Piltel income up 39% to P7.9B in first 9 months

Pilipino Telephone Corp. (Piltel) registered a 39-percent growth in its net income for the first nine months of 2008 to P7.9 billion, from P5.7 billion in the same period last year.

Core net income, net of exceptional items, was up 20 percent to P7.86 billion during the nine-month period from P6.56 billion recorded in the same period in 2007.

The company’s board of directors approved, subject to certain conditions, a change in the revenue-sharing arrangement between Piltel and its parent Smart Communications, from the current 80-20 split in favor of Piltel to a 70-30 ratio, still in favor of Piltel.

Since the launch of the Talk ’N Text mobile service brand in 2000, Piltel has compensated Smart for the use of the latter’s network by way of a revenue-sharing agreement. Starting with a 50-50 revenue share, the arrangement was amended in 2004 to the current 80-20 ratio, having taken into consideration declining network and operating costs per subscriber derived from improvements in productivity and technology.

Company officials explained that while Piltel’s service revenues have continued to grow over the years, the advent of “bucket-price” packages in 2006 and their growing popularity since then have altered Piltel’s revenue mix, resulting in reduced yields per SMS and minute.

This shift, coupled with increased costs arising from network expansion and upgrades to support a much larger subscriber base, has resulted in Smart’s inability to recover its related costs to service Piltel’s growing subscriber base with its 20- percent share of Piltel’s revenues, they added.

The revised revenue share ratio is expected to allow Smart to substantially recover its costs while providing both companies with a more equitable revenue sharing arrangement in the context of the changed market circumstances.

In this connection, the Piltel board authorized the engagement of an independent advisor to validate the bases of and the amendment to a 70-30 revenue sharing ratio. Subject to said consultant’s confirmation that the amendment is fair and reasonable under the given circumstances, the amendment will be made effective to Nov. 1, 2008. The arrangement will also be subject to a review every two years to test the fairness and relevance of the revenue sharing ratio between Piltel and Smart.

Piltel’s board also approved a share buyback program of up to 58 million shares, representing approximately 0.5 percent of Piltel’s total outstanding common shares.

Officials explained that the board took into account the current environment which presents a unique buying opportunity while sending a strong signal about the company’s confidence in Piltel’s higher intrinsic value vis-à-vis what the market imputes to it.

“The approved share buyback program allows us to take advantage of the current weakness and volatility in the equities market which have adversely affected Piltel’s share price. The buyback will utilize Piltel’s unrestricted retained earnings and will be done direct from the open market through the trading facilities of the stock exchange,” Piltel chairman Manuel Pangilinan said.

He added the buyback also demonstrates their confidence in the continued strength of Piltel’s business, despite the slight change in the revenue sharing arrangement, and is not expected to affect dividend payments to their common shareholders

Piltel is the Philippines’ third largest cellular operator. Talk ‘N Text recorded approximately 806,000 net subscriber additions in the third quarter of 2008 to end the period with 13.3 million subscribers. Net activations for the first nine months of 2008 reached 3.59 million compared with 1.37 million for the same period in 2007.

Service revenues grew 26 percent to P12.57 billion in 2008 from P10 billion in 2007, while data revenues increased 31 percent, from P6.33 billion last year to P8.32 billion this year as bucket-priced text messaging revenues grew 84 percent from last year’s level, partly offset by the decrease in standard text messaging revenues. Data revenues make up 66 percent of GSM service revenues.

Voice revenues were up as well by 16 percent, from P3.67 billion last year to P4.25 billion in 2008 as a result of higher revenues on both local and international calls.

“A global recession is undoubtedly underway and we will not be immune to its effects. While our third quarter results were still robust, we are beginning to see some softness in subscriber additions and usage. Rest assured that we are taking measures to ensure that Piltel will weather the storm and that we will continue to pay the dividends that we have recently instituted,” Piltel president and CEO Napoleon Nazareno said.