Move to lay off 500 operators good for PLDT, says analyst

The decision of telecommunications giant Philippine Long Distance Telephone Co. (PLDT) to lay off 500 provincial telephone operators by the end of the month may prove beneficial for the company over the medium to long term, despite the near-term uncertainties posed by the planned strike of PLDT’s union.

Investment analyst UBS Warburg in a report noted that PLDT management’s decision to lay off workers is consistent with its cost rationalization efforts. It pointed out that operator services have declined through the years with the advent of direct dialing, texting, e-mail, and other alternative means of communications.

"With PLDT’s fixed line revenues flat to declining, we think that containing costs is imperative," UBS Warburg said.

PLDT officials said the decline in the fixed line business is a worldwide trend, and has not spared even the most powerful telecommunications companies in the world.

In fact, France Telecom, in order to improve operational performance, has launched a program that will include cutting 22,000 jobs or 15.7 percent of the workforce in the next three years through early retirements and voluntary departures, issuing more stocks, and rescheduling debt payments. The company described the move as part of its bid to reassert its control over its own future.

UBS Warburg said that while the impact of a strike on operations is hard to ascertain at this time, a strike is unlikely to extend beyond six months, adding that if no agreement is reached, government may assume jurisdiction and issue a return-to-work order given the vital function PLDT performs.

PLDT’s union claims that its members have voted in favor of going on strike due to the company’s plan to displace 500 workers. The PLDT union consists of 6,700 to 8,000 members representing 53 to 63 percent of the company’s 12,584 employees. However, only 4,235 members cast their vote of which 3,826 favored a strike.

PLDT’s union claims that it has the necessary majority of its 6,700 members while sources from management say that the actual membership is 8,000 and that more than half did not support the strike vote.

UBS Warburg maintained its ‘buy’ rating for PLDT, noting that while there may be near-term uncertainties associated with a possible strike, PLDT’s action which is consistent with cost rationalization initiatives may prove to be beneficial in the medium to long term.

The group likewise maintained its DCF (discounted cash flow)-based fair value estimate of P405 per share for PLDT, which is based on a 20-percent discount to its fair value estimate due to prevailing shareholder issues. At present, PLDT shares are trading at P287.50 per share.