The Philippines’ largest operator PLDT (owner of Smart) faced a tough second quarter, as it embarked on a three-year digital transformation journey, with its profit dropping on one-off costs and mobile revenue and subscribers slipping again.

The operator’s net profit for the quarter fell 33 per cent to PHP6.25 billion ($133 million) on revenue of PHP42.5 billion, which was flat year-on-year. The profit decline was due in large part to a jump in impairment costs, which were nearly PHP6.3 billion higher than in Q2 2015. EBITDA dropped 12.8 per cent to PHP14.2 billion, pushing its EBITDA margin down 5 points to 35 per cent.

Service revenue fell 1.5 per cent to PHP40 billion, with a 6 per cent drop in wireless revenue (PHP25.7 billion) more than cancelling out a 7.6 per cent rise in fixed revenue (PHP14.3 billion).

Data and broadband revenue continued to expand, rising 22 per cent to PHP15 billion. The increase was driven by a 54 per cent growth in mobile internet revenue (PHP4.3 billion) and a 16 per cent rise in broadband turnover (PHP4.6 billion).

SMS and domestic voice (both mobile and fixed) revenue were down 10 per cent to PHP20.9 billion, while international voice and domestic long distance fell 18 per cent to PHP4.1 billion.

“We continue to make progress in our digital pivot but at different paces for the group’s various new businesses,” said PLDT chairman and CEO Manuel Pangilinan. “Our fixed-line and enterprise businesses have gathered momentum in building their data and digital revenues. Our wireless business is also gaining ground – data is now 27 per cent of the total, up from 20 per cent. But it has much further to go, in an environment where competition remains very keen.”

The operator, which has seen its market share drop 10 points to 52 per cent over the past two years, lost 4.4 million mobile subscribers year-on-year, giving it 68.5 million users in Q2.

Blended postpaid/prepaid ARPU slipped 5 per cent from a year ago to PHP112 ($2.38).

On the positive side, its fixed broadband user base rose 14 per cent year-on-year to 1.35 million.

One-off costs
Operating expenses rose 18 per cent in Q2 to PHP39.8 billion, with an asset impairment of PHP5.4 billion related to its investment in Rocket Internet offsetting lower compensation/employee benefits (dropping 24 per cent) and interconnection (down 8 per cent) costs.

H1 capex increased 44 per cent to PHY20 billlion. PLDT raised its full-year capex guidance by PHP5 billion to PHP48 billion to fund the deployment of networks using the frequencies covered by the co-use arrangement related to the joint acquistion of San Migual Corp (SMC).

Based on the agreement with the regulator, the operator has started to expand its network coverage and capability using the new spectrum; it plans to deply 360 cell sites using the 700MHz band this fiscal year and has boosted capacity by connecting 2,221 sites to SMC’s 1.8GHz spectrum.

Smart, its mobile unit, committed last week to expanding 4G coverage to 95 per cent of the country’s cities and municipalities by the end of 2018 as part of conditions imposed by the regulator in approving a frequency co-use arrangement.

For the full year, the company expects low single-digit growth in service revenues and core income to hit PHP30 billion. It lowered its EBITDA target by PHP6 billion from its original guidance due to expected cost increases to expand its data/broadband business and to stabilise market share losses.