New cellphone player could win big in PLDT deal

A new entrant into the Philippine cellular phone market could emerge as the big winner from a likely change in ownership in dominant Philippine Long Distance Telephone Co. (PLDT), analysts said yesterday.

The board of Hong-Kong based conglomerate First Pacific Co. Ltd. met yesterday to firm up plans to sell its 24.4-percent controlling stake in PLDT, the country’s largest phone firm, as well as its 80.6-percent holding in local property developer Metro Pacific Corp.

The identity of the potential buyer has been kept a closely guarded secret although newspapers have identified the Chinese-Filipino Gokongwei family as the key contender.

The Gokongweis have a range of business interests under their flagship conglomerate JG Summit Holdings Inc.

One of these is Digital Telecommunications Philippines Inc. (Digitel), which has a small fixed line phone business and is in the throes of setting up a cellular network.

PLDT sources have, however, said the board of the telephone company may try to block a takeover by the Gokongweis and say PLDT president Manuel Pangilinan may try a management buyout with the help of other shareholders.

However, if the Gokongweis acquire PLDT, telecom analysts see significant benefits for Digitel.

"Immediately they acquire PLDT, they could merge it with Digitel, providing a virtual monopoly of the fixed line business," AB Capital Securities senior analyst Jose Vistan said.

"I would also imagine they (Digitel) could piggyback on the technology (of PLDT) and reduce capital expenditure," he said.

So far Digitel has deferred the start-up of its cellular business twice, and many believe it is because of the prohibitive costs involved in setting up a mobile service.

Tough road ahead

Analysts noted that with PLDT cellular unit Smart Communications Inc. and its key rival Globe Telecom Inc. establishing a virtual duopoly in the highly lucrative Philippine mobile market, it would be difficult and expensive for a newcomer to make headway on its own.

"Unless a new player provides massive handset subsidies or introduces extremely low tariffs, it would be difficult to catch up with either Smart or Globe," a telecom analyst, who declined to be named, said.

The analyst added that building a nationwide network of the quality of Smart or Globe would cost at least $500 million.

Lloyd Ong, a telecom analyst at Barclays Capital in Singapore, said adding Digitel to PLDT’s existing cellular units Smart and Pilipino Telephone Corp would give the group more bandwidth capability.

It would also solve a potential roaming service problem facing Digitel.

"If they come in as a stand-alone, then they would have a problem – Globe and Smart may not readily agree to sign a roaming service agreement," Ong said, citing the reluctance of existing operators in Thailand to sign such agreements with new market players.

Whoever ends up gaining control of PLDT however will have to contend with the problem of Piltel, a perennial loss maker for the group, the analysts said.

"I really do not know what the Gokongweis might do with it but the best strategy would be to try to sell it...if it remains it will ruin the financial health of the group," said Vistan.

Piltel showed a slight improvement in its first quarter results trimming its net loss but it is still having to spend heavily on asset writedowns and marketing costs to build up its slim subscriber base.