PLDT reports 6% profit drop to P10.7B in first quarter

MANILA, Philippines - Telecommunications leader Philippine Long Distance Telephone Co. (PLDT) suffered a six percent drop in its reported net income, or from P11.4 billion in the first quarter of last year to P10.7 billion in the same period this year, due to lower net foreign exchange and derivative gains.

However, core net income, net of exceptional items, was one percent higher at P10.6 billion from P10.5 billion in 2010.

“You can conclude from our recent move in the acquisition space (PLDT’s acquisition of a 51 percent stake in Gokongwei-owned Digitel) that we are painfully aware of the revenue slowdown that is evident in this first quarter of 2011. And while management has done a good job of controlling expenses in order to protect margins, there is only so much can be done without affecting operations. We therefore expect – though it is much too early to quantify – that the acquisition of Digitel will provide benefits to PLDT and its shareholders in this respect,” PLDT chairman Manuel V. Pangilinan said.

He added that it will be difficult to provide guidance at this time given the potential significant impact that the closing of the Digitel transaction will have on PLDT’s results.

“Beyond the commercial aspects of the transaction, however, we have stressed that the combination of PLDT and Digitel is geared towards enhancing consumer welfare even if the industry structure were to be altered. We expect the transaction to benefit the general public through improved affordability and higher levels of service quality and coverage,” he said.

He added that they plan to keep Digitel a separate entity and continue “unlimited” types of offerings so as not to deprive Filipinos of the affordable services that they require.

“We reiterate that we see no reason why the telecommunications industry will not remain just as competitive as it is today, given the benefit of free entry of new players and the high level ofcompetence and financial resources of present and future players. We believe that the regulator and government will adhere to the principle of protecting the consumer – rather than protecting rivals – in assessing the merits of the Digitel transaction,” Pangilinan stressed.

“We simply need to change the game.”

Pangilinan, however, said he expects revenues to be four percent lower based on the first quarter results.

“We affirm our guidance for EBITDA (earnings before interests, taxes, depreciation and amortization) being flattish. P10.6 billion is actually running slightly ahead of the P40.5-billion guidance for the full year,” he added.

Pangilinan also pointed out that it is becoming clear to them that the legacy businesses across the board (voice, SMS and fixed line) are reaching their peak. “Cellular penetration rate is more than 90 percent already. Growth in legacy platforms are reaching saturation,” he said,

PLDT president and CEO Napoleon Nazareno said a closer look at the underlying revenue mix shows the ongoing transition of revenue streams with the lower traditional sources being replaced by the growth of new revenue streams.

Consolidated service revenues decreased four percent to P34.6 billion, reflecting the combined effects of an eight percent increase in combined fixed and wireless broadband and Internet revenues, with DSL revenues higher by 12 percent and wireless broadband revenues up by five percent (including revenues from mobile Internet); a three percent increase in ICT revenues; a five percent decrease in cellular voice revenues; a two percent decline in revenues from fixed data and other network services to third parties; a two percent reduction in cellular data revenues; and a 10 percent decrease in ILD, NLD and LEC revenues.

Nazareno added that their service revenues were also impacted by the strengthening of the peso during the year which resulted in reduced service revenues of P484 million, as well as the sale of their satellite business at the end of the first quarter of 2010.

Group EBITDA was lower by one percent at P21 billion as expenses were tightly managed such that the decline in EBITDA was lower than the decline in revenues. Accordingly, EBITDA margin increased to 61 percent in the first quarter of 2011, from 59 percent in the same period in 2010.

Wireless EBITDA margin improved to 64 percent in the first quarter of 2011, up from 61 percent in the first quarter of 2010.

Consolidated capital expenditures for the period amounted to P3.1 billion in the first quarter this year.

Nazareno also reported that wireless service revenues dipped four percent to P22.8 billion from P23.7 billion. Excluding the impact of the peso appreciation, wireless service revenues for the first three months of 2011 would have been higher by P300 million.

Meanwhile, cellular subsidiary Smart Communications continued to lead the industry in terms of both revenues and subscribers. Wireless EBITDA for the first three months grew one percent to P14.5 billion as lower revenues were offset by a 12 percent decline in cash operating expenses.

EBITDA margin likewise improved to 64 percent in the first quarter of 2011 from 61 percent in the same period in 2010 and 63 percent for the full year 2010 as a result of a proactive management of expenses.

The PLDT Group’s total cellular subscriber base as of March 31, 2011 stood at 46.6 million. Smart Buddy recorded net additions of 500,000 subscribers to end with 25.7 million subscribers while Talk ‘N Text added 400,000 subscribers to end with 19.4 million subscribers. Red Mobile, the brand owned by Smart subsidiary, CURE, had about 1.1 million subscribers at the end of the period, having added 100,000 new subscribers.

Cellular voice revenues declined five percent to P10 billion, resulting from lower revenues from international services and domestic outbound call volumes. Cellular data revenues fell two percent to P10.3 billion, with text volumes declining four percent.