Continued diversification

05 May 2008

Best Emerging Markets Carrier
1. PLDT, Philippines
2. MobiLink, Pakistan
3. Telkomsel, Indonesia
4. Last year's winner: Bharti Airtel

Business scope: PSTN, DSL, mobile, mobile VAS, enterprise services, wholesale, BPO services.

Financial (2007): Revenue: 141.6b pesos ($3.4b), up 6%. Net profit: 36b pesos ($859m), up 2%

Like any other established carrier, PLDT is feeling the pangs of disruption on its fixed-line business and mobile businesses.

But as befits its status as the country's oldest telco - now in its 80th year - and its largest and most actively traded stock, PLDT's response reflects the nature of the local market.

First, the national economy has been on a roll, expanding on average 7% in recent years, which has helped drive demand in the nascent broadband market. From a small base, DSL and wireless broadband services doubled last year, with PLDT taking more than 70% of the market.

Mobile subsidiary Smart added 5.9 million mobile users, 55% higher than the increase the previous year, taking its customer numbers to 30 million and snaring 59% of the total market by revenue.

The carrier has also staked out a position in the outsourcing business, which is expected to grow at around 9% CAGR in the Philippines over the next few years. PLDT bought US outsourcing firm SPi two years ago, and its ICT business is now 7% of total service revenues.
PLDT has taken advantage of its high free cash flow - just under $1 billion last year - and the weakening dollar to shed US dollar-denominated debt and strengthen its balance sheet.

'We had another strong year, with pleasing growth in wireless, broadband and our ICT businesses,' said Ernesto Alberto, group head of customer sales and marketing.

'This year we expect broadband and wireless will be the biggest opportunities. We will continue to roll out DSL and wireless to meet demand for broadband, and we expect wireless penetration will reach 70%-75% in two or three years from today's 60%.'

Alberto said broadband penetration rates are still low, but the combination of falling prices of PCs and laptops and growing familiarity with the internet was driving Filipinos online - in particular those 'aspirational' families with relatives working abroad.

He said OFW (overseas Filipino worker) remittances, coupled with PLDT's headway in rolling out DSL and wireless broadband, would ensure high-speed data was a growth area in 2008.

One challenge would be to grow broadband at a rate faster than the decline in national and international trunk voice services. Another would be to manage costs and preserve margins in the face of likely recessionary pressures, Alberto said.

That especially holds true in the case of the BPO business, which made a loss of 94 million pesos ($2.2 million) despite the consolidation of the business around SPi.

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