And so it begins, the forecast rationalization of the mobile industry. Maybe not as grand as the T-Mobile/AT&T proposed merger, the takeover of fixed-mobile operator in the Philippines, Digitel, by The Philippine Long Distance Telephone Company (PLDT), is a sign of things to come.
The acquisition, one of the largest ever in that country, will gain PLDT considerable market share in the Philippines. That probably misses the point that most ‘in the know’ read as the big guy getting rid of the pesky upstart that was constantly biting the heels of its much bigger competitors, PLDT and Globe Telecom, by offering big discounts via ‘creative’ plans.
The deal brings 15 million extra mobile subscribers to PLDT group that currently operates three distinct market category brands – Smart, Talk N’Text and Red Mobile, much like CSL in Hong Kong. That will raise the mobile customer base to 60 million, well ahead of number two, Globe Telecom, with 25 million.
PLDT will buy a 51.5 percent stake in Digitel Telecommunications for P69.2 billion (US1.6 billion), the payment of which will be done under a mandatory offering of PLDT shares at P2,500 a piece under the name of the parent company, JG Summit Holdings Inc. PLDT said it will later announce its decision to conduct a tender offer to minority shareholders — holding 48.45 percent of Digitel stock currently valued at P1.60 per share — in exchange for PLDT shares or cash.
“Our intention is to maintain Sun’s current offers and further improve them. One clear opportunity is mobile broadband,” PLDT President and CEO Napoleon L. Nazareno said in a statement. However, in this era of rationalization and convergence, one wonders for how long the economics will stand up. It is also the standard line in most takeovers to placate staff nervousness and maintain morale during the ‘absorption’ process as well as appease any anti-competitive concerns the regulators may have.
The JG in JG Summit Holdings is short for John Gokongwei one of the Phillipines greatest corporate success stories and patriarch of a family empire that has investments in financial services, petrochemicals, power generation, aviation, live stock farming as well as telecommunications. According to Wikipedia, as of 2010, Gokongwei was the third richest entrepreneur in the Philippines.
Writing of his journey from ‘rags to riches,’ Gokongwei said, “in 2003, we established Digitel Mobile Philippines, Inc. and developed a brand for the mobile phone business called Sun Cellular. Prior to the launch of the brand, we were actually involved in a transaction to purchase PLDT shares of the majority shareholder. Being a Johnny-come- lately allowed us to create and launch more innovative products, more quickly. All these provided us with the opportunity to give the consumers a choice that would rock their world.”
The concept was simple. Sun would offer Filipinos the ability to call and text as much as they want for a fixed monthly fee. For P250 a month, they could get in touch with anyone within the Sun network at any time. This means great savings of as much as 2/3 of their regular phone bill. The result was that it rocked a few worlds.
Eight years later JG Summit has almost achieved what it set out to do in 2003, and became a major PLDT shareholder. If the deal does go through[1] it will then hold around 12 percent of the shares of the whole PLDT Group and James L. Go, chairman and CEO of JG Summit Holdings, will occupy a board seat in PLDT.
[1]The Senate committee on public services on Thursday asked the National Telecommunications Commission (NTC) to study the possible effects of the acquisition.