Open Access Law Will Squeeze Fiber Margins And Pricing Power

Key Takeaways

• Regulatory changes and open access laws will undermine PLDT's pricing power, compressing margins and exposing the company to greater competition and revenue erosion.
  
• Heavy capital investments amid rising disruptive competition and government intervention threaten free cash flow, profitability, and the sustainability of PLDT's core business model.
  
• Strong demand in core businesses, digital innovation, fintech growth, operational efficiency, and strategic investments are driving diversified revenue streams and supporting sustained profitability.

Catalysts

Provides telecommunications and digital services in the Philippines.

• The imminent passage of open access legislation threatens to commoditize PLDT's fiber and network infrastructure, as the law could force incumbents to grant mandatory, non-negotiable access to new data transmission and satellite providers. This would greatly erode PLDT's ability to defend its market share and premium pricing, driving down core connectivity revenues and triggering rapid ARPU and margin compression.
  
• The expanding adoption of alternative connectivity models such as satellite internet, low-Earth orbit constellations, and fixed wireless threatens to bypass PLDT's fixed and wireless networks, particularly as the open access law would allow freeloader competition by global and local rivals without the need for heavy capital expenditures. This poses a structural risk of subscriber base erosion and stagnation of revenue streams even as PLDT continues high capital outlays.
  
• PLDT's large and sustained capital expenditure on network upgrades, fiber, 5G rollouts, and data center expansion is putting significant pressure on free cash flow growth and net margins. With core income already declining due to higher depreciation and finance costs from this investment cycle, further network coopetition will make it nearly impossible for new investment to keep pace with returns, leaving the company exposed to negative earnings surprises.
  
• Ongoing regulatory risk and government intervention, including price controls, spectrum confiscation, and discriminatory access policies, undermine PLDT's ability to maintain competitive advantages and could result in legal battles, increased compliance costs, impairment of assets, and further dilution of net margins and shareholder value.
  
• Intensifying competition from new telecom entrants, digitally native fintechs (such as GCash), and global technology platforms will accelerate the commoditization of PLDT's core offerings, contributing to ARPU erosion, service churn, shrinking market share, and a long-term step down in both sector and company revenue growth rates.

PLDT Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on PLDT compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming PLDT's revenue will grow by 1.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 14.6% today to 17.1% in 3 years time.
• The bearish analysts expect earnings to reach ₱38.8 billion (and earnings per share of ₱175.65) by about August 2028, up from ₱32.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.4x on those 2028 earnings, up from 7.8x today. This future PE is greater than the current PE for the US Wireless Telecom industry at 9.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.18%, as per the Simply Wall St company report.

PLDT Future Earnings Per Share Growth

Risks

• Sustained strong demand for fiber broadband and mobile data, coupled with steady ARPU performance and declining churn, suggests continued healthy revenue growth in PLDT's core businesses, challenging the notion of long-term top-line declines.
  
• Accelerated expansion of PLDT's AI-ready data center infrastructure, such as VITRO Santa Rosa, positions the company as a digital and AI services hub for both enterprises and hyperscalers in the region, opening new high-margin revenue streams and supporting improvements in net margins over time.
  
• Robust growth and profitability breakthroughs in Maya, PLDT's fintech arm, indicate the company is capitalizing on the secular shift toward digital payments and banking, contributing materially to consolidated earnings and diversifying revenue sources.
  
• Ongoing cost optimization, operating efficiency gains, and disciplined CapEx management have maintained EBITDA margins at 52 percent and reduced cash OpEx, providing a strong platform for earnings stability and potential margin expansion even in a competitive market.
  
• A commitment to continual network upgrades (5G, fiber, data centers) and innovative product launches (home IoT, content, digital-first mobile services) enables PLDT to capture market share from digitally savvy and younger consumers, supporting subscriber momentum and ARPU growth, which bodes well for sustained earnings and long-term valuation.

Valuation

• The assumed bearish price target for PLDT is ₱1200.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of PLDT's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱2070.0, and the most bearish reporting a price target of just ₱1200.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₱226.9 billion, earnings will come to ₱38.8 billion, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 12.2%.
  
• Given the current share price of ₱1159.0, the bearish analyst price target of ₱1200.0 is 3.4% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.