Profiling: Philippine Long Distance Company (PSE: TEL)

Philippine Long Distance Company (PSE: TEL, the “Company”) was engaged in wireless, fixed line, and business process outsourcing (BPO). On February 5, 2013, TEL sold its wholly owned subsidiary engaged in BPO, SPi Global, to Asia Outsourcing Gamma Limited (AOGL) a company controlled by CVC Capital Partners (CVC). TEL reinvested some of the proceeds from the sale by acquiring 20% interest in CVC effectively maintaining a small interest in the BPO business.

Below is TEL’s revenue breakdown in 2012:TEL1

Below are the subsidiaries under the wireless business classified by nature of business:TEL2

The Company’s cellular business provides 91% of the total revenues of the wireless business while the remainder was provided by other businesses. The Company claims to be the market leader in the cellular business with 68% market share. As of December 31, 2012, TEL has a total cellular subscriber base of 69 million which is a 10% increase from last year. The increase was mainly driven by the 7 million increase in Talk ‘N Text subscriber base or 39% increase from 2011 Talk ‘N text subscribers. Cellular revenue growth was driven by the full year recognition of DMPI’s operations and text messaging service. Text messaging revenues are driven by unlimited text services. With 11,577 cellular/mobile broadband base stations as at December 31, 2012, TEL’s network cover approximately 99% of all towns and municipalities in the Philippines covering 99% of the Philippine population.

TEL’s second most significant business is their fixed line business. The Company also claims to have 68% market share in the fixed line business. TEL’s fixed line business group primarily offers voice and data services. The Company’s revenues from voice are declining but growth in data services minimized the impact of the decline in fixed line business. The Company managed to present a 5% growth in the fixed line business but this is mainly due to the full year recognition of DMPI’s revenues in fixed line business.

Currently, the Company is upgrading their fixed line facilities to New Generation Network (NGN) which can deliver voice and data services using the same network. TEL expects the upgrade to be completed in 2015. NGN is a combination of optical fibre and copper wire network. Below is a simple illustration of a phone call made from Juan who is in Bacolod to Jenny who is in Manila through an NGN:TEL3

TEL’s new product Fibr is a Fibre-To-The-Home (FTTH) network architecture that extends optical fibre to the home of the subscriber (i.e. to Juan and Jenny based on the example above) instead of copper wire. The result will be a much faster internet connection and an infrastructure capable of catering cable TV services and high speed movie streaming on demand.

Although the fixed line business currently drags the earnings growth of TEL, the fixed line infrastructure offers an opportunity for TEL to exploit the growing demand of data services in the future.

Below are charts of TEL’s revenue and net income figures and growth since 2007:TEL4TEL5

Below are TEL’s subsidiaries:

TEL6 TEL7

Not in the table above, TEL’s interest in the multi-media industry is through MediaQuest Holdings, Inc. (MediaQuest). MediaQuest is a wholly owned investee company of PLDT Beneficial Trust Fund. PLDT Beneficial Trust Fund was created by TEL to pay the benefits under the PLDT Employees’ Benefit Plan. TEL initiated a position in MediaQuest by buying Philippine Depository Receipts (PDR) of MediaQuest. The PDR that represents the shares of MediaQuest were not yet issued which means TEL still has no ownership in MediaQuest therefore circumventing the Consolidation requirement of GAAP and avoiding the distortion of TEL’s net income from the losing operations of MediaQuest. The Company had invested a total of P 14 billion to MediaQuest as of December 31, 2012.

Below is MediaQuest’s corporate structure based on the information found in TEL’s 2012 annual report:TEL8

Satventures, Inc. (Satventures) is a wholly-owned subsidiary of MediaQuest and an investment vehicle for Mediascape, Inc. (Mediascape). Mediascape operates the largest direct-to-home (DTH) Pay-TV business under the brand name Cignal TV with 440,000 subscribers. Hastings Holdings, Inc. (Hastings) is a wholly-owned subsidiary of MediaQuest which holds all the print-related investments including minority positions in the Philippine Star, the Philippine Daily Inquirer, and Business World.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

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