NEC declares Digitel in default

Just a week after its failed bid to acquire the controlling interest in Philippine Long Distance Telephone Co. (PLDT), the Gokongwei group once again found itself faced with a dilemma, this time after Japan’s NEC Corp. declared Digital Telecommunications Phils. Inc. (Digitel) in default and demanded the immediate payment of around $238 million (roughly P12 billion).

Digitel on Oct. 8 received a letter from NEC declaring the former in default of certain provisions of the supply contract dated July 8, 1999 between the two companies covering Digitel’s telephone project.

A Digitel spokesperson, however, said this would have no effect on Digitel’s liabilities to bank since there is no cross default.

Digitel is the wireline telephone company of the Gokongwei group and is considered the second largest landline telephone firm in the country, next only to PLDT. Its area of coverage is mostly in Luzon. Before the end of the year, Digitel hopes to start commercial operations of its cellular mobile telephone system (CMTS).

As a result of the notice of default, NEC had accelerated the payment date of the total contract value and demanded the payment of the total principal amount of $220.44 million together with accrued interest of $14.58 million, and overdue interest of $1.95 million.

The STAR learned that as early as last month, top NEC officials even went to the Philippines, precisely to look into the matter and to find out why NEC lost to Alcatel in its bid to supply Digitel’s mobile telephone system project requirements.

But in his letter to the Securities and Exchange Commission, Digitel assistant corporate secretary William Pamintuan said they will vigorously contest the notice of default and pursue all legal options to resolve the issues between the parties.

Pamintuan explained that the notice of default was issued after Digitel gave NEC a letter last Oct. 3, citing material violations of the term and conditions of the supply contract by NEC which include among others the delay in the delivery of the contracted subscriber lines, the ‘intermittent and unreliable performance of the wireless local loop system,’ the failure to post the performance bond, and failure to turnover certain permit clearances and other government requirements and demanding that the same be rectified within five days from receipt of the letter.

He added that the notice was given after the parties failed to come to an agreement to resolve their respective issues in relation to the said supply contract.

The Digitel official explained that Digitel had stopped paying the last three installment payments that fell due for both principal and interest amounting to $51.92 million covering the period Oct. 2001 to Oct. 2002 due to NEC’s violation of the supply contract "which remained unremedied to this date."

Digitel reported a 1,423 percent increase in its net income last year to P66.9 million from only P4.7 million a year ago. Operating revenues also grew 35 percent from P4.8 billion in 2000 to P6.5 billion last year.

As of end-2001, Digitel had 403, 000 subscribers, 10 percent more than the previous year’s 365,000 subscribers. It is now servicing 271 towns and cities in Luzon through 674 regional and local exchanges.

The company’s presence in the United States also allowed it to enter into agreements with various US-based operators.

This, in turn, jacked up the volume of traffic between Digitel and its foreign correspondents, booting inter-carrier revenue by 195 percent to more than P1.7 billion in 2001 from P597 million in 2000.