Thursday, March 31, 2011

PLDT DIGITEL Merger in Philippines

Source: PLDT

I was quite busy over the past few days at work & home so I din't talk about this news. But no surprise to me. After the AT&T deal, I am looking forward to more consolidation and Philippines started the ball rolling on.

This is certainly a very good deal for PLDT & Digi. Digi is the new entrant in the market and the third largest player or the smallest among big three (Smart, Globe, Sun). Now the market becomes pre-2005 situation where the Smart & Globe were head-on with each other. If I're to do a simple SWOT from Globe perspective,


* Globe is aggressively expanding the network and with the new network it can better handle the competition
* Good support from investors and possible learn from Optus (part of SingTel group in similar situation in Australia) to break the dominance of PLDT
* Potential NG-NBN which may create more opportunities


* Old networks, and the expansion taking few more years, Coverage still a problem in remote areas & country side.
* New technologies require huge capex and difficult to head-on with rival with deeper pockets
* PLDT has end to end value chain (Broadband, Wireless, Fixed, Satellite & Media firms) and owns lots of content. Globe WiMAX - LTE strategy is still not clear and lacks content.


* Duopoly is better and those customers who doesn't like Smart may look at Globe
* Without SUN, the price erosion may be stopped. The bucket strategy may be gone :) and margins may see improvement


* Globe will face the PLDT in it's strongest form.  & with the scale of PLDT can manage their costs and in turn still can offer cheap prices which Globe cannot offer. Market share erosion/stagnation
* New entrant in to the market/regulatory intervention(?)

Overall for Globe, the situation is not as bleak as it looks. If Globe can change the processes and optimize its structure they have a very good opportunity to improve their situation.

I always believe that the TELCO core competency is transporting packets from one end to another end and if they can deliver efficiently and effectively they don't have to worry about OTP or whatever new entrants. Given the fact that todays business driver is 'Data', it makes perfect sense for Globe to look internally to optimize their cost structure. One easy way is to look at Bharti and their managed services model. Bottom line is either need to increase the revenue or decrease the cost. Given the situation I doubt Globe can increase the revenue (they can stabilize) but they can reduce the cost. Being part of the Singtel group, I believe they can get the details of Bharti deal with relative ease/Or they can simply start working with vendors (e.g. Ericsson, NSN, ALU, Huawei) to optimize their cost structure

In year 2009, Globe's EBIDTA margins're healthy 54% (Look here for a comparison) and if they can maintain that would keep them in the top league of performers.

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