Cellular business softening

[silver_corolla]

As we have said in a recent column, the cellular-phone business is rapidly maturing, PLDT Smart now has 20.8 million subscribers; Globe has 13.62 million, for a total of 34.42 million. Sun Cellular is estimated to have two million. So the cellular population is 36.42 million, 42.8 percent of 85 million Filipinos. With penetration approaching 50 percent, enrollment is slowing down.

That is why the Ayalas in Globe Telecom have accelerated the declaration of cash dividends from their cellular subsidiary to recover equity investments in the company. Globe has already declared some P30 billion over the years as cash dividends. Globe has about P48 billion in capital, leaving P18 billion still to be recovered as cash dividends in the coming years.

Getting the P18 billion may take longer than the release of the first P30 billion.

If you annualize Globe’s profits in the first two quarters of 2005, whole year net income may skid to just P10 billion, down significantly from the record P11.25 billion made in 2004. Ayala Corp. received P4.6 billion in cash dividends from Globe last year.

Globe Telecom’s net profits fell to a worrisome P1.2 billion in the second quarter from P3.02 billion in the first three months of 2005 and P4.2 billion in the second quarter of 2004. The drop was 60.2 percent from the first quarter, and 71.4 percent from the second quarter of last year.

On a first-semester basis, the profit decline was also dramatic, by 38 percent to P4.2 billion this year from P6.8 billion in the first half of 2004.

Globe Telecom president and CEO Gerardo Ablaza blames higher taxes (which grew four-fold to P1.2 billion), higher operating expenses (by 21 percent), and slower revenues that failed to keep pace with growth in costs and expenses.

The number of Globe’s wireless subscribers increased by 671,000 from the first quarter to 13.6 million. The bulk or 65 percent (433,000) of that came from the revitalized low-end TM brand, which was heavily promoted by Globe.

Ablaza has vowed to "work harder to improve short-term operating performance" even as the company pursues "a sound, long-term growth strategy."

The softening also hit PLDT and its cellular subsidiary, Smart. Only 537,000 new subscribers came in during the second quarter, down by 49 percent from the more than one million in the first quarter 2005 and by 68 percent from the 1.7 million activations in the second quarter of 2004.

This is good for cellular users. To attract more users, Smart and Globe will have to lower pricing further, improve the quality of their service, and add more value to their products, perhaps, even give them away. This explains why Globe beginning this August has offered unlimited texting practically for free.

Smart is expected to follow suit.

In effect, Globe and Smart will be going back to what they were doing before in the first place—offer free texting and charge for voice calls. They will make a little money but the volume will be so huge as to create a financially sound business. Globe and Smart will also encourage users to make use of or buy content like ring tones (a $1 billion business abroad), news and views in a flash and music (Apple Computer started the genre).

This may also explain why PLDT chair Manny Pangilinan keeps being rumored as buying this and that television channel. Last time, ABS-CBN denied it was for sale. Channel 7 said it will sell out provided the price is right (is P30 billion the right price?).

Channels 9 and 13 have been on the auction block but paying their unions will cost the buyer a fortune.

As for improving service, Globe is spending P18 billion this year to put up more cell sites. The company has nearly doubled its cell sites to 4,555 in just 18 months, and expanded coverage to 96 percent of towns in the country. That’s a terrific commitment in infrastructure for a conglomerate to which every centavo—mind you, every centavo—counts.

PLDT-Smart claims to have 5,600 base stations covering 98 percent of the country’s population. Did you know that there are certain towns in the Philippines, near urban areas, without cell signals? One example is Tanay town. My good friend Erap cannot use Globe because it has no signal in Tanay. He uses Smart whose signal can be erratic. (Maybe, it is not the signal but the "Hello, Garci" tapes).

PLDT revenues rose modestly by 3 percent to P59.52 billion in the first half. Net income increased 35 percent to P16.8 billion from P12.43 billion.

On the other hand, Globe Telecom first half revenues increased 1 percent to P23.59 billion from P23.43 billion. Net income declined 38 percent to P4.2 billion from P6.8 billion.

[badkuk]

hmmm...i think it depends where you are. dito expected naman na we're reaching saturation point...pero demand in china imho should be big. 2 billion and growing, with more and more disposable income

[luckytruck]

well, it was bound to slow down sometime. now that they have everyone in the Philippines holding on to a cell phone, i guess the name of the game is to make him use it more so that they make more money.

i would like to see them promote data and video calling. i actually prefer reading my emails via my palm/t610/gprs setup rather than get those annoying text messages offering ringtones, feel good messages and the like.

andy

[Psylocke]

OK how about offering cheaper voice calls!

[mrpink]

i have a feeling saturated na yung market .. 50% penetration is very high .. given that more than 50% live below the poverty line ..

[Tacoma_34]

Its true that Philippine cellular market is almost in its saturation point. Tapos mostly prepaid pa.

[ranod55]

co'z a numbers of cellular company are in the market and every firm have special promotions and a reasonable price with some added or extra calls.that's business you have to seek every possibke way to win! not like the old days which PLDT is control and monopolize the telephone system... benefit our people to choose which is the best and cheaper in terms of service of communications...

[BlueBimmer]

of course naman, di naman araw araw pasko e hehe

[mazdamazda]

I don't think that the saturation point is around 50%. Given that many users have a 2nd line (like me).

[stinkaboy]

no wonder talaga na dumadami na subscriber ng smart, kuripot talga kasi ang globe when it comes to free texts/calls.