costly, painful fight

Philippine Long Distance Telephone, the country's largest telecommunications firm, said Tuesday it expects to spend nearly $1 billion in a "painful" fight to survive the consumer shift to digital from traditional phone services.

The listed company said net profit for the first three months of the year was flat at 9.4 billion pesos ($211 million), and the full-year net profit would likely fall below the 34.1 billion pesos it posted last year.

The company said the growth in its mobile Internet business had not been strong enough to offset the decline in its traditional revenue sources -- voice calls and text messaging -- that account for 60 percent of the total.

"It's either we pivot or we perish," PLDT chairman Manuel Pangilinan told reporters.

He said PLDT may exceed the record 39-billion peso ($876 million) expansion budget it set this year to build more 3G and LTE (Long-Term Evolution) infrastructure and entice more of its subscribers to go online.

"In many respects, it's like changing tyres while the car is moving," he said.

"The whole way into this is to implement the digital pivot... It will be painful."

While data and broadband revenue grew 11 percent to 11.2 billion pesos in the January-March period, it accounted for only 27 percent of the total.

Revenue from local voice calls and text messages dipped two percent to 24.2 billion pesos.

Revenue from international and domestic long distance calls, which account for 13 percent of the total, fell 19 percent to 5.2 billion pesos.

"There is an ongoing evolution of the telco subscriber into the digital consumer and there is a need by PLDT to identify new ways of serving the customer," said company president Napoleon Nazareno.

He said PLDT would continue offering free access to selected websites and applications to whet consumers' appetite and persuade them to subscribe to full data plans.

While Filipinos are among the world's most active Internet users, the country also has one of the slowest average connection speeds.

The record capital outlay this year would help address that, company spokesman Ramon Isberto told AFP.

Pangilinan said he could not say when revenues from PLDT's Internet services would overtake those from its so-called "legacy" businesses.

"Every 10 years there is a revolution in this industry. It will be a contest on various fronts -- infrastructure, pricing, digital experience," he said.

- Yahoo News

PLDT paying up remainder of investment in Rocket ahead of planned IPO

Philippine Long Distance Telephone Co (PLDT) today said it will soon complete the payment of its investment in Germany's Rocket Internet AG after the European owner of Zalora and Lazada announced a plan to go public in the fourth quarter of this year.

PLDT and Rocket earlier entered a global strategic partnership to develop innovative online payments solutions in emerging markets.

Under the terms of the partnership agreement, PLDT would invest €333 million or $445 million in Rocket. Of this amount, 50 percent has already been paid.

Following the announcement of Rocket’s intention to proceed with an initial public offering (IPO), PLDT will now pay in full the remaining 50 percent of its investment in the e-commerce platform developer.

Rocket's IPO is intended to take place later this year on the Frankfurt Stock Exchange. If it pushes through, the IPO is expected to consist solely of new shares from a capital increase.

The new shares will be of the same class and bearing the same rights as shares held by existing Rocket shareholders.

Besides PLDT, other Rocket shareholders consist of Global Founders GmbH (“Global Founders”, which is the investment vehicle of Oliver Samwer, the founder and CEO of Rocket, and his brothers), Investment AB Kinnevik (Kinnevik), Access Industries (Access), United Internet (UI) and HV Holtzbrinck Ventures (HV).

All existing shareholders of Rocket will remain invested and will not sell any shares as part of the offering. All six shareholders have signed lock up commitments not to sell or otherwise dispose of their stakes for at least 12 months.

Rocket intends to use the proceeds from the IPO to finance its future growth through the launch of new businesses and to provide additional equity capital to its network of companies.

Rocket provides a platform for the rapid creation and scaling of consumer internet businesses outside the U.S. and China, with the German company having more than 20,000 employees in its network across over 100 countries, with aggregated revenues in excess of €700 million in 2013.

Its most prominent brands include leading Southeast Asian e-Commerce businesses Zalora and Lazada, as well as fast growing brands with strong positions in their markets such as Dafiti, Linio, Jumia, Namshi, Lamoda, Jabong, Westwing, Home24 and HelloFresh, in Latin America, Africa, Middle East, Russia, India and Europe.

Alongside e-Commerce and marketplaces, financial technology and payments comprise Rocket's third sector where it anticipates numerous and significant growth opportunities.

- Interaksyon

PLDT completes P600-million Bohol fiber cable project

Philippine Long Distance Telephone Co (PLDT) has completed a P600-million fiber optic cable project in Bohol that would support the Internet broadband requirements of the province.

In a statement, the country's largest telecom company said the new fiber link also strengthens the resiliency of PLDT domestic fiber optic network (DFON) by establishing a third link to the island of Mindanao via Bohol and Misamis Oriental.

“This new fiber link will boost Bohol's thriving tourism industry and enable the province to attract more business process outsourcing (BPO) companies to set up shop there," Napoleon L. Nazareno, PLDT president and chief executive said.

"Moreover, Boholanos will be able to enjoy improved Internet services at their homes, schools and offices," he added.

Rolando Pena, PLDT Technology Group head said the Bohol DFON is equipped with up to 50 gigabytes capacity to support the increasing demand for greater bandwidth in both fixed and wireless services by corporate customers.

The new fiber optic cable facilities also allow PLDT to provide fiber-to-the-home (FTTH) services and support the operations of its wireless subsidiaries Smart Communications and Sun Cellular, particularly in providing expanded HSPA and LTE coverage to their subscribers in the area, Pena said.

Pena said the Bohol fiber optic cable project will also support the information and communication technology requirements of the international airport that will be rise in Panglao Island.

Consisting of 245 kilometers of inland and submarine fiber optic cables (FOC), the Bohol fiber project connects the island in the north from Loon to Mactan in Cebu and in the south from Garcia Hernandez to Kinoguitan in Misamis Oriental.

By providing a third link to Mindanao, the Bohol fiber link project bolsters the PLDT’s network resiliency, making it less susceptible to outages from fiber cuts caused by natural disasters like earthquakes or heavy storms.

The PLDT Group’s fiber optic network is the most extensive in the country, with more than 85,000 kilometers of inland and submarine cables at end-March, more than 4 times that of the competition.

"Fiber is the foundation of all digital communications infrastructure. If you don't have enough of it, you cannot offer extensive, resilient high-speed broadband serviced," Pena said.

“We will continue to expand our Internet infrastructure to support the development efforts of different parts of the country. This will spread more equitably the benefits of the strong growth of the country's economy," Nazareno said.

PLDT closed the first quarter of this year with a net income of P9.392 billion, higher than the previous year's P9.062 billion. Revenue climbed to P42.543 billion from last year's P40.960 billion.

- Interaksyon

PLDT to spend $2M for Asia-America Gateway cable upgrade

Philippine Long Distance Telephone Co (PLDT) on Wednesday announced that it is expanding its international bandwidth capacity to the US to support rising demand for high-speed broadband.

In a statement, PLDT president Napoleon Nazareno said the incremental capacity from this project will allow PLDT to support more industry requirements as well as enhance the quality of experience of customers of the PLDT Group.

“With the deployment of 100G technology in this international link, we will be able to extract more capacity out of our existing fiber cables and support the delivery of high-bandwidth services and applications. This will give our customers the benefits of a much faster and resilient global transport network,” Nazareno said.

PLDT is investing $2 million in the cable upgrade of the Asia-America Gateway (AAG) that will double the bandwidth capacity of the only trans-Pacific cable linking Southeast Asia and the Philippines to the US mainland.

PLDT was a lead investor in the build out of the AAG cable running 20,000 kilometers of high-bandwidth optical fiber linking Southeast Asia to the US for a total cost of $500 million, of which PLDT chipped in $50 million.

“Attuning to globalization and meeting world standards, we’ve readied our network not only in our domestic capacity but also in our international links to better future-proof PLDT in the foreseen surge of more intensive and bandwidth-hungry services, particularly to and from the US,” PLDT Technology Group Head Rolando Pena said.

PLDT leads the country among providers with the most number of international cables as well as landing stations. The AAG cable will be PLDT’s fourth international cable link up for upgrade to 100G technology, following the Asia Pacific Cable Network 2 (APCN2) and the Japan-US Cable system (JUCN). The Asia Submarine Cable Express (ASE) 100G upgrade is ongoing.

“We’ve always anticipated the need to constantly increase our capacity especially in serving the country’s leading industries given their demand for a resilient, low latency, and expansive data-driven network such as the BPO and outsourcing industries,” said PLDT Head of Enterprise, International and Carrier Business Eric Alberto.

PLDT was also the first network operator in the Philippines to deploy 100G in its domestic fiber optic network. When it was launched in 2012, the Philippines rose in leadership position in Asia-Pacific, among only a handful of other countries in the region to deploy 100G technology in its domestic network.

The AAG consortium consists of 19 parties providing connectivity among the Philippines, Malaysia, Singapore, Thailand, Brunei Darussalam, Vietnam, Hong Kong SAR, Guam, Hawaii and the US West Coast and seamless interconnection with other major cable systems connecting Europe, Australia, other parts of Asia and Africa and using Dense Wavelength Division Multiplexing (DWDM) technology to provide upgradeable, future-proof transmission facilities for telecommunications traffic.

By end-2014, PLDT will have an additional 15,000 kilometers of new fiber optic cable facilities with an estimated investment of over P1 billion to reach nearly 100,000 kilometers of fiber optic cables laid out to meet the surge of expected data traffic, more than 4 times than competition.

- Interaksyon

PLDT, three state firms' credit ratings lifted after S&P upgrades PH again

Four Philippine companies' ratings were lifted following the upgrade on the Philippines' credit status by Standard and Poor's Ratings Services' on Thursday.

Philippine Long Distance Telephone Co
Corporate credit
To: BBB+, stable outlook
From: BBB, stable outlook

"The rating on PLDT remains constrained by our 'BBB+' transfer and convertibility assessment on the Philippines," S&P said.

Its stand-alone credit for the country's biggest telecommunications firm remains 'a-' as it benefits from its leading position in the domestic market, good business diversity, strong cash flows, and modest debt level. However, the "intense competition" in the mature domestic cellular market and large dividend payouts of almost 100 percent temper these strengths, the ratings agency said.

Power Sector Asset & Liabilities Management Corp and National Power Corp
To: BBB, stable outlook
From: BBB-, stable outlook

S&P said the stand-alone credit profiles of PSALM and Napocor are "weak" and "heavily dependent on the support of the Philippine government." Thus in times of financial distress, the two utilities are "almost certain" to receive timely and sufficient government aid.

Development Bank of the Philippines
To: BBB, stable outlook, A-2
From: BBB-, stable outlook, A-3

The ratings on DBP were equalized by S&P with the sovereign credit ratings on the Philippines as it is almost certain that the government would come to the rescue of the state-run bank by providing timely and sufficient aid in time of financial distress.

- Interkasyon

PLDT says back on growth path, as 1Q earnings climb 2 pct

Philippine Long Distance Telephone Co (PLDT) on Tuesday said its net income rose in the first quarter, signaling the company’s return to its growth path this year.

The country's largest telecom company reported a net income of P9.4 billion in the January to March period, up two percent from P9.2 billion in the same three months of last year.

Excluding foreign exchange transactions and other non-recurring items, core profit hit P9.8 billion, also up two percent from P9.6 billion in 2013.

PLDT said the first-quarter profit growth was due mainly to higher service revenues and equity share in earnings of subsidiaries.

“The structural shift in our revenue mix continues, wherein growing revenues from our data businesses replace those from our legacy businesses such as NLD, and fixed and wireless international voice," Manuel V. Pangilinan, PLDT chairman said. NLD refers to the national long distance voice service.

Consolidated revenue climbed three percent to P41.2 billion from P39.9 billion last year.

Pangilinan attributed the growth in service revenues to the 22 percent rise in broadband and data revenues, which more than made up for the two percent decline in legacy revenues and a similar drop in combined local exchange carrier, cellular domestic voice and SMS revenues.

Total broadband, data and internet revenues climbed 24 percent year-on-year to P7.6 billion, with its share to total revenue at 18 percent.

The PLDT Group’s combined broadband subscriber base stood at 3.6 million at end-March. Smart Communications brought in two million, while Sun Cellular had 548,000. PLDT's fixed broadband subscribers contributed another million.

Wireless service revenues increased two percent year-on-year to P28.9 billion, buoyed by the continued rise in both non-SMS data and cellular voice revenues.

The PLDT Group’s total cellular subscriber base hit 70.5 million at the end of the first quarter. Of the total, Smart had 25.9 million under its mainstream Smart brands, value brand Talk ‘N Text ended with 29.5 million, and Sun Cellular, 15.1 million.

"Our revenue mix remains dynamic. Our task is to manage the interplay among our businesses by pushing those sectors which are growing and stable, while maximizing the long tail of our legacy segments. Given the company’s performance in the first quarter of 2014 and the outlook for the rest of the year, I can say that PLDT is firmly back on the growth path, and on track to meet our core net income guidance of P39.5 billion for the full year,” Pangilinan said.

Napoleon L. Nazareno, president and chief executive of PLDT and Smart, said the company continues to invest in its network to provide “quality of experience to our customers.”

"As part of our vision of ‘broadbanding the nation’, we are deploying the latest digital, all-IP technologies that will enable us to deliver products and services that respond to various speed and volume requirements to our subscribers. Moreover, we are building up scale in order to achieve efficiencies that will lower the cost of providing our services and help strengthen the international competitiveness of the country,” Nazareno said.

For this year, PLDT's capital expenditures would be in the range of P31-32 billion or about 18-20 percent of service revenues.

Capex in the first quarter alone amounted to P2.2 billion compared with P3.1 billion in the same period last year.

On-going network initiatives include expanding 3G and 4G/LTE coverage, increasing the group’s fiber footprint which now stands at nearly 85,000 kilometers, continued integration of the Smart and Sun networks, as well as projects to enhance the group’s multimedia capabilities.

- Interaksyon

Telecom Sector Outlook: Earnings grow in line with expectations

Broadband pushes earnings higher. The telecommunication industry’s aggregate 2013 earnings reached Php50.3Bil, up by 6.7% from the previous year and in line with both COL and consensus estimates. Growth was primarily driven by the improving competitive environment and strong broadband revenues. For the full year, aggregate service revenues reached Php254.5Bil, up by 5% from the previous year. The broadband segment continued to be a strong performer with aggregate revenues increasing by 16.6% to Php41.7Bil. In addition, broadband revenues now account for 16.4% of service revenues, an improvement from 14.8% in the previous year. We believe that broadband, especially mobile internet revenues, will continue to be a source of growth for the telco industry as smartphone penetration remains slim at less than 20%.

Subsidy expenses put pressure on margins. Globe and PLDT’s push for increasing postpaid subscriber base led to higher postpaid revenues. In 2013, aggregate postpaid subscribers reached 4.4Mil, up by 9% from the previous year. However, this came at a cost of paying higher subsidy expenses. Subsidy expenses rose by 36% to Php12.8Bil. As a result, combined EBITDA margin of GLO and PLDT declined to 44.8% from 45.5%. PLDT believes that the size of creditworthy postpaid market is just around 6Mil subscribers. On the other hand, GLO continues to be bullish on postpaid and expects to double its subscriber base in the next four to five years.

Globe gains market share as PLDT cleans up subscriber base. Total wireless subscribers of GLO and PLDT grew by 5% to 109Mil. The improvement was driven mostly by the increase in GLO’s subscriber base as PLDT redefined its subscriber base to exclude some units without real purchased load. As a result, GLO has now 35% of market share, a stark improvement from just 32% last year.

Reiterate BUY rating on TEL, and maintain HOLD on GLO. We reiterate our BUY rating on TEL with a fair value of Php3,260/sh. We continue to like PLDT for the defensive nature of its business and cost savings to be generated from the Digitel integration and modernization program. In addition, we believe that broadband will spur revenue growth for the industry. Valuations also remain attractive, with capital appreciation potential still substantial at 15%, and dividend yield at 6.6%

- COL Financial