S&P sees more aggressive pricing, promos by 3 biggest telcos

MANILA, Philippines - International credit rating agency Standard and Poor’s (S&P) expects the three biggest local telecommunications players – Philippine Long Distance Telephone Co. (PLDT), Globe Telecom and Digital Telecommunications Phils. Inc. (Digitel) – to continue pursuing aggressive pricing and promotions to build market shares.

“Nevertheless, PLDT’s plan to acquire Digitel at an estimated $2.3 billion in enterprise value might somewhat ease competition. The proposed acquisition is subject to regulatory approvals; shareholders have already approved it. Overall, regulatory issues remain a moderate credit risk for the industry,” S&P said.

S&P’s said the rating on PLDT (foreign currency, BB+/stable; ASEAN regional scale, axBBB+) reflects the country, macroeconomic, and transfer and convertibility of the Philippines. “The rating also reflects the high price competition in the domestic market with slowing cellular subscriber growth. PLDT’s leading position in the domestic market, diversified services, and solid cash flow measures temper these weaknesses. Our ‘BB+’ T&X assessment for the Philippines constrains the ratings on PLDT,” it noted.

It explained that subscriber growth in the Philippine cellular market has slowed, with cellular penetration, including multiple SIM ownership, of more than 90 percent. “We expect that future growth will continue to come from the mass-market segments, particularly from the outskirts of Metro Manila, which have lower average revenue per user,” it said.

S&P also noted that it expects PLDT to retain its position as the leading telco service provider in the Philippines. As of March 31, 2011, the company has a subscriber base of about 46.7 million in the wireless market, 1.84 million in the fixed line segment, and 2.1 million in the broadband segment. This resulted in a significant 55- to 60-percent subscriber market share across all segments.

It said the acquisition of Digitel will further strengthen PLDT’s competitive position and broadband growth opportunities.

In its analysis, S&P also pointed out that PLDT’s operating performance deteriorated marginally in 2010 with a 2.4-percent decline in revenue and 150 basis points reduction in its strong EBITDA margins to 61.6 percent. It noted that the weaker operating performance is due to the increasing use of unlimited offers and fixed rate (bucket) plans, intense priced-based competition, multiple SIM card ownership, appre-ciation of the Philippine peso, and greater use of social networking websites for communication.

“We expect these market attributes to continue to dampen operating performance. But the effects will be offset by our projections of a moderate Philippine economic growth of five to 5.5 percent annually over the next three years and increasing demand for broadband,” it said.