PLDT to consolidate its cellular business under Smart

MANILA, Philippines - Telecommunications leader Philippine Long Distance Telephone Co. (PLDT) is consolidating its cellular business under Smart Communications, in a bid to maximize revenue streams and eliminate any lingering regulatory issues relating to having two cellular wireless subsidiaries.

As part of the consolidation, Pilipino Telephone Inc. (Piltel) is selling its GSM cellular mobile fixed assets to parent Smart at net book value.

Piltel will also license the use by Smart of the former’s Talk ‘N Text brand for which Smart will pay Piltel a lump sum royalty fee based on a percentage of projected net service revenues.

Piltel will also transfer its existing Talk ‘N Text subscriber base to Smart in consideration of a one-time payment equivalent to the subscriber acquisition cost which Smart would have incurred for the acquisition of its own subscribers.

Smart and Piltel had 20.9 million and 14.3 million subscribers, respectively, as of Dec. 31, 2008.

At the same time, Smart also expressed its intention to undertake a tender offer for shares of the common stock of Piltel held by minority shareholders.

Company officials said the terms, conditions and timing of said offer will be announced once they have been approved by the board of directors of Smart in consultation with independent financial advisors.  

PLDT officials explained that these arrangements, once completed and implemented, will serve to consolidate the PLDT Group’s cellular business under Smart, thereby maximizing revenue streams and eliminating any lingering regulatory issues relating to the traffic between the two companies.

Issues have been raised before as to whether or not the traffic between Smart and Piltel should be considered on-net or intra-network (one network) or off-net/inter-network. Industry rivals have said that being separate networks having separate franchises, any beneficial rates being given by Smart to Piltel and vice-versa should be extended to other mobile operators.

Piltel will be seeking shareholders and regulatory approvals for these new arrangements with Smart, as approved by Piltel’s and Smart’s board of directors.

It is expected that the proposed tender offer of Smart will provide an exit opportunity for Piltel’s minority shareholders, given the change in Piltel’s business direction.  

The three transactions are expected to be completed within the third quarter of 2009.

Piltel posted exceptional results last year, posting a net income of P11.3 billion, a 37 percent increase from the previous year’s P8.3 billion.

Core net income increased by 28 percent, from P8.8 billion in 2007 to P11.3 billion in 2008.

Earnings before interests, taxes, depreciation and amortization (EBITDA) increased by 30 percent to P16.3 billion for 2008.

The Piltel board has approved an increase in the number of common shares to be repurchased under the share buyback program by up to 25 million shares, representing around 0.2 percent of Piltel’s total outstanding common stock.