New ETPI majority owners see profit turnaround in 2007

The new controlling owners of Eastern Telecommunications Phils. Inc (ETPI) have expressed confidence that the company will start posting a positive bottom line next year, as new funds are continuously invested into new technology to improve and expand its services.

ETPI president Eric Recto, who also heads ISM Communications which now owns 57.7 percent of ETPI, expects the latter to post earnings before interests, taxes, depreciation and amortization (EBITDA) of around P200 million this year. "By next year, we expect to start posting net income," he told The STAR.

ETPI recorded losses of about P157.31 million in 2005, on account of higher expenses and weak operating revenues. But last year’s losses were 47 percent lower than the previous year’s loss of P301.38 million.

Operating revenues in 2005 dropped to P544.16 million from P649.12 million in 2004. Its data and Internet business contributed the bulk of revenues at P494.26 million, followed by its voice and carrier businesses with P29.41 million and P20.49 million, respectively.

Recto said ETPI is investing in the next generation network or NGN, which promises to merge the transmission of data, voice, video and other media into a single network.

Other telecommunications companies like the Philippine Long Distance Telephone Co. (PLDT) are also migrating from traditional copper wire in telephone networks to NGN, which is expected to be the standard network infrastructure for the next 10 to 20 years.

ETPI’s parent firm ISM, a holding company controlled by former Trade Minister Roberto Ongpin, also controls Connectivity Unlimited Resources Enterprises (CURE) which was awarded a 3G license and frequency by the National Telecommunications Commission (NTC). But Recto emphasizes that CURE is not owned by ISM, though they have a common controlling shareholder in Ongpin.

Ashmore Investment Mgmt Ltd. of the United Kingdom, which also owns shares in ISM, is also investing about $10 million in CURE that will give the former a 40 percent stake in the 3G licensee, Recto told The STAR.

Aside from ETPI, ISM also controls PhilWeb, a publicly listed information technology company. PLDT, through its subsidiary ePLDT, earlier acquired a 20 percent stake in PhilWeb, which was enough to entitle ePLDT to three seats in the PhilWeb board.

Recto told The STAR that ETPI, PhilWeb, ISM, and CURE can pool their strengths to offer services "that will give other telcos a run for their money." ETPI’s strength, he emphasized, will continue to be on corporate clients, even as he pointed out that ETPI will concentrate on the provision of high-speed broadband Internet services and products.

ISM is hoping to further increase its stake in ETPI from 57.7 percent to 77.7 percent as it prepares to acquire the stakes of Smart Communications and the government.

Recto earlier revealed that the company is undertaking a rights offering that hopes to raise around P200 million for the acquisition of Smart’s 9.8 percent stake in ETPI and another 10.2 percent owned by government and being disposed of by the Privatization Management Office (PMO).

Another 20 percent of ETPI is still under sequestration but these could still not be disposed of by the Presidential Commission on Good Government (PCGG) unless the issue of ownership of these shares has been resolved.

ISM is still awaiting approval from the Securities and Exchange Commission for the proposed increase in ISM’s authorized capital stock to accommodate the additional shares that will be offered to existing shareholders under the rights offering.

Earlier, ISM shareholders approved a P300 million one-for-one stock rights offering to finance the company’s acquisition of additional shares in ETPI. Aside from the acquisition, proceeds from the rights offer will also be used to support operations or such other projects the company may embark on in the future.

ISM, the former Itogon Suyoc Mines Inc., recently increased its stake in ETPI to 57.7 percent after acquiring the 40 percent holdings of AGN Philippines Inc., the local subsidiary of the Australian group that used to control ETPI.

Sources say the 57.7 percent currently held by Ongpin’s group in ETPI still is shaky as it may not be enough to sway board decisions in ISM’s favor, especially those that require a two-thirds vote.

Recto, however, said in an interview that it makes sense for ISM to increase its stake in ETPI, considering that it already holds majority control. "After all, what will Smart do with a 9.8 percent stake. And the government, through the PMO, has already twice attempted to bid out its 10.2 percent stake in ETPI but there were no takers," he pointed out.

The value for the ETPI shares based on the last transaction, the price pegged by government for the sale of its stake, was at P100 million for every 10 percent stake. Thus, the combined holdings of Smart and government is estimated to cost around P200 million, Recto revealed.

But insiders say Smart is more than willing to divest of its 9.8 percent interest in ETPI and that talks with ISM are reportedly in the final stages. "We are now discussing the final prints of the deal. It’s part of the strategic objectives of Smart," the insider said.

According to the source, Smart realized that it had little use for its 9.8 percent ETPI stake which does not even entitle it to one board seat.

ISM started buying into ETPI when it initially acquired 17.7 percent through a share-swap agreement with Aerocom Investors and Managers Inc. Following the share swap agreement, ISM agreed on a private placement with strategic investors Ashmore, Boerstar Corp. and Araza Resources Inc. worth $8.2 million. ISM used the proceeds of the private placement to fund the acquisition of an additional 40 percent stake held by AGN Philippines.

ISM has said that five of its directors – Ongpin, Gregorio Araneta III, Craig Ehrlich, Scott Sproule, and Recto, a former finance undersecretary - have interests in the three companies.

ETPI is the oldest telephone company in the Philippines and was originally controlled by Cable and Wireless of UK. ISM, meanwhile, was a gold-producing company with mines in the municipalities of Itogon and Suyoc in Benguet province.