Globe, PLDT post lower H1 profits

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The largest phone firms in the Philippines book profit drops as analysts question if their industry can remain profitable this year

MANILA, Philippines – The country’s 2 biggest phone firms saw profit declines in the first 6 months of 2012 mainly due to huge expenses undertaken during the period.

Top player Philippine Long Distance Telephone Co reported an 8% drop in net income to P19.5 billion in the first half from P21.3 billion last year. The slip was attributed to the cost of higher operating expenses incurred to run a manpower reduction program after PLDT acquired Digital Telecommunications Philippines  Inc (Digitel) as well as steep marketing expenses.

Second-ranked Globe Telecom Inc’s profit fell 10% to P5 billion from P5.5 billion during the same period last year. The decline was attributed to the cost of investments to modernize the company’s network infrastructure.

Both PLDT and Globe are upgrading their networks in anticipation of increased demand for mobile services, particularly wireless broadband.

Globe is spending US$700 million to modernize its network, while PLDT is spending roughly $1.6 billion, or P67 billion, for a similar network upgrade.
Both companies realized a hike in service revenues, with PLDT enjoying a 12% increase to P84.7 billion and Globe seeing a 6% increase to P40.8 billion.

However the surging profits were not enough to make up for the increasing operating expenses taken on by the firms during the period. PLDT’s operating expenses shot up 30% year-on-year to P63.24 billion, while Globe’s rose 13% to P23.1 billion.

Profitability questioned

The lower profits come as analysts question the profitability of Philippine telecommunications companies due to a nearly saturated market.

“We feel like the telcos are [in] a mature industry. Right now they’re… engaging into television and media broadcast. We feel cellphone growth is stagnating unless they can open some new market,” COL Financial Group Inc’s head of Customer Service & Sales Juanis G. Barredo told Rappler earlier.

COL Financial Group analysts did not include telecommunications firms in their model growth portfolio for the year. They questioned if the telecommunications market was nearing saturation since technology cycles pressure consumer to buy new phones but not necessarily new sim cards.
In a statement, PLDT Chairman Manuel V. Pangilinan noted “earnings pressure from the competitive state of the local industry and continuing pressure on margins.”

Meanwhile, Globe said it continued to post earnings despite “peaking penetration levels driven in part by multi-SIM usage and subscribers’ preference for services offering the best value for their money.” –

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