PLDT 9-month profit slips 6% to P28.7-B

MANILA, Philippines (UPDATED) – Philippines Long Distance Telephone Co. (PLDT), the country’s largest telecommunications company, reported a 6% decline in its 9-month earnings as intense competition ate into its margins.

PLDT, owned by Hong Kong’s First Pacific Co. Ltd., Japan’s NTT Communications and NTT DoCoMo, said its net income in January to September was P28.7 billion versus P30.6 billion in the same period of 2011.

Core net income, excluding extraordinary items like foreign exchange gains, fell by a faster 8% to P28 billion.

What happened?

Competition has heated up and PLDT is still smarting from rival Globe Telecom Inc.’s 2010 decision to offer unlimited voice services, which seems to have driven both companies to lower their prices.

“First we followed on unli-text which had a lesser negative impact to us. But some time in the late 2010, our competitor, the number two player Globe went down into the unlimited voice and therefore it compelled us to follow on the third quarter of last year and go into the unli-voice space,” said PLDT and Smart President Napoleon Nazareno at a press briefing on November 6.   

Nazareno explained that in the race to offer the best prices PLDT began getting less revenue from the same users. As Rappler noted in September, average revenue per user (ARPU) or how much the telco makes from each customer has been steadily decreasing in the prepaid market, among those who would avail of unlimited promos.  

PLDT Chairman Manuel V. Pangilinan admitted, “There was anticipation when we acquired Sun that the competition would go down. In fact ARPU continues to go down… it hasn’t translated into increased revenues.”

“The bucket pricing and the unlimited pricing became more popular and therefore people [started] shifting from the higher ARPU segment down to the lower, more affordable segment. That’s what happened. That’s why the revenues went down in the second half,” said Nazareno.

The reason the move is still hurting PLDT today is not only because they make less from customers but also because the company felt the need to increase spending on marketing to lock in the customers it has and attract new ones.  

“In order to defend our position we decided to increase our expenditures on [advertising and promotions] in the first half of this year, including in the third quarter of this year also. And also increase the subsidies in order to defend the market share in area where we were challenged and threatened. So that’s the story of this year,” said Nazareno.

Looking ahead

Pangilinan hopes the competitive situation will improve next year but he isn’t holding his breath.

“I think we have some comfort in saying in terms of the financial operating results it has stabilized. But will there be further more intense pressure in 2013? We don’t know,” he said.

“We just have to assume that competition will still be there for the balance of the year and even 2013. If it does stabilize to a degree I think that will help both of us,” he added.

Given the current environment, Pangilinan is honest that the company may need to continue spending next year to defend its market share. “We had planned on lower [capital expenditure] in 2013 but if there is going to be a decline I would expect it to be a modest one,” he said.

As of the third quarter of this year, the company has already spent P19.3 billion of a planned P38 billion capital expenditure.

Meanwhile, Pangilinan kept the core profit forecast for the year at P37 billion.

He explained that the company would continue to focus on increasing average user revenues, improving bucket plans, and beefing up broadband as the “industry moves more and more into data.” – Rappler.com