Mobile Data Price War Crushes Philippine Telecoms' Profits (1)

(Bloomberg) -- Potpot Pinili, a Philippine travel blogger, is paying less to access the Internet on the go -- almost half as much as three years ago, thanks to a price war.

“Data has become definitely cheaper,” said Pinili, 41. “You can do more online quicker and at less cost.”

Pinili and other Philippine customers are benefiting as the nation’s two largest phone companies fight for smartphone subscribers in a market, that according to IDC, had 30 percent penetration as of 2015. PLDT Inc. and Globe Telecom Inc. are luring prospective consumers with data packages that are among Asia’s cheapest, saying they need to spend money now to counter a decline in revenue from calls and text messages.

The outlays are eating into profits and hurting share performance. PLDT, whose 2016 profit is forecast to be the lowest since 2003, was the worst performer on the Philippines Stock Exchange Index last year. Globe was the fourth-worst and recorded a drop in income for the first time in three years.

“The Philippines is a two-player market, yet they are killing each other,” said Karen Hizon, a Manila-based analyst at UBS Group AG. One megabyte of data brings in just 0.1 U.S. cent of revenue in the Philippines compared with 1.13 U.S. cents in China, according to UBS.

Last month, Globe matched a PLDT offer and started offering a three-day, 1-gigabyte plan that includes a bonus 300 megabytes to use on apps from Facebook Inc. and Spotify Ltd. for 50 pesos ($1).

“This is the cheapest price for mobile data so far,” said Yolanda Crisanto, a spokeswoman for Taguig City-based Globe. A year ago, 50 pesos only paid for 350 megabytes. Shares of Globe and PLDT fell about 0.1 percent as of 1:29 p.m. Hong Kong time.

Similar promotions helped Globe, a venture of Singapore Telecommunications Ltd., boost mobile subscribers 12 percent to 62.8 million in 2016. PLDT, backed by Japan’s Nippon Telegraph and Telephone Corp., probably fell behind Globe in mobile-customer count, PLDT Chairman Manuel Pangilinan told the Philippine Daily Inquirer newspaper in January. PLDT, which had 61.8 million mobile phone users as of Sept. 30, is scheduled to report full-year results on Feb. 28.

Globe’s revenue rose 6 percent in 2016 to a record 120 billion pesos, with mobile-data bringing in 34.6 billion pesos. Profit fell 4 percent to 15.9 billion pesos because of spending on subsidies and network enhancements. The company expects a “highly competitive” market this year.

Makati City-based PLDT is forecast to post a 6 percent drop in net income, to 20.7 billion pesos, for 2016 while its revenue is projected to fall 1 percent to 168.7 billion pesos, according to analysts estimates compiled by Bloomberg. Pangilinan said today that there is no need to list PLDT’s mobile unit, Smart Communications Inc., since its parent is a publicly-traded company.

PLDT highlighted its changing business when it renamed itself from Philippine Long Distance Telephone Co. last year. The new moniker reflects the “current thrust to decisively shift its business to data-driven services.”

The change isn’t good for near-term earnings until PLDT and Globe do away with steep price cuts, said Julian Tarrobago, who helps manage about $1.8 billion at Maybank ATR Kim Eng Capital Partners Inc. The situation is likely to improve in the next three to five years and both stocks could offer gains of more than 20 percent, he said.

‘Rational Pricing’

“At some point rational pricing will kick in and both companies will focus on profitability rather than market share,” said Tarrobago, who bought the shares as they tumbled in 2016. “I also think of what demand will be like for mobile data services in the next 10 years.”

Globe shares have rebounded in 2017 and are trading at levels last seen in October. The 19 percent gain has made it the best stock on the local benchmark. PLDT shares, which fell 34 percent last year, have climbed 6.7 percent this year.

Still, the transition for both companies is far from over, said Riche Levin Lim, an analyst at BPI Securities Corp.

“It’s important to see what the competitive environment will become in the coming quarters,” Lim said.

(Adds Pangilinan’s comment on Smart Communications listing in tenth paragraph.)

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Vivek Shankar

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