Do PLDT and Globe Allot Enough for Service Improvement?

PLDT has cut its spending dramatically to possible detriment of its subscribers’ experience


(Average Connection Speed, Akamai)

Stock: PLDT (PCOMP: TEL) and Globe Telecom (PCOMP: GLO)

Looking at the Akamai visualization below, the Philippines could be one of the slowest countries out there in terms of internet connection speed.

Certainly, the country far underperforms its neighbors, including Vietnam, Indonesia, and Malaysia. (LINK).

It is right to criticize both PLDT and Globe as both giants hold 84% of the Philippines’ mobile market. In addition, PLDT alone proudly held 70% market share in fixed broadband.

Financially, PLDT has allocated 184 billion Php in captal expenditures (capex)* in the past five years. Globe, meanwhile, spent nearly 140 billion Php.

*Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm (Investopedia).

These capex figures, nonetheless, are just broad figures.

Calculating these expenses as per the respective company’s total revenue and in percentages is more useful and could be compared to other big telecommunications companies overseas.

Going back, PLDT has allocated 22% of its revenue in capex on average in the past five years, while Globe’s capex represented 26%.

Comparing these figures collectively to Indonesia’s biggest telecommunications companies, Telkom, Indosat & XL Axiata, in the same time period, the Philippine phone companies spent 24% of its revenue in enhancing its telecommunications business while Indonesian companies spent 28% of theirs.

For comparison’s sake, 8,207 miles to the east—big United States telephone companies (AT&T, Verizon, and Sprint)—altogether has spent 16.2% of its revenue in capex allocations in the past half decade.

Recent six months of operations and capex allocations

Reviewing capex allocations in both Globe and PLDT’s in its recent six months operations should also be interesting since this period covers the period since President Duterte’s took his oath of office.

Globe’s capex increased 30%, while PLDT’s has actually fallen -43% year over year.

PLDT, according to its filings, actually verified this decline in expenses having stated:

…Our consolidated capital expenditures, including capitalized interest, in the first half of 2017 totaled Php5,727 million, a decrease of Php14,305 million, or 71%, as compared with Php20,032 million in the same period in 2016, primarily due to lower capital spending of Smart Group and PLDT

Globe’s capex, meanwhile, rose 30% having stated:

…Globe spent around P27.5 billion in capital expenditures as of end-June of 2017 to support the growing subscriber base and its demand for data

So if this comparison boils down to the subscriber base, PLDT has 58.7 million mobile subscribers and 1.83 million broadband subscribers as of June, while Globe has 59.7 million and 1.2 million, respectively.

There should actually be no reason for slower capital spending by PLDT with this amount of subscribers knowing that it has significant market share and services that should responsibly be provided to the Filipinos.

Sure, PLDT lost 9.6 million subscribers since the last year, but 58.7 million subscribers are still a bunch of people relying on its services. Besides, PLDT gained 220 thousand more broadband subscribers.

Why then is PLDT trimming its capex this much anyway?

Summing it all up, PLDT failed further to impress as it allocated less cash to improve its operations in recent months. On the other hand, both Philippine phone companies exhibited near at par cash allocations to its expenditures in the past half-decade but failed to provide similar positive gains (such as an increase in internet speed).

Being the chief executive of the Department of Information and Communications Technology, President Duterte (PTV Sa Totoo Lang Video: skip to 1 hour 24 mins onwards) has admitted he may bring new competition in the country to lower down rates paid by the Filipino to these incumbent, spoiled phone companies.

“I was hurrying up the competition.” Philippine President Rodrigo Roa Duterte

Disclosure: I have shares in Globe, AT&T, and Verizon.

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