History
In 2006, Piltel reinforced its position as the country's third leading operator, a remarkable comeback for the country's pioneer in wireless telecommunications services.
Over the years, Piltel has reinvented itself through its GSM brand Talk 'N Text, launched in 2000. Its subscriber base has multiplied and as a result, the company has become the third largest cellular service operator with 7 million subscribers as of end-2006, equivalent to a 17 percent market share. Its fast paced growth enabled it to record net income in 2004, after seven years of being in the red. At the end of 2006, the company also became debt-free.
The biggest analog operator in the 1990s, Piltel found itself beset by technological and financial woes in the mid-1990s that almost led to its demise - from debts that ballooned to more than P=40 billion and declining revenues to outdated technology. The perseverance of its management, the support of its parent firm, the country's largest telecommunications operator Philippine Long Distance Telephone Co. ("PLDT"), and its creditor banks' cooperation paved the way for its recovery.
Piltel was the first Philippine company to have successfully negotiated a corporate debt-restructuring plan, done on a consensual basis, without involving the Philippine Securities and Exchange Commission and the courts.
Piltel's turnaround story is a landmark case in the country. From being the country's leading cellular operator during the analog days, it lost market share and revenues due to a combination of incidents that spiraled out of control - an unsuccessful mandated rollout in unserved areas, an ill-advised technological upgrade, cloning, huge debts and the Asian financial crisis.
Incorporated in July 18, 1968, Piltel initially owned and operated local telephone exchange networks or landlines in eight cities and municipalities outside Metro Manila - Baguio City, General Santos, Olongapo, Subic, Puerto Princesa, Digos, Boac and Masbate.
Piltel started offering cellular services in March 1991 under the Mobiline brand, using the analog AMPS technology. Five years later or by 1996, Piltel dominated the market with 42 percent market share.
In August 1993, Piltel went into the paging business and launched Beeper 150. This was obviously in the days before text messaging took hold of Filipinos and made paging obsolete.
Piltel's woes began soon after. Cellular fraud or cloning, which involved unauthorized use of cellular service through false subscriptions, became rampant in 1996. At that time, fraud-related losses skyrocketed to a range of Php40 million to Php70 million monthly, from Php8 million to Php10 million monthly, previously. Though losses eventually tapered off to Php12 million monthly by December 1996, the cloning problem and resulting loss of confidence by subscribers led to a reduced subscriber base, after delinquent subscribers were cleaned out of the system.
Also 1996, Piltel went on an expansion mode to comply with Executive Order 109, the government's mandate for cellular operators to roll out a minimum of 400,000 landlines in unserved and underserved areas. Piltel was assigned portions of southern and western Mindanao. Piltel tapped a Japanese firm for the financing and completion of the landline rollout. Piltel likewise started upgrading its analog cellular network to digital, using code division multiple access ("CDMA") technology, a US standard.
In July 1997, however, a financial crisis that started in Thailand rippled off to neighboring countries in Asia, catching many companies across industries off guard. Piltel was among those severely affected.
From a net income of Php710.5 million in 1996, Piltel reported a net loss of Php620.8 million in 1997. It would take almost seven years before Piltel was back in the black.
Competition exacerbated Piltel's problems. The company lost market share. A rival started offering cellular services using global system for mobile communications ("GSM") technology, which enables text messaging - a new and cheaper way of communicating - using the cellular phone. This would lead to an explosion of growth in the wireless telecommunications business, as the service became affordable to the lower income segment.
Piltel could not ride on the text messaging bandwagon as its digital CDMA technology was not capable of offering text messaging services.
By end-1998, Piltel had sunk deeper into the red with Php4.1 billion in losses, widening from Php620.7 million.
The company's expensive investment for its landline services in Mindanao was also not paying off. As of end-1999, there were only 28,000 subscribers.
In November 1998, Hong Kong-based conglomerate First Pacific Co. Ltd., through its Philippine and other affiliates, bought a significant interest in parent firm PLDT. The package included troubled Piltel. The acquisition likewise made erstwhile competitor Smart Communications, Inc. ("Smart") a sister company.
Grappling with narrowing market share, a digital technology that did not take off in the Philippines and widening losses, Piltel could not pay maturing obligations on time. Debts had ballooned to over Php40 billion.
At the start of 1999, Piltel's new management declared a debt moratorium. It suspended payments to creditor banks, bondholders and other trade creditors.
With the firm support of PLDT, Piltel started negotiating for a debt restructuring. At the same time, management starting mapping out a rehabilitation plan which primarily included two goals - to create new revenue streams and to drastically reduce costs.
A master restructuring agreement with creditor banks was signed in June 2000. Trade creditors signed a similar deal in December 2000. In the same month, the exchange offer to bondholders was made.
In less than two years or by June 2001, negotiations were completed, with 98 percent of the creditors agreeing to restructure Php39.5 billion in debts.
The rehabilitation plan consisted of two parts. Tranche A covered the conversion of 50 percent of the debts into equity in Piltel convertible shares, which could be swapped for PLDT convertible preferred shares. The creditors turned shareholders were given a put option, or the right of the shareholder to sell the PLDT convertible preferred stocks in 2008 and 2009 at Php1,700 per share.
Tranche B involved the extension of loan repayment tenors for the remaining 50 percent of the debt to 10 and 15 years. A mortgage trust indenture was also executed. More importantly, PLDT committed, through a Letter of Support, to infuse up to US$150 million in Piltel. PLDT's Letter of Support demonstrated its full backing to its subsidiary, gaining for Piltel the creditor banks' cooperation.
With the successful debt restructuring negotiation, Piltel's interest expenses were reduced by about Php400 million annually. The equity base likewise improved as a result of the debt-to-equity swap arrangement.
The restructuring was painful for everyone. Creditors effectively took a discount on the debts, while Piltel shareholders saw their equity holdings shrink. The company had to write off Php25 billion worth of assets over three years. At its worst, Piltel's capital position was negative to the tune of Php19 billion.
At the same time, the successful debt restructuring negotiation gave Piltel a reprieve and the opportunity to rebuild its business and generate much needed revenues.
Management had to make difficult, crucial choices - to continue offering analog and CDMA-based cellular services that could not offer text messaging, the main growth driver of the wireless telco business at the time, or to find a way to offer GSM and text messaging service.
In November 1999, Management gave its directive - Piltel should offer GSM services by March 2000, and discontinue investing in the analog and CDMA networks.
In five months, its marketing team - composed of five people - developed and launched a new GSM brand, Talk 'N Text. The brand was positioned as a flanking brand to Smart's prepaid brand, Smart Buddy, which was aimed at the broader market. Talk 'N Text was the first to actually target the lower end of the mobile phone market by offering lower priced handsets and more affordable tariffs. Talk 'N Text was likewise the first to tap popular TV and movie stars as brand endorsers.
Piltel effectively became a reseller of Smart's GSM network services or a mobile virtual network operator, since it piggybacked on Smart's network for its Talk 'N Text services. As Smart absorbed majority of Piltel's skilled personnel to accelerate its network expansion activities, Piltel was able to drastically lower its manpower costs. Management and operations of the company were likewise outsourced to Smart.
With Smart aggressively rolling out a nationwide GSM network and coming out with innovative services, Piltel's Talk 'N Text was able to offer cutting edge services and nationwide coverage at more affordable prices for its mass market. Piltel's subscriber base rapidly expanded.
By end-2001, the formidable tandem of Smart and Piltel overtook the erstwhile leading GSM operator in terms of subscriber base. The lead was further stretched in 2002 and 2003, and even more, in 2004.
With Piltel on better financial footing, Management embarked on the second phase of financial restructuring in 2004. Creditors were offered an exchange of the remaining Piltel debt for Smart debt instruments. Smart would effectively become Piltel's creditor.
At the end of the offer period, Smart received offers from Piltel's creditors representing approximately 70 percent of the outstanding restructured Piltel debt. In December 2004, Smart completed the conversion of Piltel's Series K preferred shares, which it had acquired from PLDT, to about 10 billion common shares. In April 2005, Smart and PLDT completed a share swap for the remaining 767 million Piltel common shares held by PLDT.
With the arrangement, Smart became Piltel's largest shareholder with 92.1 percent stake, and its biggest creditor as well.
At the end of 2006, the PLDT Group - through Smart and Piltel - continues to be the biggest cellular services operator in terms of market share and revenues. Smart and Piltel have a combined 24.2 million subscribers, accounting for 58 percent of the market. Piltel alone has 7 million subscribers, the country's third largest GSM operator. No mean feat, for a company on its fifth year of rehabilitation. With a thriving and revitalized business, Piltel was able to post a positive stockholder's equity to Php14.6 billion as of the end of December 2006.
Piltel's stock price has reflected the investors' positive sentiment on the company. At the last trading day of 2006, its share price closed at Php6.80 per share. While it is still a long way from its highs of about Php44 per share shortly after its listing in July 1995, the current price is already a steep climb from its historic lows of 17 centavos four years ago.
Indeed, the phoenix has risen from the ashes. Over its 38 years of existence, the company has transformed itself from a traditional landline operator to a dynamic and revitalized company with positive prospects for the future. It has gone through a long roller coaster ride, reflecting the local industry's tumultuous technological evolution and challenging financial conditions.