Philippine Long Distance Telephone Company (PHI)

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Philippine Long Distance Telephone Company (PHI or PLDT) is the leading provider of both fixed line and wireless telecommunication services in the Philippines. Its fixed-line business offers local exchange, international long distance, national long distance, data communications, and miscellaneous services. The company provides wireless service primarily through Smart Communications, a nationwide Global System for Mobile Communications (GSM) operator. In addition, Smart has a 92% ownership stake in Piltel, which offers prepaid wireless services over Smart's network. Through ePLDT, a much smaller but fast-growing subsidiary, the firm operates an Internet data center, five call centers, and an Internet Service Provider (ISP). For reporting purposes, the company breaks its business into three business segments: Fixed Line (30%), Wireless (63%), and Information and Communications Technology (7%).

Historically, the company's fixed-line telephony business has been its primary revenue source, but this area is now mature. Although competition has increased, PHI remains the dominant provider of local and long distance phone service in the country. A recent hike in international long-distance rates has helped, but local and long distance call volumes have been dropping, mainly due to wireless substitution. Revenue from providing local phones service has been falling, but not precipitously as the National Telecommunications Commission of the Philippines (NTC) has permitted periodic rate increases via a currency adjustment mechanism.

The largest source of revenue and cash flow for PHI is wireless. The company acquired Smart Communications in March of 2000. Smart is the leading cellular service provider in the Philippines. Combined, Smart and Piltel had approximately 30.0 million subscribers as of the end of December of 2007. The wireless group added 5.8 million new customers in the year 2007, representing a market share of roughly 55%. The vast majority (nearly 99%) of customers get their service on a pre-paid basis. Demand has not only been driven by the convenience of wireless voice service but also by the popularity of the firm's Short Messaging Service (SMS), a text messaging service that was introduced in 1999. Smart's GSM network comprises of 4,817 GSM cell sites and 7,401 base stations, more than 2,200 of these base stations are wireless broadband capable. The company also has about 501,000 broadband subscribers and 1.75 million fixed line service users.

Smart received the highest rating of a perfect "30" among all companies that applied for a 3G license with the National Telecommunications Commissions (NTC). The grading system was designed to gauge the capability of applicants to massively and effectively provide 3G services. In addition it was granted the largest radio frequency bandwidth of 15MHZ x 2 as compared to 10MHZ x 2 given to the other firms. It intends to utilize PHI shareholder, Japan's NTT DoCoMo's I-mode wireless platform to offer 3G services in the country.

The company declared a regular $1.39 cash dividend for common shareholders out of three quarter 2007 core net income. In addition, a special dividend of $.93 was also declared in view of the group's strong cash flow performance. The anticipated regular 70% payout for the rest of 2007 would result in a regular and special cash dividend of about $3.49 for the whole year, or a forward dividend yield of 4.7 %. A higher cash dividend payout would provide further support for the share price by attracting yield investors.

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