Slash in APC hurts earnings


The cut in Access Promotion Contribution (APC) by the regulator from 5.5 cents per minute to 2.75 cents per minute has lowered international incoming tariffs and hit one of the most profitable business segments of the PTCL. Although the company is gaining market share in international traffic and improving volumes which should partially offset losses, international revenue is expected to drop by 20 percent per annum in FY10-13E. However, PTCL’s greater focus on the corporate sector and the fact that it operates the largest fiber optic network in Pakistan should improve wholesale segment revenue and go some way to support the revenue generation capacity of the organisation.
It is noteworthy that the company posted 9MFY11 earnings of Rs 1.55 per share, down 13.8 percent annually and ongoing traffic substitution to mobile as well as lower APC (in 3Q) were the main reasons for restricted topline growth limited to five percent annually. Meanwhile, PTCL had to raise the salary of its permanent employees by 50 percent, inline with the government’s announcement, that in tandem with aggressive Ufone marketing spending contracted earnings by four percent to 36.5 percent. PTCL is diverting its cash holdings to Ufone (Rs 4.0 billion in debt).