Telcos Threatened

Competition, weak peso threaten telcos
Inquirer News Service

Published on Page B8 of the September 5, 2005 issue of the Philippine Daily Inquirer

SLOWING subscriber growth, increasing competition from an aggressive third player and a volatile foreign exchange are clouding the prospects of the two leading Philippine telecommunications companies, according to Standard & Poor's.

The New York-based rating agency said that strengths of PLDT and Globe were being offset by "slowing domestic subscriber growth and heightened competition."

As of end-June, Globe has 13.6 million mobile subscribers while PLDT's Smart Communications Inc. and Pilipino Telephone Corp. have 20.8 million wireless customers.

PLDT has 2.1 million fixed-line subscribers while Globe's Innove Communications Inc. has about 300,000.

PLDT is more vulnerable to exchange rate volatility because 98 percent of its $1.9- billion debt is denominated in foreign currencies, according to S&P credit analyst Yasmin Wirjawan.

Still, S&P pointed out that both phone carriers have strong free cash to cover their short-term debts.

Globe has P12 billion ($214 million) in free cash, more than enough to cover short-term debts of P9 billion as of end-June.

"Globe's stand-alone credit quality is likely to improve in the medium term if the company continues to strengthen its credit measures while maintaining its solid market position," said Wirjawan.

S&P said that while competition has intensified due to the entry of Digital Telecommunications Ltd., it said that Digitel was unlikely to pose a "significant competitive threat" to PLDT or Globe in the near to medium term.

Still, it said pricing pressures have emerged as existing operators pursue aggressive pricing and promotions to build market share.