THE largest digital telecommunications-services provider in the Philippines might have hit rock bottom this year, with its net profits for the first quarter of 2016 declining by a third on the back of an eroding legacy business.
Still, the chief executive of the listed company remains optimistic of the growth prospects in about three years, thanks to the steady increase in data revenues.
The net income of only P6.2 billion in the first three months of 2016, a 34-percent drop, from the P9.4 billion reported the year prior, was not much of a surprise for PLDT Inc., as it projects to continue to see its bottom-line slipping through 2018.
Core net income—which strips off one-time gains and losses—was at P7.2 billion during the three-month period, or 22 percent down, from P9.3 billion in the first quarter of 2015.
The culprit for this static decline is the eroding legacy business, which is mainly composed of voice, text, and international and national long-distance verticals.
While consolidated revenues for the period were up by a percentage point at P42.8 billion, driven by the 22-percent growth in Internet-service revenues, cellular domestic voice, text and long-distance revenues dropped by P2.5 billion.
This negated largely the gains in data revenues.
Excluding revenues from international and national long distance services, amounting to P4.4 billion, consolidated service revenues would have risen by 3 percent year-on-year to P36.2 billion.
“I’d like to think that we have hit bottom this year, 2016. Otherwise, we are not doing our job. We’ll see. There are some encouraging signs, but three to four months do not make a year. We just have to wait, and we just have to keep on pushing,” Manuel V. Pangilinan, who chairs the telco titan, said in a spot interview on Tuesday.
The telco titan is currently in the process of shifting its business model from legacy to digital, as demand for such services continues to surge with the advancements of technology.
The shift to data is evident in both fixed and wireless businesses, but the transition in the former started much earlier, in the early 2000s. The tipping point came in 2011 and 2012, when the fixed-line business started on its current growth path, riding on the steady growth of consumer and enterprise data and broadband, which crossed the 50-percent mark in its share of total fixed revenues in 2013.
Currently, data account for a third of the company’s revenue mix. Pangilinan said his group hopes such a vertical will increase its contribution to about 45 percent to the consolidated revenues.
“It is likely for the wireless side to return to a significant profit track that it will have to achieve a 40 percent, 45-percent concentration of data in terms of its total consolidated revenues,” he said.
Pangilinan added that his company will have to continue what it does—pouring in large sums of money in to its digital thrust—and wait for the results. Positive outcomes, he said, will likely come in three years.
“Our results for the first quarter confirm our view that the digital pivot will be a difficult and complicated process,” he added.
“That said, PLDT has posted strong gains in data, broadband and digital services, compensating in large part to the continued declines in long distance and text revenues. But competition remains intense and the shift to lower-margin revenues continues.”
Thus, the company will maintain its core-income guidance of P28 billion for the year.
“Our experience in the fixed-line business shows how growth can be restored by progressively building up our data and broadband revenues to critical mass. We aim to achieve that same critical mass in the wireless business by accelerating data adoption and usage, even at the price of renewed deceleration of our legacy revenues,” Pangilinan said. To that end, he added, his group “is investing heavily in our network to deliver the best quality service, working to make it much easier” for customer to use its services. He said the company is propagating smartphones and Web-connected devices for the home, tapping internal innovation and forging partnerships with global tech leaders to deliver compelling digital services.
The telco is spending roughly P43 billion in capital this year. As of end-March, the telco giant has already spent a record P14.6 billion on increasing the coverage, speed, capacity and reliability of its fixed line and mobile networks.
“Our significantly higher capital expenditures in the first quarter of 2016 underscores the seriousness of our efforts to strengthen our fixed and mobile networks as the first leg, indeed, the foundation of our digital pivot,” Pangilinan said.
He added: “Our subscribers will progressively feel the impact of this network transformation over the next several quarters. But this early, various network improvements are already enabling us to grow our data revenues more rapidly, and to position PLDT as the communications company uniquely able to give customers the total digital experience.”