Reason 1: Their uncontrolled avarice
THE two companies monopolizing our telecommunications industry were taking us for fools when they recently claimed, trying desperately to counter Chinese billionaire Jack Ma’s pointed criticism that their internet service was lousy, that it is government regulations and red-tape that have hindered their efforts to improve their services.
My accusation isn’t a moralistic nor subjective one. Data that I’ve compiled quantify and prove this obsession for earnings of the controlling owners of the two telcos, Philippine Long Distance Telephone Co. and Globe Telecoms, at the expense of improving their services at the least cost.
PLDT and Globe have been giving out the bulk of their profits to their shareholders, leaving little to be used for infrastructure to improve their services. This is in stark contrast to what other Philippine conglomerates do, such as Henry Sy’s SM, San Miguel, JohnGokongwei’s JG Summit, property and alcoholic-drinks tycoon Andrew Tan’s Megaworld, and even Ayala Land.
The accompanying table shows two types of data for the two telcos and for a sample of the country’s conglomerates.
Dividends and payout ratios
One set shows how much each of the companies declared for the 12 years from 2005 to 2006 as dividends – corporate lingo for the part of the company’s earnings given to its shareholders.
The second set show for the same period each company’s average dividend-payout ratio. This is how much, expressed in percentages, of a company’s income was distributed as dividends to its shareholders. If a company earned $100 million for 2016, and $60 million was distributed to its shareholders, its dividend payout-ratio is 60 percent.
While stock market players (since stock prices are mainly determined by how much a company distributes to its shareholders) are happier the higher the dividend-payout ratio is for a company, it also measures the greed of its shareholders. That is, they get the bulk of the company’s profits, rather than leaving more to be reinvested into the company – in the case of telecommunication companies, in order to improve their services at the least cost to consumers.
The company of course could, as PLDT and Globe massively do, get loans from the financial markets to fund its operations and capital expansion. But these aren’t free, obviously: the interest cost is ultimately borne by the consumer, which partly explains why we have among the most expensive telecoms and especially internet costs in the world.
Relying more and more on borrowings, PLDT’s debt-to-equity ratio has risen from a low of 0.7 in 2007 to 1.4 as of June 2017. That of Globe has gone up from 1 in 2009 to 1.9 last June. Because of its need to finance its operations while it gives out as much dividends to its owners, PLDT for instance borrowed P15 billion to be paid in seven years from the retail market in 2014, at an interest rate of 5 percent, the cost of which is tacked on to the cost of mobile-phone and internet service.
The data shown in the table is astonishing—and depressing for us consumers. While we have a telecoms industry that is below par with the world average, PLDT and Globe are the most profitable companies in the country, both in terms of the amount of money given to their shareholders and how big a part of the companies’ earnings these are.
Can you believe that PLDT’s dividends from 2005 to 2016 totaled a colossal $6.4 billion—P294 billion at the peso’s average international value for those years—more than four times bigger than the $1.5 billion and $1.2 billion given to shareholders, respectively, by Sy’s SM empire and San Miguel Corp., the country’s biggest industrial enterprise?
In fact, in my sample of 30 of the country’s largest firms, only PLDT and Globe—and another public utility, Meralco—have average dividend-payout ratios of over 50 percent, with all of the other firms’ ratios at 37 percent and below. That means unlike the dominantly foreign-owned PLDT and Globe, these Filipino firms reinvest 60 percent of their profits back to their firms. It is really quite amazing:
How can PLDT and Globe make so much money? First, the two make up a monopoly, with their prices basically the same, and with a market that is captive. Their competition has not involved prices which would have benefited consumers, but only marketing —how many stores they have, their various (confusing) promos, and advertising.
Second, they exploit a natural resource without the fees that is required in all countries for such exploitation of a limited, natural resource.
What limited, natural resource? The radio spectrum, which is the exclusive property of a sovereign country. Australia as an example last year auctioned for $400 million its 1800MHz spectrum to three telcos. Here, our valuable cellphone and internet spectra have been given out to dominantly foreign-owned PLDT and Globe.
Indonesian tycoon Salim
PLDT has been such a big money-maker for its biggest stockholder, the Hong Kong-based First Pacific Co. Ltd. of Indonesian tycoon Anthoni Salim, the heir of strongman Suharto’s biggest crony. Profits from PLDT from 2000 to 2016 totaling $2.4 billion, according to First Pacific’s reports, have eclipsed those from Indofood, the world’s biggest noodle maker that used to be the jewel in Salim’s collection of firms.
The Spanish-American Ayala elite is usually described as “property-based,” with its collection of malls and posh residential villages. Yet Globe Telecom, in which the Ayalas are the second biggest stockholder, had dividends from 2005 to 2016 of $2.4 billion, more than three times bigger than Ayala Land’s $705 million.
What a telecoms industry the past three administrations have created. We suffer from lousy and expensive mobile-phone and internet service, while the owners of the PLDT and Globe monopoly are raking in money by the tons. Our telecoms industry won’t ever be world-class if the owners of our telcos are such greedy capitalists.
Something is terribly, terribly wrong. Even the poor now are using cellphones so much it is eating up a big part of their very meager earnings. And they are paying at rates that are among the most expensive in the world.
There is worse news: the biggest owners of PLDT and Globe, profiting so much from our suffering, aren’t even Filipino. Maybe that explains why they’ve been milking the two companies as fast and on the biggest scale that they can. That—reason two—for next week.