MANILA, Philippines - There may be good news for cell phone users if Philippine Long Distance Telephone Co.'s bid for John Gokongwei's Sun Cellular is scuttled as early as today: lower cell phone charges.
Sun, which Gokongwei controls through Digital Telecommunications Philippines Inc., entered the market in 2003 and ramped up the price wars, forcing PLDT and Globe Telecom Inc. to match its packages, capping all their profits. In March, PLDT and the Gokongwei group announced PLDT would buy Digitel in a P69.2 billion deal. While PLDT said it wouldn't cancel Sun's packages, most observers predicted competition would cool off.
But today is their third deadline for closing the deal. They haven't been able to close because the National Telecommunications Commission hasn't approved the deal, in part due to objections from Globe Telecom Inc. Presidential spokesman Edwin Lacierda on Thursday said the government has not yet finalized its own position on it. PLDT Chairman Manuel Pangilinan reiterated on Thursday there would be no more extensions.
"Digitel may want to begin its onslaught on margins again but honestly there's a limit to how low one can go,'' said Rico Gomez, a fund manager at Rizal Commercial Banking Corp.
"Assuming the merger is off, then Digitel reverts to cut-throat competition,'' said a stock broker who declined to be identified, adding that Globe will probably not try again to buy Digitel -- information which emerged during hearings on the transaction -- but that a company like San Miguel Corp. might. The food and beverage giant is diversifying by buying oil refiner Petron, state power assets, and it also invested in infrastructure projects and and smaller telecommunications companies.
"I don’t think Globe will want to step in, having seen the premium PLDT offered,'' the broker said. "Maybe someone like San Miguel might be interested in Digitel as San Miguel still has telco ambitions.''
JG Summit executives declined to comment. PLDT officials didn't immediately reply to messages seeking their comment.
Winners and losers
A scuttling may favor Globe, the No. 2 player, more than PLDT, already the industry leader.
"I think, ultimately, it’s a major positive for Globe, because of the favorable implications on the long-term competitive landscape,'' said Jun Tarrobago, a fund manager at ATR-KimEng Asset Management Group. "It’s more status quo for PLDT.''
An analyst at a foreign-owned brokerage said none of the players will benefit if the deal, which was perceived to reduce the intensity of competition, isn't completed.
It will be "negative for all,'' according to the analyst. This includes JG Summit Holdings Inc., through which the Gokongwei group controls Digitel.
"Investors' perception is that this is a great deal for JG Summit and Digitel,'' the analyst said. "JG Summit 'unlocked' value for Digitel via the transaction, converting shares in Digitel, an illiquid stock to PLDT, which is liquid and has a high dividend yield, at above market price valuations. The transaction also meant JG Summit would no longer have to bear the capex burden associated with Digitel.''
"The removal of the No. 3 player (Digitel) was seen to be the catalyst for more rational pricing in the industry and an eventual return to growth. No transaction means none of the above happens. I'm not sure though how much of the above factors have been priced in by investors.''
The research head of a local brokerage said PLDT and Digitel shares may take a short-term hit.
"Short-term downsides might initially be felt by PLDT and Digitel as those expecting for the merged entity might express their disappointment,'' the research head said. "After this, both might retain their status quo since Sun, for one, is known as the low-cost provider for both prepaid and postpaid categories. Some funds might favor Globe.''
By Coco Alcuaz, ANC
Posted at 08/26/2011
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