Competition remains very robust - MVP

MANILA, Philippines - The Philippine Long Distance Telephone Co. (PLDT) group expects competition within the local telecommunications industry to remain “very robust,” even after the country’s largest telco acquired control of competitor Digital Telecommunications Phils. Inc. (Digitel).

PLDT chairman Manuel V. Pangilinan said the other operators, including the new entrants, are formidable and well-funded, apparently referring to rival Globe Telecom, a subsidiary of the Ayala group, and telco industry newcomer San Miguel Corp. (SMC).

For a number of years now, PLDT wholly owned subsidiary Smart Communications Inc. and Globe have suffered from reduced yields from their cellular operations, brought about by the unlimited offerings pioneered by Digitel’s Sun Cellular. While the number of text messages and cellular voice call minutes have been increasing, the growth has been tempered by the increase in the number of subscribers who avail themselves of text/voice call unlimited promos.

Pangilinan stressed that they intend to keep the mobile operations of Digitel separate and intact, instead of making Sun Cellular a Smart brand (i.e. Talk n Text, Smart Buddy, and Red Mobile). “We will maintain and capitalize on Sun Cellular’s operations and significant brand equity to continue serving specific segments of the market. We are maintaining Sun Cellular’s unlimited offerings,” he said coming not only from within, but also from over-the-top players like Facebook and Skype.

PLDT’s top executive said they have undertaken to government and the boards of both PLDT and Digitel that they will maintain Sun’s bucket pricing and that there will be continued competition within the industry.

Responding to concerns about the impact of the acquisition on competition in the telco industry, Pangilinan said there has been a shift in the view on how to regulate the telco sector. “Even in the United States, they are now encouraging consolidation. The increasing investment requirements will need scale,” he pointed out.

He added that PLDT will review the capital expenditure requirements of Digitel and revise the PLDT group’s capex budget accordingly, once the transaction has been finalized.

PLDT has acquired 51.55 percent of Digitel’s common shares from JG Summit Holdings. It hopes to acquire the remaining 48.45 percent from the minority shareholders via a tender offer. The 51.55 percent stake in Digitel, zero-coupon bonds issued by Digitel convertible into Digitel shares by June 30, and advances of P34.1 billion made by JGS to Digitel and its subsidiaries total P69.2 billion.

Assuming all Digitel minority shareholders sell their shares to PLDT, the total transaction consideration would amount to P74.1 billion.

News about the transaction brought both good and bad news to PLDT and Digitel’s competitors. While this could mean that Sun Cellular’s unlimited offerings which changed the dynamics of the telco business could be put under control, it also meant that the PLDT group, particularly Smart, has become a much stronger competitor.

SMC president Ramon Ang told the STAR that “I think it’s good for us and Globe.”

He also said in an interview that SMC is now in full-swing to build a brand new mobile broadband network that will be robust and reliable. “Our network will address voice and data capacity, which we all know are very much congested resulting in rampant dropped calls and slow data speeds. Konting tiis na lang (Be a little more patient), our services will soon make a huge difference,” he said.

Industry sources meanwhile said SMC is strongly committed to offer the Filipino consumer a robust and reliable telecommunications alternative to the existing duopoly.

 “By eliminating the third player, it does not follow that the Filipino consumer will have no other choice. In the near-term, we expect competition to defend its market position and healthy margins by scaling down on its unlimited offerings which have ‘minimally’ eroded the existing telco’s 60 to 65 percent EBITDA margins,” a source said.

The source added that SMC is unlikely to cooperate with the two existing players and that these margins are still way above other global and regional operators who only enjoy 30 to 35 percent cash flow margins.

Meanwhile, Globe Telecom president Ernest Cu said that the PLDT and Digitel merger will not fundamentally change their strategy of delivering superior, relevant services to their customers and of building on the momentum that has been created since the second half of 2010.

Cu added that Globe is ready to compete and to defend and grow its market share. ‘This industry has always been intensely competitive, and we have been a strong challenger to a dominant incumbent all this time. We will continue to focus on delivering relevant products to our retail and corporate customers, providing differentiated customer service, and enhancing our network to deliver the best experience possible to our subscribers,” he stressed.

The combined share of PLDT and Digitel of total consumer spend for telecommunications as of last year is about 66 to 67 percent of total.