War of Telcos: GLO vs TEL-DGTL

The PLDT (TEL)-Digitel (DGTL) merger created buzz in the stock market and in the consumer world drawing in mixed emotions and reactions. Many felt threatened now that PLDT owns more than half of the unlimited call and text pioneer in the Philippines. But is it really so? Here's my insights about the merger.

The recent TEL-DGTL merger was likened to the BDO-Equitable PCI Bank merger in 2006. When BDO bought PCI Equitable Bank in 2006, they released a statement that Equitable PCI Bank would remain and operate as a separate entity but later on became Banco de Oro Unibank and Equitable PCI Banks were slowly turned into BDO branches.

Manny Pangilinan said that Sun Cellular would retain its existing features yet many people are pessimistic and think that the unlimited call and text will be gone soon.

I don't think that the unlimited call and text features of Sun Cellular will be phased out in the merger because such feature is the lifeline of Sun Cellular and the same feature will further boost PLDT's subscriber population. Though in a sense that a huge part of the competition has been killed, Globe still owns a significant part of the market which I believe is strong enough to compete with TEL and DGTL. PLDT has to keep its competitiveness up against Globe and the unlimited call and text feature is an edge.

What's in it for Globe? Globe (GLO) gained market sentiment after the merger. Two days after the merger, TEL's stocks decreased (probably because of profit taking) while DGTL's continued to sink while GLO's still went up.

What prompted the market sentiment for GLO? In my opinion, GLO is the only company that could neutralize the monopoly of PLDT as of the moment. Globe has approximately 25 million subscribers, quite significant in comparison to PLDT's 41 million and Digitel's 16 million. Though the merger made PLDT own the lion's share of the pie at 57 million, the market sentiment is leaning towards Globe for now and if they can capitalize on the panic that the merger has created, they could give PLDT a run for their money.

Fundamentally, I am staying away from telco stocks right now. First, I find TEL and GLO expensive. Expensive in a sense that for an amount of 2400 or 900 I can buy more shares from different stocks at a cheaper price and for an equal potential. As soon as the telco fever is over, I'm confident that other stocks will follow. Second, other than the merger, telco companies doesn't have much fundamentals. There hasn't been any technological advancements which makes me think that the telco sector is stagnating as of the moment.

PSEi Finally Breaks 4000: The Good, The Bad, and The Ugly

The long wait is finally over. The Philippine Stock Exchange Index (PHISIX) finally broke the 4000 mark after the bearish run to start the year and a very long consolidation state. Experts, experienced traders and investors, and analysts predicted that PHISIX will resume an uptrend this March but unfortunately, events in Egypt, Libya, and Japan made it hard for PHISIX to move forward. So the forecasts still made it in time, it's March 30 and PHISIX gained 116.51 points to finish at 4023.74.

PLDT's (TEL) acquisition of 51.55% of Digitel (DGTL) shares prompted the push beyond 4000. After the news of the acquisition was confirmed, TEL rose by 320 points to finish at 2356 while (surprisingly), rival Globe Telecom (GLO) gained 96 points to finish at 842. The telco fever has sent the PHISIX skyrocketing.

The Good

PHISIX might have finally built enough momentum for another bull run. Some experts say that PHISIX could break its previous high at around 4400 and even go as high as 4600 or 4700 before 2011 ends. It's something good to look forward to, at least we're being optimistic about the market.

Because of the momentum, other stocks will most likely go up after the telco fever subsides. TEL might go even higher while GLO might go lower. I'm staying away from these two stocks because I find these two a bit expensive. I can buy more stocks for 2400 and 845 with equal potential as TEL and GLO. More shares for equal potential, the better. Look out for SMC, EDC, AC, AP, JFC, SCC, and probably even JGS (just to name a few).

And lastly, now that the PHISIX is starting to go up, expect other investments to go up as well. To those who are investing in mutual funds, this is the entry that you've been looking for: cheap NAVPS and more shares bought. Other than mutual funds, this is also a great opportunity to start investing or adding more in UITFs, bonds, and other equities.

The Bad

The chart below shows that PHISIX is forming a symmetrical triangle.

Though symmetrical triangles are neutral in nature, it also signifies that the market is undecided where to go next. The price action might go either way (up or down) and it is best to wait for confirmation before coming up with a decision.

The Ugly

This one has nothing to do with the price action but more on the consumer side. Now that PLDT owns a majority stake of the unlimited call and text pioneer in the Philippines, we might expect higher rates sooner or later. Though PLDT said that don't intend to cut Sun Cellular's services, I remain skeptical in the long run. The merger has not only killed the competition but made PLDT the majority share holder of DGTL further expanding its telecom empire. On a business sense, it was a win-win situation for both Pangilinan and Gokongwei as Pangilinan now owns more than half of Digitel while Gokongwei gets a part of PLDT. With lesser competition (and Globe not a fan of unlimited calls and texts), expect subscribers to carry heavier rates soon.

Summing it up, I'm very much optimistic about PHISIX. Rather than following the price action of TEL and GLO, it is much better to accumulate shares on stocks that are taking short term dips. These stocks will fuel PHISIX's continual growth and they are way cheaper than TEL and GLO.