MANILA, The Philippines-The recent major buy-in by the Gokongwei group, a multibillion-dollar conglomerate that is involved in virtually every aspect of Philippine business, of the New York Stock Exchange-listed telecommunications firm Philippine Long Distance Telephone Company (PLDT) is expected to considerably change the country’s mobile-phone landscape, analysts said.
Valued at US$925 million, the 24.4-percent controlling-stake acquisition of the Philippines’ biggest telecommunications company from Indonesian-based conglomerate First Pacific will solidify the Gokongweis’ venture into the lucrative data and wireless business, according to Dennis Du, telecom analyst at securities firm ATR-Kim Eng Securities in Manila.
PLDT is the country’s biggest fixed-line phone provider with nearly 2.1 million subscribers. “Part of its strategy is to leverage its fixed-line infrastructure to lead the fast-growing data and mobile business,” he said.
The company’s strategy, laid three years ago, paid off. Last year, a huge chunk of PLDT’s profits came mainly from its booming cellular business through subsidiary Smart Communications. PLDT Chief Executive Officer (CEO) Manuel Pangilinan claimed its wireless subsidiary outperformed the mobile industry and recorded a significant turnaround from a net loss of 406 million Philippine pesos (US$8.1 million) in 2000 to a net income of 3.9 billion pesos (US$78 million) last year, accounting for roughly 35 percent of PLDT’s overall income.
He added that the synergy between Smart and Pilipino Telephone Corp. (Piltel), another PLDT cellular subsidiary, likewise contributed to the growth of Smart. Together, the two companies more than doubled their combined GSM subscriber base to almost 7 million to date, capturing a 57-percent share of the total local GSM market.
Such healthy numbers from its wireless foray are actually the main reason why John Gokongwei, chairman of conglomerate JG Summit Holdings and the patriarch of the Gokongwei family, did not think twice about buying a major stake in PLDT when the First Pacific-controlled Salim group offered it to the 75-year-old Filipino-Chinese billionaire early this year. His PLDT buy-in will give Gokongwei access to the telecom giant’s US$1.47 billion in operating revenues, including US$524.4 million from wireless service and US$68 million in net income.
Pundits noted that with the PLDT takeover, the Gokongwei group will most likely blend its Digital Telecommunications Philippines’ (Digitel) planned cellular phone operation with that of Smart. “Smart could likely be the high-end or business cellular service, while Digitel can take care of the mass market,” said Patty de Pedro of securities firm Worldsec International Securities (Phils.) based in Manila.
Globe, Smart’s closest rival, currently has a greater presence in the business market for cellular phones and generates more profits than Smart, despite having a much smaller subscriber base of about 4 million, de Pedro notes.
Considered the country’s second-biggest landline operator with more than 600,00 phones, Digitel planned to offer cellular service late last year but delayed until the first quarter and subsequently to the second half of the year. The launch was moved back to allow the nationwide rollout of 681 cellular sites.
Moreover, its formal entry into the mobile-phone business has been postponed since last year even as it was able to secure an extension of its provisional authority (PA) from the government-run telecom watchdog National Telecommunications Commission (NTC) to operate as the sixth cellular mobile telephone system (CMTS) provider in the country, after Extelcom, Globe Telecom, Smart, Isla Communciations and Piltel. The latter two have since tied up with Globe and Smart, respectively.
The publicly listed company plans to have at least 1 million cellular subscribers within three years of its operation launch. Digitel has set up a separate subsidiary, Digital Mobile Philippines, for its wireless business.
Digitel will ride on the crest of Smart’s phenomenal growth, a turnaround that has prompted Smart Chairman Pangilinan to plan to sell 10 percent of its equity to investors to raise cash for its parent company. “With Smart at the helm and as leverage, it will not be difficult for Digitel to enter the mobile-phone market and hit its targets,” Du said.
By the same token, PLDT will stand to benefit from Digitel, which is known for its strong cash flow and stable niche market offering landline services outside of metro Manila, the country’s capital. Digitel generated consolidated operating income of $US27 million last year, posting a 10-percent increase compared with a year ago. “Aside from Smart, PLDT needs more entities to lift it up from its US$1.3 billion loan,” Du said.
But some industry experts said the likely merger of Digitel and PLDT will be detrimental to consumers in the long run. Representative Prospero Nograles, a ranking member of the committee on transportation and communications of the House of Representatives, pointed out that the PLDT takeover will allow Gokongwei to gain a monopolistic control over basic fixed-line telephony and the mobile-phone segment, a contradiction to the supposedly deregulated telecom market.
“The combination of the leading player with the second-largest fixed-line operator will return the country to the pre-liberalization period (before 1996) of the telecommunications industry. By taking control of PLDT, Gokongwei will effectively also take control of the largest combined wireless operator in the country,” Nograles said. GW
