• viewpoint

Reviving growth, embracing change

by Manuel V. Pangilinan | Jul 19, 2017
Remarks at the 2017 PLDT Annual Stockholders Meeting at the Makati Shangri-la Hotel Ballroom on June 13, 2017

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Good afternoon, and a warm welcome to our shareholders and guests.   On behalf of your board of directors, your board of advisers and your senior management, thank you for joining us today.

This afternoon, we will first review highlights of our financial and operating results for 2016, and those of the first quarter of 2017.  Thereafter, we will take a look at what your company is doing to move forward — covering key business and organizational issues, and the buildout of our data network.

FY 2016 and 1Q 2017 results 
The year just passed, 2016, was not, to use the words of the British monarch, “a year in which we should look back with undiluted pleasure.”

Hard decisions and unpleasant decisions had to be made in the course of 2016.  Digital transformation is not for the faint-hearted, the impatient, or those with low tolerance to pain.  Thankfully, the organization responded well to the distressing truths, and to what’s needed to execute our digital transformation, and bring your company to the digital age.

Consolidated service revenues, EBITDA, EBITDA margin, and recurring core income for 2016 declined.

Our most challenged business unit was wireless, which saw revenues fall 9%, due mainly to a decrease in subscriber numbers, combined with a modest decline in our average revenue per user.  Wireless also saw a significant cost increases in subsidies and provisions in response to intensifying competition.

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On the bright side, revenues of our Home and Enterprise businesses rose by 10% and 9%, respectively.  Our fixed line businesses have actually seen a wonderful renaissance compared to what it was 18 years ago, when it was distressed as with most other telcos elsewhere in the world. But in the past five or so years, fixed line has supplied consistent, solid sources of growth, and the reason is quite simple — both Home and Enterprise have transitioned early enough to data and to digital.  In 2016, broadband and digital accounted for over 60% of both Home and Enterprise revenues.  

2016 also saw heavy CAPEX for our fixed and mobile networks, which put pressure on our bottom line as well.  Taking all of this, we have had to reset our target in recurring core income for 2017 at P21.5 billion — the number could be higher, depending on asset sales which will happen most likely in the course of the year. This compares to the equivalent 2016 number of P20.2 billion.  It is from this new base of P21.5 billion that we aim to raise profitability in the coming years. 

Prospects for 2017
We should all be glad 2016 is past. 

Moving forward, it is clear that our fixed line businesses will provide the main runway on which your company can take off for growth:

First, the fixed line part of the telco industry here will grow by around 8% per annum in the next three years, whilst wireless will be limited to only about 2%.  At PLDT Home, only four million out of the addressable market of 10 million Filipino households’ demand for broadband are currently served.  For PLDT Enterprise, the growing appetite of companies, institutions, and government for connectivity and digital products — especially data center and cloud services — offers significant areas for growth.

Second, PLDT is best positioned to benefit from these opportunities because PLDT has the most extensive fixed wire network, the best product offering, the largest subscriber base, and the strongest brand equity in fixed line.   

Third, on wireless, we must simply put a brake on the loss of subscribers and revenues, and cut cash OPEX drastically to improve the EBITDA for the wireless business.

Q1 2017 results: Some ‘green shoots’ 
Looking now at the first quarter numbers this year, the results are somewhat mixed but encouraging. On the one hand, our wireless revenues were 18% less, leading to a decline in service revenues by 7% and recurring core income by 26%.  Again, on the bright side, our Home and Enterprise revenues posted robust growth — up 12% and 13%, respectively in Q1 2017.  Excluding international revenues, fixed line revenues already comprise majority of our services revenues at 52%, surpassing wireless for the first time at 48%.  

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To be fair to wireless, if we look at the Q1 2017 versus the 4Q2016 numbers, service revenues were just 1% lower in the first quarter versus the fourth quarter.  Also, for the first time in several quarters, we added about 370,000 subscribers on a net basis.

First quarter EBITDA grew by 7% year-on-year, the third consecutive quarter that our EBITDA has increased.  This puts us on track to meet our full year core income guidance of P21.5 billion.  

While we can probably take heart from these results, no one is popping open champagne bottles. One quarter does not a year make, and your management know very well that the road to recovery is long, and the climb will be steep.

2017 and onward
So much for numbers. You may now ask — what is this digital journey all about, and how do we get to our destination?

Quite simply, this journey requires two interrelated parts — connectivity and products, both of them must be digital.

Connectivity means buildout of data networks with the quality and coverage to deliver the best digital experience to our customers.

Products mean compelling content — entertainment, sports, e-sports, lifestyle, news, documentaries, and so forth — in both video and audio formats that enhance customer experience.

Triple network roll-outs
As to connectivity, our networks buildout will comprise of the following:

First, roll out of fiber-to-the-home (FTTH) to service the home market.   We’ve expanded the footprint of our fiber service to 3.3 million homes passed as of end-April this year, and by end 2017, 4.4 million homes will be passed by FTTH — significantly ahead of competition.  We’re also setting up fiber-powered PLDT SmartCities in urban centers, with the help of local governments.  We’ve started in four cities, and now, we’re in south Metro Manila, with more SmartCities in the pipeline.

We’ve also deployed hybrid fiber technology called G.fast to deliver fiber-like speeds over our legacy copper wires.  This will enhance the ability of our extensive copper network with fiber-like speed.

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Second, Smart is also accelerating the buildout of its 3G and LTE mobile data networks to raise coverage and capacity. Metro Davao and Metro Cebu are done, and we’re working to complete greater Manila soon and expect to cover 12 more major urban areas in the course of the year.  This will extend LTE coverage to 70% of the country’s population by the end of 2017.  Third party reports are saying that Smart is now delivering the fastest mobile data services on LTE and 3G in the country.

Third, we’re deploying Smart Wi-Fi hotspots in a growing number of high-traffic public places.  PLDT Enterprise started this initiative last year by installing carrier-grade Smart Wi-Fi hotspots in airports, light rails, sea ports, schools, government, and other public spaces.  Smart followed through by building up SmartSpots in popular destinations like restaurants, bars, and boutique malls, where young people hang out.  

Yesterday, we announced the deployment of Wi-Fi along EDSA, with more to follow in Metro Manila.

As to data products, our cloud-based, data center services, digital platforms and solutions are giving our enterprise business its undisputed competitive edge.  By the end of 2017, ePLDT will launch its 10th data center, raising total capacity to over 9,000 racks — three times that of our nearest competitor.  

Going beyond access
While connectivity is a necessary condition to this journey, it is not sufficient by itself.  PLDT’s life as a dumb pipe will be a dead end. That makes digital products imperative to our business — to build a layer of relevant and compelling content on top of our data networks.  

Video content from iflix, Netflix, iWant TV, Fox+, and ESPN are being offered across our fixed and mobile services.   Last week, PLDT Home launched the Roku-powered TVolution service for its Fibr customers. This latest TVolution service is an all-in-one, plug-and-play entertainment box loaded not only with video-on-demand content from iflix and Netflix, but also CignalTV, and free content from YouTube and from over 100 other streaming channels. Roku provides easier access to the best in video entertainment available.

Conclusion
In closing, may I say that the digital age clearly is already upon us, and that the legacy business model of voice and texting is fast receding.

But that journey is shaped by priorities.  Early this year, we’ve set six key ones:  First, to raise the growth momentum of Home and Enterprise businesses; second, stabilize our mobile phone business and gradually return it to growth; third, improve the quality and coverage of our networks; fourth, reduce our cash OPEX; fifth, apply advanced data analytics to drive revenue growth and improve customer experience; and sixth, to reorganize to enhance employee engagement and experience.

The proper execution of this digital journey require people. We all know that.

At the start of 2017, we put a new leadership team in place, which has brought new ideas, new ways of working, fresh perspectives, and a variety of skill sets and experiences in this digital world. We’ll continue to develop our people, to ensure that we’re constantly poised to deliver on innovative growth.

Finally, may I say this: All this isn’t easy for PLDT — as large and as old and as profitable as it is — to accept that change is needed. But we remain idealists about our future — as we were in our past — with no illusions that failure to transform will mean our own extinction.  Disruption therefore is the key to our survival, and revival, in this new day and age.  

Thank you for your attention and good day! CC:

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